Week 8: Unit 13

Question 1

Different ways of measuring growth

Answer 1

• Year on Year Quarterly Growth — A quarter in present year vs corresponding quarter in past year. I.e Q2 2022 vs Q2 2021
• Quarter on Quarter — Present quarter vs past quarter of present year i.e Q2 2022 vs Q1 2022

Question 2

Correlation vs Causation

Answer 2

Correlation means there is a statistical association between variables. Causation means that a change in one variable causes a change in another variable.

Question 3

Reverse Causality

Answer 3

If variable A causes variable B and variable b in turn causes variable A, then this is referred as reverse causality or two way causality. I.e FDI and Economic growth

Question 4

Linear regression

Answer 4

Line of best fit

Major uses - Determining the strength of predictors(effect)
- Forecasting an effect
- Trend Forecasting

Question 5

Ratio scale

Answer 5

Used to measure growth and fluctuations.

By plotting the natural log of data

Question 6

Reasons for Ratio Log scale

Answer 6

1) Respond to skewness towards large values
2) The second is to show percent change or multiplicative factors percentage change or multiplicative factors

Question 7

I.e national incomes for a poor country double from 50 to 100 and 1000 to 2000 in a rich country. Measure depending on the log function?

Answer 7

Log(2000) - Log(1000) = Log(100) - Log(50) = Log(2)

Question 8

What is the - Business cycle?
- Recession?

Answer 8

Alternating periods of positive and negative growth rates
(Affects labour market)

Period when output s declining of below its potential level

Question 9

Describe the business cycles life in 2 words

Answer 9

Recurrent
Persistent

Question 10

What causes the business cycle?

Answer 10

Classical economists
——————————
- Markets are inherently stable, swings are a temporary phenomena caused by exogenous factors, or bad government policy actions. No need for intervention to restore equilibrium (Bad weather, Drought)

Keynesian
———————
- caused by endogenous factors. Naturally occur and the government intervene to keep things stable. Markets are unstable. Government intervene to smooth things out. Stimulate the economy when decline begins and restrict things when upswings begin.

Question 11

What’s a shock?

Answer 11

Unexpected or unpredictable event (+ or -)

Question 12

Final vs Intermediate goods

Answer 12

Final goods - Used or consumed by I,household, firm.
Crossed the boundaries of production.
No Additional value can be added to it by
Further processing

Intermediate goods - bought to be used as inputs in prod of
Other goods. Processed further before
They are sold.

Question 13

Exports, Imports, and government

Answer 13

When foreign production is consumed domestically (imports) or exports:
We include exports and include imports so that GDP includes value added, income form, or consumption of domestic production.

Government:
- Treat it as another producer - public services are bought via taxes and cost of production captures the value added

Question 14

GDP in approaches

Answer 14

Expenditure approach - Value of final sales
Production approach - value added by each agent
Income approach - amounts earned by the factors of prod

Question 15

I.e
- A farmer produces 1000 bags of wheat which he sells to the miler at R10 per bad, yielding a total of 10 000.
- Miller processes the whet into flour, which he then sells to the baker for 12 500.
- After baking the bread with flour, the baker sells it to supermarkets for 18 000.
- The shop then sells the bread for 21 000.
Calculate all GDPs?

Answer 15

1) Expenditure = R61 500 [All]
2) Production = R10 000 + 2500 +5500 + 3000 = R21 000
3) income = R10 000 + 12 5000 + 18 000 = R40 500
[Value of sales - payment of FOP)

Question 16

taxes and subsidies on GDP

Answer 16

Change the amount paid for g/s different from CoP

Taxes = higher
Subsidy = lower