chapter 4 Flashcards
Gross domestic product (GDP)
• Definition: Total value of all final goods and services produced within the boundaries of a country in a particular period (usually one year). • Elements: ➢Value ➢Final goods and services, value added ➢Geographic aspect ➢Current production ➢Gross
Example of bread production
• To avoid double counting, we simply have to take the value of the final
good sold to the consumer – the bread sold by the shop.
• Or to avoid double counting, we simply add the value added during
each stage of production.
• The value added is equal to the value of the final good.
Participant Value of sales Value added
Farmer R10 000 R10 000
Miller R12 500 R2 500
Baker R18 000 R5 500
Shopkeeper R21 000 R3 000
Total R61 500 R21 000
Three methods of calculating GDP
Production method (value added)
• Expenditure method (spending on final goods and services)
• Income method (incomes of the factors of production)
Expenditure method
Expenditure method • Final goods and services • R21 000 sold to consumers at the shops
Production method
Production method • Value added • R10 000 + R2 500 \+ R5 500 + R3 000 = R21 000
Incomes of factors of
production
Incomes of factors of production • Primary input payments • Wages and salaries, rent, interest and profit • R10 000 + R2 500 \+ R5 500 + R3 000 = R21 000
GDP valuation at factor cost (or income),
basic prices and market prices
➢Indirect taxes = taxes on products + other taxes on production
➢Subsidies = subsidies on products + other subsidies on production
How to calculate a growth rate?
𝐺𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 =
𝐺𝐷𝑃𝑡(2008) − 𝐺𝐷𝑃𝑡−1(2007) / 𝐺𝐷𝑃𝑡−1(2007) × 100
GNI: Gross national income
GDP is a geographical concept: reflects production on SA soil
• GNI is a residential concept: reflects production of SA citizens or
permanent residents
• GNI = GDP – all income earned in SA by foreign factors of production +
all income earned by SA factors of production in the rest of the world
Expenditure on GDP and GDE (gross
domestic expenditure)
- Expenditure on GDP = C + I + G + X – Z
- C = consumption expenditure
- I = investment expenditure
- G = government expenditure
- X = exports
- Z = imports
- Gross domestic expenditure = C + I + G
- Total value of all spending in South Africa
Employment and unemployment
• Second macroeconomic objective: full employment
• Employment: how many people have jobs at the time of
measurement
• Unemployment: how many are willing and able to work but who are
unable to find a job at the time of measurement
• Problems:
• What about seasonal or part-time workers?
• What if someone is not actively look for work?
• What about someone involved in illegal activities
• What about people in the informal sector?
Labour force
Labour force participation rate: Percentage of working age-population
that are economically active
• LFPR = Labour force/Working-age population
The consumer price index
Index of price of representative basket of consumer goods and
services
Price index number = (Cost of basket in current period/Cost of basket
in base period) x 100
The balance of payments
Record of transactions between a country and the rest of the world
• Two major accounts:
• Current account: exports and imports, primary income payments and receipts
• Financial account: financial flows like the sale of bonds and shares
The balance of payments
Record of transactions between a country and the rest of the world
• Two major accounts:
• Current account: exports and imports, primary income payments and receipts
• Financial account: financial flows like the sale of bonds and shares
- Deficit: outflows > inflows
- Surplus: inflows > outflows
- Both current and financial accounts can be in a surplus or in a deficit
