Chapter 18

Question 1

What is economic growth?

Answer 1

Economic growth is an increase in the real GDP occurring over some period of time and an increase in real GDP per capita which is the average share of each citizen in real GDP.

Question 2

How is economic growth calculated?

Answer 2

Economic growth is calculated as a percentage rate of growth per quarter or per year

Question 3

How can society increase its economic growth?

Answer 3

• Increase in factors of production. Increase in inputs, increase the GDP
• Increase in resource productivity. When education, health, training, and motivation of workers are improved
• Growth in SA. improved products and services added leisure and

Question 4

What are the 4 phases of a business cycle?

Answer 4

1. Peak
2. Recession
3. Trough
4. Growth/expansion

Question 4

What is a peak in the business cycle?

Answer 4

Peak - business activity is at its temporary maximum. The economy is near or at full employment and the level of real output is at or very close to the economy’s capacity. The price level is likely to rise during this phase

Question 5

What is a recession in the business cycle?

Answer 5

Recession - decrease in total output, income, and employment. There will be a contraction in business activity

Question 6

What is a trough in the business cycle?

Answer 6

Trough - opposite of the peak, bottom of the recession. Output and employment at the lowest level could be short-lived or quite long

Question 7

What is a growth/expansion in the business cycle?

Answer 7

Growth/expansion - GDP increases, income, and employment increase, this is where inflation will occur

Question 8

What business are affected most by the business cycle?

Answer 8

Firms and industries producing capital goods and consumer durables are affected most by the business cycle.

Question 9

When in the business cycle is unemployment experienced?

Answer 9

Unemployment is experienced during a recession. This is because labour is a derived demand, and spending affects labour.

Question 10

Who are the unemployed individuals?

Answer 10

Unemployed individuals are those who are 15 years and older, are not in paid employment or self-employment and are available for paid employment or during the seven days preceding the interview and took specific steps during the four week preceding the interview to find paid employment

Question 11

Whats the labour force?

Answer 11

The labour force is made up of people able to and willing to work, must be 15 years and older, actively looking for employment

Question 12

What is the employment rate?

Answer 12

The unemployment rate is the percentage of labour that is unemployed divided by the labour force

Question 13

How do you calculate the unemployment rate?

Answer 13

Unemployment rate = (Unemployed/ labour force) x 100

Question 14

What are the types of unemployment?

Answer 14

• Frictional unemployment
• Structural unemployment
• Cyclical unemployment

Question 15

What is frictional unemployment?

Answer 15

Frictional unemployment - voluntary unemployment, workers are between jobs. Who left their job as a choice. This consists of search and wait unemployment for workers who are either searching for jobs or waiting to take jobs in the near future

Question 16

What is structural unemployment?

Answer 16

Structural unemployment - unemployment caused by a mismatch of skills. As the labour force doesn’t respond immediately to a new structure of job opportunities, due to different demands for certain skills.

Question 17

What is cyclical unemployment?

Answer 17

Cyclical unemployment - this is due to peaks and recessions. Depends on where the business is in the business cycle. It results in insufficient demand for goods and services. Therefore, some workers are left with unmarketable talents.

Question 18

What is full employment or the natural rate of unemployment (NRU)?

Answer 18

Full employment is the natural rate of unemployment or the natural rate of unemployment (NRU), the economy is to be producing its potential when the number of job seekers equals the number of job vacancies

Question 19

What is the economic costs and unequal distributions burndens of unemployment?

Answer 19

• Occupation- workers in lower-skilled occupations have higher unemployment rates than workers in higher skilled occupations
• Age- teenagers have much higher unemployment rates than adults
• Race and ethnicity- the employment rate for black Africans is higher than that of Coloureds, Indians, and Whites
• Gender- women have a higher unemployment rate than men
• Province

Question 20

What is inflation?

Answer 20

Inflation is a rise in the general price level. There must be a sustained increase in the price of goods in general.

Question 21

Where is inflation found on the business cycle?

Answer 21

Inflation is found at the peak of the business cycle, due to demand-pull inflation

Question 22

What does inflation do to our purchasing power?

Answer 22

Inflation decreases the purchasing power of money, each rand of income will buy fewer goods and services than before.

Question 23

What is the main measure of inflation?

Answer 23

The main measure of inflation in South Africa is the Consumer Price Index (CPI).

Question 24

What are the types of inflation?

Answer 24

• Demand-pull inflation - The excess demand bids up the prices of the limited output, and the demand curve moves to the right. Changes in the price level are caused by the excess of total spending beyond the economy’s capacity to produce.
• Cost-push inflation - The supply curve moves to the left, in terms of factors that rise per-unit production costs at each level of spending. Inflation may also be on the supply or cost side of the economy.

Question 25

How long does demand pull inflation and cost pull inflation continue?

Answer 25

Demand-pull inflation will continue as long as there is excess spending. Cost-pull inflation is automatically self-limiting.

Question 26

What are the redistributive effects of inflation?

Answer 26

The redistributive effects of inflation are seen in the nominal income is the actual income received, while real income takes into account price levels and purchasing power

Question 27

Who is disadvantaged by the unanticipated inflation?

Answer 27

• Fixed income receivers - they see their incomes fall when inflation occurs.
• Minimum-wage workers and families living on fixed welfare incomes will be hurt by inflation
• Savers - Unanticipated inflation hurts savers. The real value of accumulated savings goes down.
• Creditors - Unanticipated inflation hurts creditors. Borrowers pay back less valuable rands than received.

Question 28

Which people are unaffected by the unanticipated inflation?

Answer 28

• Flexible income receivers - the nominal income moves in the same direction as inflation
• Debtors (borrowers) - Borrowers pay back with less rand,
• The government - the treasury pays off its loans with rand of less purchasing power than the rand originally borrowed.

Question 29

Whats the inflation premium?

Answer 29

The inflation premium is the difference between the nominal interest rate and real interest rate

Question 30

What is the non economic of cost of unemplyment?

Answer 30

Non-economic costs of unemployment include depression, heightens radical and ethical tensions

Question 31

What is the growth of real GDP calculation?

Answer 31

Growth of real GDP= ( (Real GDP (latest) - real GDP (previous)) / real GDP (Previous)) X 100

Question 32

What is real GDP per Capita calculation?

Answer 32

Real GDP per Capita = Real GDP/Population Size

Question 33

What is the calculation of Real GDP per CApita Growth rate?

Answer 33

Real GDP per Capita Growth rate = [(real GDP per Capita (latest) - real GDP per Capita (previous))/ real GDP per Capita (previous)] X 100

Question 34

What is the difference between real GDP growth rate and GDP per Capita Growth rate?

Answer 34

The difference between real GDP growth rate and GDP per Capita Growth rate is due to population growth

Question 35

What is a negative Real GDP growth rate per Capita?

Answer 35

A negative Real GDP growth rate per Capita is due to the population increases at a faster rate than the real GDP