Transcript BER,Ppt2

Media and Journalism Module
Business and Economics For Reporters
2. Introduction to Economic Issues
BER,Ppt2.ppt
1
This week’s lesson
• What is an economy?
• Main components of an economy and
the roles they perform:
• Households
• Manufacturing and service industries
• Governments
• Economic data
• common terms and how they are
expressed.
BER,Ppt2.ppt
2
What is an economy?
• Thousands of definitions of economies and
economic models
• General agreement on the following
definition:
• The economy of a nation is the ways in which
goods and services are bought and sold, and the
way the nation’s money system operates.
• Four basic sectors in an economy:
•
•
•
•
Households or individuals - consumers
Businesses –producers
Governments –regulators and set taxes
Foreign entities – traders (nearly all economies
trade with others)
BER,Ppt2.ppt
3
Key Definitions
BER,Ppt2.ppt
4
Subsistence economies
• Economies that traditionally operated solely within
themselves and obtained all the things needed for
life from within the group.
• Wealth is not measured in any form of currency - it
exists in the form of natural resources.
• Food is grown or hunted
• Homes built from surrounding trees, caves or other
naturally occurring shelters.
• Short surpluses
• Reliance on renewal and reproduction within the
natural environment to ensure survival.
• Before currency was invented, subsistence
economies were the dominant economic system
throughout the world.
• Less and less true subsistence
economies
BER,Ppt2.ppt
5
Goods
• Goods are tangible, i.e. something that can be seen
or touched
• The production of goods requires using limited
resources to produce in order to satisfy wants
• An example - a farmer who grows sugarcane
• The farmer uses equipment manufactured from resources
• The ground is a natural resource used to grow the cane
• the growth and burning of the cane depletes the nutrients in the soil
• fertilisers are needed to restore the nutrients and grow strong cane
• limited resources used to produce natural or chemical fertilisers
• Water might be used to irrigate the crop
• At harvest - additional resources used – cane knives, equipment,
petrol, labour, trucks, trains and so on
• RESULT - a good that can be used or sold
BER,Ppt2.ppt
6
Services
• Services are intangible and can be provided in
numerous ways.
• can often see someone providing a service, but the service
is not something that someone can pick up and take home
to use.
• An example of a service is a ride in a taxi:
• It takes resources for the owner or driver to provide the service
• the passenger knows he is receiving a service - riding in the taxi
• When the ride is completed, the passenger doesn't have anything
tangible to hold, except possibly a receipt.
• Resources have been used to provide the service.
• The car used as the taxi, the fuel used to operate the taxi, and the
time spent by the driver are all examples of resources being used
to provide a service that will satisfy a want.
• As goods and services use resources that are limited
• Goods and services may also be scarce.
• Scarcity results when the demand for a good or service is greater
BER,Ppt2.ppt
7
than its supply.
Sectors in the Economy
The economy of a nation is the ways in which goods and services
are bought and sold, and the way the nation’s money system
BER,Ppt2.ppt
8
operates.
1. Individuals, consumers, households sector
• We are all individuals who consume products.
• Where there are no large shopping centres or supermarkets, most
of us buy food, we go to the market and buy vegetables, a pig or
some cooking pots, buy clothes or even put petrol in our cars.
• No matter how sophisticated or simple the economy, the tasks of
the individual or consumer is the same.
• It is at the individual level that decisions are made about:
• What products to buy
• Which brand or variety of product to buy
• How much to pay
• As individuals we have a vital question to consider – we want
something, so how do we pay for the products?
• The decisions we make at the level include:
•
•
•
•
Getting a job
Starting a business
Investing money
Borrowing money
BER,Ppt2.ppt
9
2. The Business Sector
• The business sector produces the goods and
services
• Three main groups:
• commercial
• industrial
• professional
• The business sector is responsible for production by
combining the four basic resources:
•
•
•
•
labour
capital
land
entrepreneurship.
