National economy Flashcards
What is national economy
The national economy is a historically shaped complex of production sectors in a given country, interrelated through the division of labour. The national economy includes the sectors of the production sphere, where material goods are produced, and sectors of the nonproduction sphere, where non-material services are performed. The socioeconomic nature of any national economy, as well as its structure and rate of development, is determined by the character of the dominant production relationships in society.
Description of the national economy
The national economy is the economy of a nation as a whole. The national economy is the subject of macroeconomics. Companies, households and states represented by the governments are the main subjects of the national economy.
Main tasks of the national economy
producing goods and services to satisfy needs,
taking care of the environment of the country,
ensuring the development of the country and co-operation with other countries.
Economic integration
Economic integration is the process of connecting the economies of individual countries to larger units based on common interests and aims
microeconomic integration
connecting the companies (joint market, consulting, transnational corporations, etc.);
macroeconomic integration
connecting the national economies to transnational economic complex (free trade zone, customs union, joint market, economic union, monetary union)
free trade zone
free of customs duties and quotas (NAFTA, EFTA, EU)
customs union
free of customs duties and quotas with a joint tariff to non-member countries, (EU)
joint market
free flow of goods, services, capital and labour,
economic union
joint economic policy,
monetary union
joint currency to replace national currencies. (European monetary union)
World economy
The world economy is a complex of all national economies in the world. It includes the system of international economic relations based on the international division of a labour and the world market.
Structure of the national economy
The national economy consists of several parts and units with common and different characteristics. Parts and units with common characteristics huddle up to make their activities easier to manage.
Structure of the national economy according to the industries:
production industry (industrial production, agriculture, forestry and aquaculture, construction, freight, etc.),
non-production industry (education, healthcare, financial intermediation, trade, etc.).
Structure of the national economy according to the sectors:
primary sector (agriculture, forestry and aquaculture, mining, etc.),
secondary sector (processing industry, construction, etc.),
tertiary sector (services),
quaternary sector (education, healthcare, science and research, etc.).
Structure of the national economy according to the territory:
territorial units (municipality, town, higher territorial unit), administrative units (region, district).
Industry
The industry is part of the national economy consisting of companies with the same or similar focus. The output of these companies is identical or similar products (goods and services). In Slovakia, the industries are managed by individual ministries. Common features of companies in the same industry (inputs, activities, outputs, work focus, production technologies and processes.)
Statistical classification of economic activities in the European Community (NACE)
NACE is the classification of economic activities in the European Union NACE is a four-digit classification providing the framework for collecting and presenting a large range of statistical data according to economic activity in the fields of economic statistics and other statistical domains developed within the European statistical system. SK NACE Rev. 2 is used in Slovakia since 2007 (www.statistics.sk).
Sector
The sector is an area of economic activity which has similar characteristics. The sectors are formed by the grouping of the industries:
primary sector:
the low rate of scientific and technological progress,
minimal automation,
slow growth in labour productivity;
secondary sector:
modern technologies,
narrow specialisation,
high labour productivity,
demanding inputs;
tertiary sector:
modern technologies,
rapid growth in labour productivity,
less demanding inputs;
quaternary sector:
not oriented to making a profit,
the state is involved in its development.
Reproduction process
People’s needs are not just one-off, but some of them are repeated. That is why the production process must be repetitive, as well. The reproduction process is the continuous repetition of the four basic phases, which are production, distribution, exchange, consumption.
Phases of the reproduction process:
production - transformation of inputs into outputs,
distribution-determination of how the individuals have contributed to the created products (e.g. wage),
exchange - purchasing products for money obtained during the distribution,
consumption - satisfying needs through product consumption.
Types of reproduction:
simple reproduction - the reproduction process is repeated to the same extent (product volume does not change),
expanded reproduction - the reproduction process is repeated to the greater extent (product volume increases),
narrowed reproduction the reproduction process is repeated to the lesser extent (product volume decreases).
Measuring the performance of the national
economy
To assess whether a country’s national economy is developed or underdeveloped, it is necessary to have data on which it is possible to assess it. Traditionally, the key performance measures of the national economy include:
economic growth (GDP/GNP/NEW),
inflation (CPI),
economic health (unemployment).
Gross domestic product
The GDP is a monetary measure of the value of all final goods and services legally produced in an economy in a certain period of time (quarterly or yearly).
The distinction between final goods and intermediate goods is very important. A tomato sold to a ketchup manufacturer would not be included in the GDP number, while a tomato sold in a store as a product would be included, as it represents the final use of that good. Trade of illegal goods and services is also excluded from GDP figures.
The expenditure method of GDP calculating
GDP = Consumer spending + Investment + Government spending + (Exports - Imports)
The income method of GDP calculating
The GDP is measured and expressed through income, such as wages, net interest, net profit, amortisation (amortisation is similar to depreciation, it represents the value of consumed and wear-and-teared non-current assets while it affects the price of products), indirect taxes.
The production (output) method of GDP calculating
This method of calculating GDP leads to counting the value added during production. To avoid double counting, the value added is measured to a product or service as it passes through each phase of its production.
Net domestic product
NDP = GDP - amortisation
Gross national product
Gross national product (GNP) is an estimate of total value of all the final products and services produced in a certain period of time by means of production owned by a country’s residents (even in the territory of a foreign country).
Net national product:
NNP = GNP - amortisation
Inflation
Inflation is the rate at which the overall price of goods and services within an economy increases over a certain period of time. It is a measure for the devaluation of the currency of a country.
The impact of inflation on an economy:
As the price of goods and service increases within an economy, the national currency can purchase less and so the purchasing power of money is reduced:
Cause of inflation
inflation is generally caused by an imbalance between the growth of the money supply
and the growth of an economy (if the money supply expands faster than the economy, it results in high levels of inflation);
inflation can also be caused by an imbalance between the supply and demand for goods
(if there is a high demand for scarce products, their price rises and this can cause inflation).
Inflation calculating:
The consumer price index (CPI) is a common way of measuring inflation and gives the rate of price change for a consumer basket (basket of goods and services). The basket tries to resemble the structure of items that are usually bought and used by consumers (housing, clothing, electricity, water, electronic devices, etc.). The CPI does not include any investments and is only focused on general consumer purchases. The CPI is usually calculated monthly or quarterly
Deflation
The opposite of inflation is called deflation (negative inflation). In a deflation, money becomes more valuable, and goods become cheaper.
Unemployment
Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy.
Unemployment calculating:
The most frequently used measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labour force (people who are able to work).
Labour force
Employed people (working, vacation, illness)
Unemployed people
Economically inactive people
People who can’t work
People who don’t want to work
How do we measure unemployment
unemployment rate
UR=( unemploymed/number in labour force) x 100
Unemployemnt rate in SR
5,2%
Inflation rate SR
10,5%
Inflation rate SR
10,5%
Final good and intermediate good
Final good - sold to final costumer
Intermediate good - sold for further production
What office is responsible for calculating GDP and which method do they use
Statistical office of SR
production method
GDP in nominal vs real price
Nominal - Total value of all products and services produced in an economy in current market price, it does not adjust for inflation
Real - adjust for inflation
