ecs2602-summaries-and-notes.
Learning unit 1: An overview of the South African Macroeconomic
Environment
Economic growth - Economic growth takes place when the total output
(producion) of goods and services in an economy increases. It is
tradiionally deined as the annual rate of increase in to...
Learning unit 1: An overview of the South African Macroeconomic
Environment
Economic growth - Economic growth takes place when the total output
(producion) of goods and services in an economy increases. It is
tradiionally deined as the annual rate of increase in total output
(producion) or income in the economy. This deiniion has to be qualiied
in two important respects.
1. Producion, or income should be measured in real terms – that is,
the efects of inlaion should be eliminated.
2. The igures should also be adjusted for populaion growth. In other
words, they should be expressed in per capita terms.
Real GDP growth rate = t is the second value and
t-1 is the irst value
Gross domesic product
The GDP is the total value of all FINAL goods and services (refer to those
goods and services that are consumed by households and irms)
produced within the boundaries of a country during a paricular period
(usually one year). GDP is an oicial measure of how much output was
produced in a country or region during a speciied ime period. It is also
the broadest, best-known and most frequently used measure of
economic acivity.
Nominal GDP or GDP at current prices is the sum quaniies of inal goods
and services produced, muliplied by their current price. An increase in
nominal GDP might increase over ime as a result of
- An increase in the quanity of goods and services produced
- An increase in the prices of goods and services produced
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Real GDP or GDP at constant prices is a measure of GDP in which the
quaniies produced are valued at the prices in a base year instead of at
current prices. Real GDP therefore measures the actual physical volume
of producion. A base year is used to overcome the problem of price
changes by expressing the prices of goods and services in terms of prices
in a paricular year.
Real per capita GDP
Posiive economic growth actually occurs only when total real producion
or income grows at a faster rate than the populaion. If populaion
growth rate exceeds the economic growth rate, a decline in real GDP per
capita occurs
Inlaion – inlaion is deined as the sustained rise in the general level or
prices. In the goods market, inancial market and IS-LM model we are
looking at the short run and assume that the price level is ixed. However
in the labour market we look at the relaionship between workers’
nominal wage demands and the price level. This comes together is the
AS-AD model where we see that expectaions about the future price level
can inluence the actual price level in the economy
Fiscal policy
Fiscal policy is the government’s policy is respect of the nature, level and
composiion of government spending, taxaion and borrowing, aimed at
pursuing paricular economic goals.
The main instrument of iscal policy is the budget, while the main policy
variables are government spend and taxaion.
A disincion can be made between and expansionary and contracionary
iscal policy. An expansionary iscal policy entails an increase in the
demand for goods in the economy by increasing government spending
and/or decreasing taxes. A result of such a policy is that the budget deicit
increases. A contracionary iscal policy entrails a decrease in the demand
for goods in the economy by decreasing government spending and/or
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increasing taxes. A result of such a policy is that the budget deicit
decreases
Monetary policy
This involves all deliberate acions by the monetary authoriies to
inluence the monetary aggregates, the availability of credit, interest
rates and exchange rates, with a view to afecing monetary demand,
output, income, prices and the balance of payments.
A disincion can be made between an expansionary and contracionary
monetary policy. An expansionary monetary policy entails an increase in
the money supply to bring about a decrease in the interest rate in order
to increase the demand for goods in the economy. A contracionary
monetary policy entails a decrease in the money supply to bring about an
increase in the interest rate in order to decrease the demand for goods in
the economy.
Unemployment is the number of people who do not have a job but are
looking for one.
The unemployment rate is the raio of the number of people who are
unemployed to the number of people in the labour force
Formula: u = U/L
Unemployment rate = unemployment/labour force
Learning unit outcomes
Describe economic growth and its measurement
Economic growth takes place when the total output (producion) of
goods and services in an economy increases. It is tradiionally deined as
the annual rate of increase in total output (producion) or income in the
economy. This deiniion has to be qualiied in two important respects.
Firstly, producion, or income, should be measured in real terms – that is,
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