key economic indicators

Actual growth

The increase in national output actually produced for a given period of time

How is actual growth measured

The percentage increase in real GDP

Potential growth

The increase in the productive capacity of the economy for a given period of time

How is potential growth measured

An increase in quantity or quality of resources

National product

Value of all goods and services produced in an economy

National income

Total income earned by workers within an economy

Total expenditure

Total spending by consumers in an economy

National product = national expenditure

The value of all goods and services produced in a given period is by definition equal to the amount that buyers must spend to purchase them

National income = national expenditure

Whatever the seller receives equals what the buyers spend

Gross domestic product

The value of all final goods and services produced within the geographical boundary of a country over a given period of time

GDP purposes

Measures economic growth

Indicates living standards

Comparing between countries

Reflecting the economic environment of a country

Real GDP values used over

Nominal GDP

Nominal GDP

P current year x Q current year

Real GDP

P base year x Q current year

Gross national income

The value of all final output of goods and services produced by nationally owned factors of production

Domestic production

Production within a country's geographical boundaries regardless of originmof factors of production

National production

Production from factors of production owned by citizens of a country regardless of the country in which production occurs

GNI =

GDP +NFIA

Net factor income from abroad

The difference between the income that locally owned residents of firms have received from abroad and the income claimed by non residents based locally

GNI advantages

Reflects the consumption levels within a country's geographical boundaries s incomes earned by local factors are more likely to be spent in the domestic economy

But GDP is reported more frequently because

It reflects the economic environment of the country helping investors decide based on quantity and quality of resources

Limitations of GDP and GNI

Presence of non market activities

Presence of the underground economy

Non market activities

Production of goods and services that are not bought and sold in a market

No transactions that record the price of the goods that reflects the value of the production

Presence of the underground economy

Unreported transactions that are both illegal and legal

Sustainable growth

A rate of economic growth that can be maintained without creating other significant economic problems

Inclusive growth

A rate of growth that is sustained over a period of time, is broad based across economic sectors, creates productive employment opportunities

Productivity

Output per unit of resource

Income inequality is measured using

Gini coefficient

Price stability

Low and stable rate of inflation

Inflation

Sustained increase in general price level

Disinflation

Substantial reduction in the rate of inflation

Deflation

Negative rate of inflation

Consumer price index

Measures the price of a fixed basket of goods and services commonly purchased by a typical household

Weighted price index

Each item in the basket of goods and services is given a weight according to its importance as measured by its share in total consumption expenditure of a typical household

What are fixed at the base year

Types and specifications of goods and services in the CPI basket as well as its weights

Limitations of CPI

Substitution bias

Quality adjustment bias

Substitution bias

When the price of a good rises, consumers typically switch to consuming cheaper alternatives of the good

Quality adjustment bias

Price of a good rises when it's real value increases such that a better quality version of a good is more expensive

Mitigation to overcome limitations of CPI

Composition and weighting pattern for the CPI basket is revised every five years to reflect changing consumption patterns in Singaprie

Unemployment of labour

The situation where people who are willing and able to work and are actively seeking work but cannot find jobs

Non acceleration inflation rate of unemployment

Cyclical unemployment is 0 and only structural and frictional unemployment prevails

Limitations of unemployment rate

May not measure the utilisation of our labour resources well because changes in this rate could result from changing size of the labour force

Balance of payments

A record of a country's international transactions which involve flows of money between residents of a country and the rest of the world

BOP deficit

Outflow of money is more than inflow of money

BOP surplus

Inflow of money is more than outflow of money

3 main accounts in the BOP

Current account

Capital and financial account

Reserve assets account

Current account

Trade balance and income balance

Balance of trade

The value of the difference between export revenue and import expenditure

Goods balance

Records exports and imports of physical goods

Services balance

Records exports and imports of services

Income balance

Primary income balance

Secondary income balance

Primary income balance

Records wages, interest and profits flowing into and out of the country

Secondary income balance

Records government contributions to and receipts from international organisations and international transfers of money by private individuals

Capital and financial account

Records changes in ownerships of assets

Comprises direct investment, portfolio investment, financial derivatives and other investment flows

Direct investment

Foreign direct investment inflows or outflow

Occurs when a foreign company invests money from abroad in one of its branches of associated companies in Singapore

Portfolio investment

Transactions involving the purchase and sale of financial assets such as equities bonds as well as bank deposits and withdrawals

In the current account

Transactions which result in inflow of money are recorded as credit items, transactions which result in outflow of money are recorded as debit items

In the capital or financial account

Transactions which result in inflow of money is recorded as debit items while transactions which result in outflow of money is recorded as credit items

Overall BOP position

Comprises of the sum of the money flows in current account, capital and financial account and net errors and omissions account

Official foreign reserves

Amount of foreign currencies held by the central bank

In foreign reserves

An increase in official foreign reserves is recorded as credit and a decrease in official foreign reserves is recorded as debit

Material standard of living

Indicated by the quantity of goods and services consumed by the average person in a country in a given time period

Material SOL is measured by

Real GDP per capitar

Real GDP per capita

Value of all final goods and services produced within the geographical boundary of a country during a given period of time

Real GDP per capita benefits

Eliminates effects of inflation through holding prices at a constant level

Real values are preferred because it

Eliminates the effects of inflation by using base year prices

Why must population growth be considered

A growth in GDP attributed to increasing population does not translate to increasing material welfare for the average person in the economy

Limitations of using real GDP per capita

Income distribution

Composition of GDP

GDP conveys no information about

Who gets to enjoy those goods and services

GDP does not account for the composition of an economy's output as

Production does not always equal consumption

Non material standard of living

Qualitative aspects of life

Is real GDP per capita a good indicator of non material SOL

Yes

A rise in average income levels allows consumers to enjoy more and better quality goods and services

No

Production of Giis's often can result in pollution which then conflicts with the heath of citizens

Welfare indicators

Healthcare

Education

Pollution

Stress level

Security

Limitations of welfare indicators

Highly subjective because fundamentally welfare cannot be quantified

Composite indicators

Human development index

Measure of economic welfare

Index of sustainable economic welfare

OECD your better life index

Limitations of composite indicators

There is subjectivity when ur comes to what aspects determine overall welfare which limits reliability of composite indicators

Why can't you standardise currency to USD

Exchange rates can be volatile from month to month and from year to year

Exchange rates are more relevant to products that are traded between countries rather than non traded products