Transcript 1) Output - efreidoc.fr

Economic Environment
Workshop Two
Indicators of Economic
Performance
-
Output
Unemployment
Inflation
Balance of Payments
Output
• Higher output is likely to raise people’s
living standards
• Output is measured by the Gross
Domestic Product
• -> The GDP of France = output from all
firms and organisations located in
France
The Evolution of the French GDP
Three Methods of Calculating Output
• 1) Output
– Measures output
from industries in
France
– Be careful not to
double count ->
• Value-added
Value-added in greetings card production (£m)
Value of
output
Cost of
intermediate
products
Value
added
Paper
producers
25
0
25
Designers
52
25
27
Card
producers
85
52
33
Retailers
140
85
55
140
Three Methods of Calculating Output
• 2) The Income Method
– The value of output corresponds to the
incomes created in production
– Income totals = wages, rents, etc.
– N.B. Transfer payments are not included
Three Methods of Calculating Output
• 3) The Expenditure Method
All the countries finished products –
spending on:
•
•
•
•
Consumption
Investment
Government spending
Export (not imports)
Output
•
•
•
•
Nominal GDP is measured in current prices;
real GDP is adjusted for inflation
What does an increased GDP mean? Is this
good or bad for a county?
In your opinion, which industry group has the
highest value added (e.g. agriculture…)?
In your opinion, which industry group has the
lowest value added?
Can you think of reasons why it might be
difficult to calculate a country’s real GDP?
Output
– Non-marketed goods and services
– Hidden goods
– Distribution of income
– Environmental effects….
Economic Indicator for 3
countries in 2001-%
Output
• Look at the table
opposite, which
economy do you
think performed
better?
• Look at the table
opposite and
calculate the UK’s
GDP in 2000.
Increase in
output
Increase in
prices
Unemployme
nt
Germany
0.8
2.4
7.9
Ireland
5.6
4.0
3.8
UK
2.4
1.2
5.1
£ billion
Consumer spending
536.5
Investment
155.7
Government spending
149.1
Exports
258.9
Imports
297.2
TOTAL
Inflation
• Inflation is the general increase in prices
for a sustained period of time
• Measured by the Retail Price Index
• What are the effects of inflation?
Inflation
- Uncertainty
- A fall in purchasing power
- A fall in the value of savings
- Higher wage demands
- Export problems
- Time-wasting costs
- Price administration costs
- Problems for those on fixed incomes
Controlling the Economy
• Over the past 25 years, overall demand for goods and services
has grown at roughly 2.2% in real terms.
• But the actual trend of business cycles has gone up and down
more -> business cycle -> 4 different phases
– Slump
– Recovery
– Boom
– Recession
– -> complex : lengths of cycle may vary ; the length of
individual phases may also vary
– -> Expectation and confidence play a big role
Fiscal Policy
• The government uses polices to try and influence
aggregate demand
• Direct influence -> taxes and government spending
• Indirect influence -> consumption and investment
• Generally speaking = governments aim to stabilize
the economy
• In a recession, governments may try too increase
aggregate demand -> for example, reduce taxes /
give subsidies to try and increase spending or try and
redistribute money from the rich to the poor (who
tend to spend more money)
Monetary Policy
• In recent years, the main tool of monetary policy has
been interest rates -> to control bank lending and
therefore the money in circulation
• Higher interest rates may encourage spending =>
more demand for goods and services, potential levels
of inflation, employment, exchange rates and foreign
trade
• In a situation when customers have too much money
to spend (from increased wages and credit) and
where output is at its maximum (=> risk of inflation)
interest rates will tend to be raised.
• Who decides on the base rate of interest for France?
Nicolas Sarkozy? The bank of France?……?
Supply-side Policies
• Some economists argue that European economies
are not performing to their best potential because of
supply-side problems -> particularly with the labour
market
• These economists argue that output is restricted
because of the power of trade unions, minimum wage
legislations and social security charges.
• Other supply-side policies => create incentives for
employees through extra tax allowances, lower tax
rates. The aim of these policies is to increase
investment and productivity of capital and labour.