Economic Growth: Wealth Creation and Distribution Flashcards by Daniel Klette

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

How well did you know this?

Not at all

Perfectly

Physical Wealth

Tangible or real assets
Clothes, furniture, houses etc

How well did you know this?

Not at all

Perfectly

Financial Wealth

Intangible or monetary assets
Cash, bank deposits, investment

How well did you know this?

Not at all

Perfectly

What 3 groups own wealth

Individuals
Businesses
State

How well did you know this?

Not at all

Perfectly

What is income

The remuneration earned by the factors of production for participating in economic activities

How well did you know this?

Not at all

Perfectly

What is Wealth

The stock of both real and monetary assets that have been accumulated over time

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

What are the 4 sources of wealth

Savings
Luck
Inheritance
Income

How well did you know this?

Not at all

Perfectly

What are savings

Income that is not spent

How well did you know this?

Not at all

Perfectly

What is the savings equation

Savings (S) = Income (Y) - Consumption expenditure (C)

How well did you know this?

Not at all

Perfectly

When do savings become wealth

When the money is invested

How well did you know this?

Not at all

Perfectly

Why do people save

To accumulate wealth

How well did you know this?

Not at all

Perfectly

What are the 3 reasons for unequal distribution of INCOME

Unequal ownership of wealth
Differences in skills and qualifications
Discrimination

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

What is meant by differences in skills and qualifications as a reason

Those with advanced skills and qualifications earn higher income

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

What are the 3 reasons for unequal WEALTH distribution

Inequality of income
Inheritance
The Market system

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

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

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