ECON 122 – Study Unit 1: National Accounts & Macroeconomic Objectives

Economic growth (sustained increases in real GDP and potential output).
Full employment / low unemployment levels.
Price stability (low, predictable inflation).
External stability (sustainable Balance-of-Payments position, adequate foreign reserves).
Equitable distribution of income and wealth.
- Assessed with the Lorenz Curve & Gini coefficient.

Final vs Intermediate Goods
- Final: purchased for end use; included in GDP.
- Intermediate: inputs to further production; excluded to avoid double counting.
Value Added (VA)
- VA = \text{Sales Value} - \text{Cost of Intermediate Inputs}
Gross Domestic Product (GDP)
- Market value of all final goods & services produced within a country’s borders in a period.
Gross National Product (GNP)
- GNP = GDP + \text{Primary income receipts from ROW} - \text{Primary income payments to ROW}
Net Domestic Product (NDP)
- NDP = GDP - \text{Depreciation (Consumption of Fixed Capital)}
Net National Product (NNP)
- NNP = NDP + \text{Net factor income from ROW}
Factor Cost, Basic Prices & Market Prices
- Market Price: includes indirect taxes, excludes subsidies.
- Factor Cost: excludes indirect taxes, includes subsidies.
- GDP{fc} = GDP{mp} - T + S (T = indirect taxes such as VAT, S = subsidies)
Nominal vs Real GDP
- Nominal (current-price) measures value with current‐year prices.
- Real (constant-price) uses base-year prices; isolates quantity changes.
- GDP deflator: \text{Deflator} = \frac{GDP{nom}}{GDP{real}} \times 100
CPI
- Weighted price index tracking cost of a representative consumption basket.
- Inflation (headline): % change in CPI over time.
Unemployment Rate
- \frac{\text{Number of unemployed}}{\text{Labour force}} \times 100
Balance of Payments (BoP)
- Current Account + Capital Account + Financial Account = 0 (with a balancing item).

Sum of rewards to factors of production:
- Wages & salaries (labour)
- Rent (land)
- Interest (capital)
- Profits (entrepreneurship)
GDP = W + R + i + \pi

Final spending within borders:
- Consumption (C)
- Investment (I)
- Government expenditure (G)
- Net exports (X – Z)
GDP = C + I + G + (X - Z)

Participant	Sales (S)	Buy (B)	Value Added VA=S-B	Wages (W)	Rent (R)	Interest (i)	Profit \pi=VA-(W+R+i)
Dr Ray	R45 000	0	R45 000	15 000	10 000	1 500	18 500
L’Oréal	160 000	45 000	115 000	30 000	14 000	3 000	68 000
Edgars	240 000	160 000	80 000	12 500	0	4 000	63 500
Totals			240 000	57 500	24 000	8 500	150 000

Given (R × million)

Base year = 2001.
2001 data: quantity (Q) × price (P):
- Good A: 1000 \times R15
- Good B: 2000 \times R5
- GDP_{2001,nom}=R25\,000
2002 data:
- Nominal GDP (current prices): 1\,200 \times R20 + 2\,200 \times R10 = R46\,000
- Real GDP (base-year prices): 1\,200 \times R15 + 2\,200 \times R5 = R29\,000
Increases:
- Nominal: \frac{46\,000-25\,000}{25\,000}\times100 = 84\%
- Real: \frac{29\,000-25\,000}{25\,000}\times100 = 16\%

Role player	Sales	Buy	VA	Wages	Rent	Profit	Income total
Party-pro	850 300	610 300	240 000	6 600	32 800	200 600	240 000
Chef Lee	610 300	71 220	539 080	4 800	6 600	527 680	539 080
Walmart	71 220	0	71 220	5 900	4 000	61 320	71 220
Total GDP			850 300	—	—	—	850 300

Exercise 2 (R × thousand)
- NDP_{mp}=150\,000-5\,500=144\,500
- GDP_{fc}=150\,000-14\,000+25\,000=161\,000
Exercise 3
- Data give GDE{mp}; hence GDP{mp}=GDE_{mp}+X-Z = 9\,000+6\,900-6\,400 = 9\,500
- National Income: NI=9\,500-3\,100-2\,000+3\,000-1\,000=12\,215
Exercise 4
- GDE{fc}=GDP{mp}+Z-X+S-T = 8\,000+8\,350-6\,100+3\,200-900 = 12\,550
- NI_{mp}=8\,000-420-5\,000+4\,400 = 6\,980

From GDE to GDP: GDP{mp} = GDE{mp} + X - Z
From GDP to NDP: subtract depreciation (D).
From Domestic to National: add net factor income ((FP{in} - FP{out})).
Price conversions:
- GDP{fc}=GDP{mp}-T+S
- GDP{mp}=GDP{fc}+T-S
Cheat-Sheet mnemonic (sign conventions):
- +Z -X -D +FP{in} -FP{out} -T +S moves from GDE to NNP at factor cost.

Lorenz Curve: plots cumulative % of population (x-axis) against cumulative % of income (y-axis).
Gini Coefficient: G = \frac{A}{A+B} (A = area between line of equality and Lorenz curve).
- G \in [0,1]; higher values ⇒ greater inequality.
Gini Index: G \times 100 (percentage form).

Discouraged work-seekers are not part of labour force ⇒ official rate may understate slack.
High unemployment linked to lower tax revenue, higher welfare spending, social instability.

Current Account: trade in goods & services, net income, net current transfers.
Financial Account: FDI, portfolio investment, other investment, reserve assets.
Persistent CA deficits require FA surpluses or reserve depletion; may pressure exchange rate.

Growth vs distribution trade-off: rapid GDP growth may widen inequality.
Environmental cost: depreciation measure (D) ignores natural capital depletion.
National vs Domestic income: migrants’ remittances & profit repatriations affect resident welfare.

Always identify final vs intermediate goods before adding values.
Confirm whether data are at market prices or factor cost.
Depreciation is not a factor payment; exclude from income method.
When converting from GDP to GNP/GNI, watch direction of factor payments (in vs out).
Use correct base year when calculating real GDP.
For percentages: indicate whether change is in nominal, real, or price levels.

End of Study Notes.