Circular flow and quantitative elements Flashcards
What is the ultimate aim of any good economy
Satisfy its population’s wants and needs
What are final goods and services
All manufactured goods and services that satisfy human wants and needs
What are 2 characteristics of final goods and services
Have form utility
Are ready to be consumed
What are the 4 categories that final goods and services can be divided into
Durable goods
Semi-durable goods
Non-durable goods
Services
What are the 4 characteristics of Capital goods and services
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
What is final consumption expenditure by Households (C)
Households constantly buy goods and services from businesses that produce them
Households spend money trying to satisfy their wants and needs
What is the importance of final consumption expenditure by Households (4)
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
What is final consumption expenditure by Government (G) and what does it include (2)
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
What are the 3 divisions of government expenditure
Functional
Administrative
Financial
What is the functional division and what are 4 of the services
Based on nature of services that are performed
Social services
Economic services
Government debt expenses
Protective services
What is the administrative division
Deals with departmental expenditure
What is the financial division
State’s expenditure according to budget
What is the importance of final consumption expenditure by government (4)
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
What does gross capital formation consist of
Gross Fixed Capital formation
Change in inventories
What is Gross Fixed Capital Formation
The production and purchasing of capital goods such as tools, buildings, etc.
When does Gross Fixed Capital Formation take place
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
What are the 3 areas where investment mainly takes place
Private households
Business sector
State
What is another word for gross capital formation
Investment
What is the importance of gross capital formation (5)
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
What are the 3 different ways the economic activity is measured
Production
Income
Expenditure
What is the production method
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
What is the income method
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
What is the expenditure method
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)
What system does South Africa use for National account conversions
System of National Accounts
What method is factor cost used with
Used with income method
GDP at factor cost - other taxes on production - other subsidies on production = GDP at basic prices
What are basic prices and what method are they used with
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
What are market prices used for
Used with expenditure method
Look at Booklet pg 10
What is a net operating surplus
Surplus after taxes
What is net income
Income after taxes
What is net fixed capital formation
After consumption of fixed capital (Depreciation)
What is net exports
Exports - imports
What are Domestic Figures (GDP)
Relate to the income and production happening within the borders of the country
What are National Figures (GNP)
Relate to the income or production by the citizens of the country
What are nominal figures (4)
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
What are real figures (4)
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
Look at economic growth calculation pg 12
