The performance of an economy Economic indicators: inflation rate foreign trade employment ...

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CHAPTER 11 Economic and social performance indicators

Transcript of The performance of an economy Economic indicators: inflation rate foreign trade employment ...

CHAPTER 11Economic and

social performanceindicators

CAPS• The performance of an economy• Economic indicators:

inflation rate foreign trade employment productivity interest rates money supply

• Social indicators: demographics health and nutrition education services housing and urbanisation

• International comparisons

UNIT 1The performance of

an Economy

Macroeconomic indicators can show:• changes within a country• comparisons with other countries

Economic indicatorsEconomic indicators: trends used to predict future of economy.

Barometric approach: uses leading economic indicators to predict the future path of the economy.

SARB use over 200 economic time series to predict the turning points of SA business.

Leading indicators include…• change in new cars sold• change in building plans approved• change in new companies registered.

Problems interpreting stats…

Inflation rises from 3% to 5%. Describe what has happened…

When looking at macroeconomic data, have the effects of inflation been removed?

Origin of stats???

UNIT 2Economic Indicators

CPI InflationCPI inflation: measures the change in the price level of a basket of consumer goods and services.

Measuring CPI

Measured using fixed basket of consumer goods and services - representative of households’ expenditure

Weighted based on consumers’ expenditure patterns.

CPI calculated using index

Index number: a figure reflecting price or quantity compared with a standard or base value.

Complete WS on index numbers

Producer Price Index: calculates changes in price of manufactured goods as they leave factories, not when they are sold to consumers.

PPI measures cost of production not cost of living.

Early indicator for changes in CPI

PPI Inflation

Balance of payments

Foreign trade stimulates growth and development.

Balance of payments: summary of all the transactions between South African economic units and the economic units in the rest of the world.

Consists of two major accounts…• current account: includes all goods and services exported to and

imported from the foreign sector

• financial account: which includes all financial flows from and into the country.

Foreign Trade

Consists of two major accounts…• Current account: goods/services exported to

and imported from foreign sector.positive balance (surplus) - exports > importsnegative balance (deficit) – imports > exports

Deficit requires inflow of foreign capital to pay for the excess of imports over exports - shown in the financial account.

• Financial account: includes all financial flows from and into the country.

Type of foreign capital is important.

FDI (buying land, buildings, production equipment) = LT investment

VSAcquiring financial assets (bonds & shares) = ST investment

Merchandise exports: (exports - imports of goods) indicates employment opportunities.Balance on current account: total exports – total imports.Balance on financial account: shows net inflow/outflow of foreign capital.

Find…Current CPICurrent PPI

Exchange RateExchange rate: the price of one currency in terms of another

When the Rand increases in value…Imports cheaperExports more expensiveTourism suffersInvestment in SA more expensive

When the Rand decreases in value…Imports more expensiveExports cheaperTourism encouragedInvestment in SA encouraged

Find…Current R - $Current R – EuroCurrent R - Pound

Employment/Unemployment

Full/high levels of employment = strong economy + levels of growth & development.

High levels of unemployment sign of…lack of domestic and foreign direct investmentslow levels of labour productivity rigid labour lawshigh levels of poverty

Accuracy due to informal sector?

Underemployment: when someone takes a position that requires less skill than their ability.

ProductivityProductivity: relationship between the quantity of inputs and the quantity of outputs.

Low productivity can mean that… Workers poorly trained/educated Exports more expensive – makes trade difficult Leads to inflation as wage rises > productivity gains

Labour productivity: output per worker in a particular period of time.

Measured by: Real GDP ÷ number of workers employed

Rising labour productivity → economic growth → improved living standards.

However… SA has poor labour skills & labour productivity.

Deceleration in productivity growth + acceleration in nominal remuneration growth per worker = ↑ in nominal unit labour cost.

When real wages increase > increase in labour productivity = inflationary pressures

Interest ratesInterest rates: the price that borrowers pay when they borrow money, and the income that investors receive when they save or invest money.

Repurchase rate (repo rate): rates at which the SARB lends money to commercial banks. (July 2015 – 6.00%)

Adjustments made by basis points (1% = 100 basis points).

• ↑ from 5,5% to 6,0% = ↑ by 50 basis points

Money SupplyMoney supply is an important indicator because…• ↑ in money supply → ↑ in inflation → higher

IR’s• ↓ in money supply indicate period of lower

growth → lower IR’s

UNIT 3Social Indicators

Social indicators: measures to evaluate the performance of a country in terms of the social well-being of its citizens.

Stats collected by…The Human Development Report published by the United Nations Development Programme (UNDP)

The World Bank’s World Development Report - related to the Millennium Development Goals

Important social indicators…demographicshealth and nutritioneducationserviceshousing and urbanisation

DemographicsDemographics: the number and characteristics of a population.

Characteristics such as…size, race, age, sex, income, geographic distribution, language, education, occupation, religion, birth rate, fertility rate, life expectancy at birth, infant mortality rate, death rate.

Used to….• plan infrastructure • indicate size/characteristics of target markets• show available labour force

Indicates…• Education spending req.• Current and future labour force• Tax payers

Crude birth rate: The ratio of total live births to total population

Health and nutrition

EducationAffects the country’s level of…• Literacy• Productivity• Competitiveness • National wealth

ServicesLiving standards affected by access to services.

Provided by government & private sector

Housing and urbanisation

Housing subsidy given to residents earning R3 500/month.

About 10% population receive this subsidy.