ESTUDIO FLUJO TURBULENTO, TUBO BANCADA EXPERIMENTAL

 Economic indicator: A statistic (data) that shows the behaviour of an economic variable, usually over time.

Where do statistics come from?  Statistics South Africa  SARB

 Newspapers and financial magazines GDP (Gross Domestic Product)

 GDP: Total value of all final goods and services produced within the borders of a country in one year.

 An increase in GDP will cause economic growth.  GDP gives us an indication of:

o Economic growth

 High economic growth is one of the main economic objectives of a country.

 An increase in GDP is not always an indication of economic growth. IT could be because of a rise in prices (inflation).

 Therefore, instead of working with GDP at current prices, we need to adjust GDP to constant prices (Real GDP).

 Calculate GDP per capita to calculate whether an increase in economic welfare has occurred, i.e. if an increase in real GDP has kept up with population growth.

 The relative importance of different sectors of the economy.  Compare the contribution of different sectors over time.

 Comparison of South Africa‘s growth to that of other countries. Full Employment

 The aim of providing everyone who is willing to work at the current wage rate with a job.

 Unemployment rate = Number of unemployed X 100 EAP

Factors that have impacted negatively on the South African labour market:

o Slow economic growth

o A drop in the rate of capital formation

o Oversupply of unskilled labour

o Net emigration of skilled labour

o Restructuring of the economy

o Relatively high wages (as compared to inflation)

o Labour legislation

o Influence of the unions

Inflation Rate

 Price stability means that the rate at which prices increase should be as low as possible.

 Usually expressed as the average rate of change in the prices of all goods and services, i.e. the annual rate of change of the economy‘s general price level.  Usually done by using changes in the consumer price index (CPI).

Inflation rate = CPI year2 – CPI year1 X 100

CPI year1 1

CPI Inflation rate (%)

Year 1 100

Year 2 112 12

Year 3 120 7.1

Group Weight Index for (2000 = 100) Percentage change

between 2005 and 2006

2005 2006

Cigarettes, cigars and tobacco

1.21 158.0 171.4 +8.5

Clothing and footwear 3.64 93.8 89.1 -5.0

Housing 20.70 113.8 115.0 +1.1

Fuel and power 3.84 131.9 135.7 +2.9

Furniture and equipment 2.82 115.9 114.9 -0.9

Household operation 4.68 135.1 143.1 +5.9

Medical care and health expenses 6.90 159.8 170.1 +6.4 Transport 13.72 120.0 129.9 +8.3 Communication 2.86 128.4 125.3 -2.4 Recreation and entertainment 3.04 96.7 96.8 +0.1 Reading matter 0.36 130.5 134.9 +3.4 Education 3.38 144.4 156.2 +8.2 Personal care 3.92 131.1 135.6 +3.4 Other 3.26 102.4 102.4 0.0

CPI: All items 100.00 126.1 130.9 +3.8

The South African consumer price index 2005 and 2006, source: Stats SA, January 2007

 CPIX = CPI excluding the effects of mortgage bond interest rates.

 The monetary policy committee of the SARB meets every few months to consider inflationary conditions and to decide on suitable monetary policy options.

 PPI predicts CPI inflation.  PPI measures prices of:

o Goods that is imported when they enter the country. Foreign Trade

 Exports serve to stimulate employment and imports serve to widen the choice of consumers. Year Exports as % of GDP Imports as % of GDP 2000 27.8 24.9 2001 30.0 26.1 2002 32.7 29.1 2003 27.9 26.0 2004 26.6 27.3 2005 27.1 28.6

Source: SARB QB, March 2006

 Terms of trade

o Ratio of export to import prices.  Exchange rate

o Changes in an exchange rate affect the prices that are paid for imports and earned by exports.

 Current account balance

o Deficit could mean that a country is living beyond its means OR that the country is developing rapidly

OR that it has been granted credit by other countries to finance imports

o Surplus can indicate a strong competitive economy OR a deteriorating economy

OR one with import substitution Productivity

 Labour productivity: Real GDP . Number of workers unemployed

 Remuneration per worker

o Relationship between wages and productivity is crucial to

 Employers → relates to profits

 Employees →relates to standard of living Monetary Conditions

 Money supply

o M1A = coins and notes in circulation + bank accounts that can be used to make payments

o M1 = M1A + other demand deposits

o M2 = M1 + short term deposits + medium term deposits in financial institutions

o M3 = M2 + long term deposits

o M3 is the indicator used to set guidelines for the money supply in South Africa by the SARB as part of its monetary policy.

 Interest rates

o Price of money: charge made for the use of borrowed money.

o Money is lent or borrowed on financial markets:

 money market (short term)

 capital / bond market (long term)

o Repo rate: SARB sets the repo rate and supplies whatever quantity of money is demanded by commercial banks at that price.

o Prime rate: the lowest rate at which a bank will lend money to its best customers.

o Nominal interest rates – quoted interest rates

Real interest rates – interest rates that have been adjusted for inflation

 JSE All Share index: shows what is happening to the overall value of all shares quoted on the JSE.

o Dow Jones – New York

o FTSE – London

o DAX – Frankfurt

o CAC40 – Paris

o Hang Seng – Hong Kong

o Nikkei – Tokyo

o NASDAQ – no physical exchange. Trades in technology stocks on networked computers.

SECTION C: HOMEWORK

QUESTION 1: 17 minutes (Source: Economics For All)

1.1 List three economic indicators used to measure the performance of the economy. (6)

1.2 Distinguish between real and nominal GDP. (6)

1.3 Name 5 factors that have had a negative impact on South Africa‘s labour market. (10)

1.4 Distinguish between CPI and CPIX. (6)

[28]

QUESTION 2: 15 minutes (Taken from The Answer Series)

2.1 Name THREE economic indicators. (6)

2.2 Discuss GDP and Full employment as economic indicators. (16) [22]

SECTION D: SOLUTIONS AND HINTS TO SECTION A

QUESTION 1: 10 minutes (Taken from DoE Nov.2009)

GDP:

• GDP is total value of all final goods and services produced within the borders of a country in one year 

• Measures total production of an economy  • Formula: GDPt – GDPo X 100

GDPo 1 

• Increased GDP will cause economic growth  • Gives an indication of:

- economic growth 

- relative importance of different sectors in economy 

- South Africa‘s economic growth in relation to growth of other countries 

- Real GDP measures growth performance of economy  / GDP adjusted with price increases 

- Real GDP used in forecasting  real GDP used to describe business cycles  - Per capita real GDP used to indicate economic development, indicate living

standards and compare living standards  (Max. 4 x 2) Employment:

• Full employment refers to aim of providing everyone who is willing to work at current wage rate with a job 

• Increase employment to decrease loss of production – produce more goods and services 

• Unemployment is calculated by expressing number of people who are willing and able to work, but do not have a job, as a percentage of the total number of people that are willing and able to work (EAP) 

•Employment rate – calculated by expressing the number of employed people as a percentage of the EAP  / labour force participation rate 

• Employment is important for the forecasting of trends – employment in the various sectors 

• As well as the calculations of productivity / unemployment / employment rate 