Economics for South African Students: Chapter 13 - Measuring the Performance of the Economy

Flashcards covering the measurement of economic performance including GDP calculation methods, national accounting concepts, price indices, and inequality measures in the South African context.

Five Macroeconomic Objectives

The key goals for the economy: economic growth, full employment, price stability, balance of payments stability, and equitable distribution of income.

Gross Domestic Product (GDP)

The total value of all final goods and services produced within the boundaries of a country in a particular period, usually one year.

Gross (in National Accounts)

Indicates that no provision has been made for depreciation or the consumption of fixed capital.

Final goods and services

Goods and services used to avoid double counting by only considering the final value added at the end of the production chain.

Production method (value added)

A method of calculating GDP at basic prices by adding up the contribution of each industry to the total production.

Expenditure method

A method of calculating GDP at market prices by adding up all the components of final demand, expressed as $C + I + G + (X - Z)$, where $C$ is consumption, $I$ is investment, $G$ is government spending, $X$ is exports, and $Z$ is imports.

Income method

A method of calculating GDP at factor cost by adding up all the incomes received by the factors of production, including rent, interest, wages, and profits.

Value added

The amount by which the value of a firm's products exceeds the value of the goods and services the firm purchases from other firms at each stage of production.

Nominal GDP

Also known as GDP at current prices; it reflects the value of production including price changes caused by inflation.

Real GDP

Also known as GDP at constant prices; it excludes price changes by using prices from a base year to measure the actual volume of production.

Gross National Income (GNI)

The total income earned by South African factors of production, calculated as GDP minus income earned in South Africa by foreign factors plus income earned by South African factors in the rest of the world.

Gross Domestic Expenditure (GDE)

The total value of all spending in South Africa, calculated as $C + I + G$. It includes imports since the expenditure occurs in SA, but excludes exports since the expenditure occurs in the rest of the world.

Relationship between GDP and GDE

The formula linking domestic spending and domestic production: $GDP = GDE + (X - Z)$. If $GDP > GDE$, then net exports are positive.

Unemployment rate

A calculation used to measure employment health: $\text{Unemployment rate} = \frac{\text{number of unemployed persons}}{\text{workforce}} \times 100$.

Consumer Price Index (CPI)

An index of prices for a representative basket of consumer goods and services, which serves as the basis for measuring inflation.

Purchasing power

The real value of money, representing the amount of goods or services that can be bought with one unit of currency.

Inflation rate

The percentage change in the price level from one year to the next.

Balance of Payments (BoP)

A summary record of all economic transactions between a country and the rest of the world within a specific period.

Current account

A section of the balance of payments that records all exports and imports of goods and services, as well as primary income receipts and payments.

Financial account

A section of the balance of payments that records all international transactions in assets and liabilities, including direct, portfolio, and other investments.

Lorenz curve

A graphic device used to illustrate the degree of inequality in the distribution of income within a population.

Gini coefficient

A measure of income inequality calculated as the area of inequality shown in the Lorenz curve divided by the total area of the triangle beneath the line of equality.

Gini index

A numerical representation of inequality calculated as the Gini coefficient $\times 100$. South Africa's index is 68 (coefficient of $0,68$).