Economic Growth: Wealth Creation and Distribution Flashcards
What is Wealth
All the accumulated physical and financial assets which enable people and businesses to earn an income. It is related to the monetary value of what you own at a particular point in time
Physical Wealth
Tangible or real assets
Clothes, furniture, houses etc
Financial Wealth
Intangible or monetary assets
Cash, bank deposits, investment
What 3 groups own wealth
Individuals
Businesses
State
What is income
The remuneration earned by the factors of production for participating in economic activities
What is Wealth
The stock of both real and monetary assets that have been accumulated over time
What are the 4 forms that income can take
Wages from an employer
Interest from investments
Profit from a successful business
Rent from land and natural resources
What are the 2 characteristics of wealth
Wealth is anything that enables people to yield an income
Although we measure wealth in terms of money, money in itself is not wealth
What are the 4 sources of wealth
Savings
Luck
Inheritance
Income
What are savings
Income that is not spent
What is the savings equation
Savings (S) = Income (Y) - Consumption expenditure (C)
When do savings become wealth
When the money is invested
Why do people save
To accumulate wealth
What are the 3 reasons for unequal distribution of INCOME
Unequal ownership of wealth
Differences in skills and qualifications
Discrimination
What is meant by unequal ownership of wealth as a reason
Wealth generates income in the form of profits. A difference in wealth causes differences in income
What is meant by differences in skills and qualifications as a reason
Those with advanced skills and qualifications earn higher income
What is meant by discrimination as a reason
Exists where income of some groups is adversely affected in terms of employment, pay and promotion opportunities
What are the 3 reasons for unequal WEALTH distribution
Inequality of income
Inheritance
The Market system
What is meant by inequality of income as a reason
During Apartheid, people of colour were subjected to inferior education and professions
This resulted in no or minimal savings, thus no wealth creation
What is meant by inheritance as a reason
Inheritance of wealth is only possible if people have a general right to own property.
People of colour were denied the right to own property and lost the little wealth they had
What is meant by The Market System as a reason
The market system rewards successful people
The system uses wealth to create more wealth and thus creates inequality
Look at Page 54 and 55 for Lorenz curve and Gini Co-efficient
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What are the 5 International Redistribution Methods
Taxes
Cash (Social) grants
Natural (Free) benefits
Labour market policy
Macro-economic policy
What is meant by taxes as a redistribution method
High-income earners and wealthy people are taxed in order to provide benefits and benefits in kind to low-income earners and poor people.
What are the most important cash (social) grants
Old-age pensions
Disability grants
Child support grants
Unemployment insurance
What is meant by Natural (Free) benefits as a redistribution method
Poor households receive free health care, education, school meals, municipal services and infrastructure
Limited quantities of free electricity and water are also provided
What is meant by labour market policy as a redistribution method
Minimum wages, antidiscrimination acts and training subsidies reduce income inequality
What is meant by macroeconomic policy as a redistribution method and give 2 examples
These policies influence the distribution of income and wealth.
Expanded Public Works Programme creates employment which benefits low-income households
Regional development policies, such as SDI aim to reduce geographical inequalities of income and wealth
What are the 3 affirmative redistribution methods in South Africa
Broad Based Black Economic Empowerment
Land restitution and land redistribution
Property subsidies
What does BBBEE do
Provides a legal basis for transformation of SA economy so that the number of people that own, manage and control the economy can increase significantly and income inequalities will decrease
What is land restitution and land redistribution
Purpose of land restitution is to return land to those who lost it as a result of racial discrimination.
Land redistribution focuses on land for residential and productive use
What are property subsidies
Used to help beneficiaries acquire ownership of fixed residential property
What does economic growth mean
An increase in the production of goods and services in a country over a year
What is real GDP
GDP after the increases in the general price level have been taken into account
What is the importance of economic growth
It is one of the five major objectives of the macro-economic policy. The significance lies in its contribution to the general prosperity of the comunity
What is the aim of national accounts
To provide a systematic and comprehensive record of national economic activities
What is the SNA
System of National Accounts
Internationally agreed standard set of recommendations on how to compile measures of economic activity
Why is GDP important
It gives information about the size of the economy and how an economy is performing
What does GDP not tell us
It is not a measure of the overall standard of living or well-being of a country
Read page 57
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What are the 5 methods of economic growth
Increase in productivity
Availability and utilisation of production factors
Technological change
Effective government policies and administration
Investment
What is the definition of productivity
The relationship between real output and one unit of factor input
What are the 5 signals for productivity increases
Output increases while input remains the same
Output increases while input declines
Output increases faster than input
Output remains constant while input declines
Output declines at a slower rate than input
What is the availability and utilisation of production factors as a method of economic growth
Economic growth occurs when the ratio of the working population to the total population increases
What are effective policies
Policies that ensure pre-set objectives are met
What is efficient administration
Policies are executed in a manner that minimises time wastage, inconvenience and costs
What is investment as a method for economic growth
An increase in capital per worker will generally increase output
What are the 3 constraints on economic growth
Low levels of savings and investments
Insufficient qualified labour
HIV / AIDS
What are 2 factors that influence standard of living
Size of the population
Per capita income
What is meant by the size of the population as an influence in standard of living
If population grows at a higher rate than GDP, everybody may be worse off despite increases in goods and services produced
What is meant by per capita income as an influence in standard of living
Real GDP / population number
Gives us standard of living - the quantity of goods and services consumed by each individual
