Circular flow and quantitative elements

Question 1

What is the ultimate aim of any good economy

Answer 1

Satisfy its population’s wants and needs

Question 2

What are final goods and services

Answer 2

All manufactured goods and services that satisfy human wants and needs

Question 3

What are 2 characteristics of final goods and services

Answer 3

Have form utility
Are ready to be consumed

Question 4

What are the 4 categories that final goods and services can be divided into

Answer 4

Durable goods
Semi-durable goods
Non-durable goods
Services

Question 5

What are the 4 characteristics of Capital goods and services

Answer 5

All goods and services that are not directly consumed
Help to manufacture other goods and provide other services
Machines and tools the manufacturer uses in production
Goods and services that are half finished

Question 6

What is final consumption expenditure by Households (C)

Answer 6

Households constantly buy goods and services from businesses that produce them
Households spend money trying to satisfy their wants and needs

Question 7

What is the importance of final consumption expenditure by Households (4)

Answer 7

Households consume goods and services but also provide factors of production
Strong correlation between total income and total consumption by households
Makes up 64% of total spending in economy
Important driver of economic growth

Question 8

What is final consumption expenditure by Government (G) and what does it include (2)

Answer 8

How the government uses its income to finance goods and services needed by the public sector
Includes spending of all departments of governments
Includes consumption expenditure on services rendered to the communities

Question 9

What are the 3 divisions of government expenditure

Answer 9

Functional
Administrative
Financial

Question 10

What is the functional division and what are 4 of the services

Answer 10

Based on nature of services that are performed
Social services
Economic services
Government debt expenses
Protective services

Question 11

What is the administrative division

Answer 11

Deals with departmental expenditure

Question 12

What is the financial division

Answer 12

State’s expenditure according to budget

Question 13

What is the importance of final consumption expenditure by government (4)

Answer 13

Government provides a legal framework for the economy
Most spending is on enforcing laws that ensure private ownership of property
Enables market economy to function well, drives economic growth and creates jobs
Responsible for important injections into the circular flow of income

Question 14

What does gross capital formation consist of

Answer 14

Gross Fixed Capital formation
Change in inventories

Question 15

What is Gross Fixed Capital Formation

Answer 15

The production and purchasing of capital goods such as tools, buildings, etc.

Question 16

When does Gross Fixed Capital Formation take place

Answer 16

When there is an increase in the country’s capital stock
When money is contributed towards the economy’s ability to manufacture goods and services

Question 17

What are the 3 areas where investment mainly takes place

Answer 17

Private households
Business sector
State

Question 18

What is another word for gross capital formation

Answer 18

Investment

Question 19

What is the importance of gross capital formation (5)

Answer 19

Important for economic growth
Will expand production
Capital formation in the private sector will reduce unemployment
The more new industries we can sustain, more work opportunities, increased economic growth rate
Improved infrastructure = distribution of goods and services will be easier

Question 20

What are the 3 different ways the economic activity is measured

Answer 20

Production
Income
Expenditure

Question 21

What is the production method

Answer 21

Method where we determine GDP at basic prices by adding the final values of all goods and services produced
Usually referred to as Gross Value Added at basic prices

Question 22

What is the income method

Answer 22

Method where we determine GDP at factor prices by adding the income earned by the owners of the factors of production
Referred to as Gross value added at factor cost

Question 23

What is the expenditure method

Answer 23

Method where we determine the GDP at market prices by adding the spending of the four main sectors of the economy - Households, Businesses, Government, Foreign Sector
GDP = C + G + I + (X - M)

Question 24

What system does South Africa use for National account conversions

Answer 24

System of National Accounts

Question 25

What method is factor cost used with

Answer 25

Used with income method
GDP at factor cost - other taxes on production - other subsidies on production = GDP at basic prices

Question 26

What are basic prices and what method are they used with

Answer 26

Used with production method
Includes taxes on production and excludes subsidies on production
Taxes on production - payroll taxes, taxes on land and buildings and business licenses
Subsidies on production - Employment subsidies and subsidies paid to prevent pollution

Question 27

What are market prices used for

Answer 27

Used with expenditure method
Look at Booklet pg 10

Question 28

What is a net operating surplus

Answer 28

Surplus after taxes

Question 29

What is net income

Answer 29

Income after taxes

Question 30

What is net fixed capital formation

Answer 30

After consumption of fixed capital (Depreciation)

Question 31

What is net exports

Answer 31

Exports - imports

Question 32

What are Domestic Figures (GDP)

Answer 32

Relate to the income and production happening within the borders of the country

Question 33

What are National Figures (GNP)

Answer 33

Relate to the income or production by the citizens of the country

Question 34

What are nominal figures (4)

Answer 34

Market or money value
National product at current prices
Inflation not taken into consideration
Nominal value of production is calculated by multiplying the volume of the final goods and services by their prices

Question 35

What are real figures (4)

Answer 35

National product at constant prices
Rate of inflation has been taken into account
Real values of production are the nominal values of national product adjusted for price increase
National product expressed in prices which are applied in a certain base year
Look at pg 11

Question 36

Look at economic growth calculation pg 12