• In economics these resources are called the factors
BER,Ppt2.ppt
10
of production and all four
factors are required.
Factors of production - Land
• Land provides the basic raw materials that become
the goods.
• Land in economic terms is more than the physical
earth
• the naturally occurring materials of the planet used for the
production of goods and services
• includes the land itself
• the minerals and nutrients in the ground
• the water, wildlife, and vegetation on the surface
• the air above.
• The natural resources and materials of the land
become the goods produced.
• Without these materials, there is no production.
BER,Ppt2.ppt
11
Factors of production - Labour
• Labour does the hands-on
work.
• Labour is the mental and
physical efforts of humans used
to produce goods and services.
• Labour includes:
• the physical effort of factory
workers and farmhands
• the mental effort of executives and
supervisors
BER,Ppt2.ppt
12
http://www.islandsbusiness.com/islands_business/index_dynamic/containerNameToReplace=MiddleMiddle/focusModuleID=16105/overideSkinName=issueArticlefull.tpl / www.planet-tonga.com/NTAS/officers.htm
Factors of production - Capital
• ‘Capital” is the tool that makes the job easier.
• Generally capital means the investment in goods that can
produce other goods in the future
• In economics - capital refers to the machines, roads, factories,
schools and office blocks which human beings produce in order
to produce other goods and services
• Most modern, industrialised economies have a large amount of
capital
• The capital we are referring to here is the produced factor of
production.
• Society often faced with the choice between producing
consumption goods that satisfy wants and needs, and capital
goods that are used for future production.
• Key role of capital is to make labour more productive
• A team of construction workers could well build a fourbedroom house with nothing but bare hands, BUT it would be
much easier and more productive for them if they could use a
range of hammers, saws, and
other tools.
BER,Ppt2.ppt
13
Factors of production - Entrepreneurship
• Entrepreneurship organises the entire process.
• Entrepreneurship is the human effort that takes on
the risk of bringing labour, capital, and land
together to produce goods.
• Entrepreneurship is the factor that organizes the
other three.
• Without someone to organise production, the other
three factors do not produce.
• A key component is risk.
• An entrepreneur is one who brings together all the
resources of land, labour, and capital to produce a better
product or service.
• The entrepreneur is willing to assume the risk of success
and failure.
BER,Ppt2.ppt
14
http://www.henrygeorge.org/chp7&8.htm
BER,Ppt2.ppt
15
3. The Government Sector
• The government sector includes all levels of
government
• federal,
• state, and
• local or provincial if these levels exist
• Not all countries have multiple levels of
government.
• Australia has a Federal Government, individual state
governments and then government by local councils and
municipalities
• Fiji has a Federal Government and a series of local
government and provincial operations.
• The role of the government sector regarding the
spending includes two related concepts
• government spending and
• government purchases.BER,Ppt2.ppt
16
The Government Sector
• Government Purchases:
• Specific term meaning actual expenditure made by the
government sector on goods and services
• Expenditures are used to purchase a share of gross
domestic product.
• Examples include military and defence spending, road and
bridge construction, education, and police protection
• Government Spending:
• Generic term for all spending by the government sector.
• spending for the purchase of goods and services i.e.
government purchases.
• Also includes Transfer payments – e.g. welfare payments
such as unemployment benefits or other social security
payments.
These two terms are sometimes used synonymously, BUT there is a difference.
BER,Ppt2.ppt
17
As journalists we should be careful to use the correct terms.
Economic Function of Govt.
• The main economic function of the
government sector is to impose resource
allocation decisions on the rest of the
economy
• Role of central bank - Reserve Bank of Tonga,
Fiji etc.:
• issues the country’s currency
• makes decisions about the nation’s financial
systems and
• holds the reserves of money for the government
• Regulation - establishing, executing, and
enforcing laws and rules.
BER,Ppt2.ppt
18
Economic Function of Govt.
• Governments
• control how businesses can operate
• make decisions about how to spend
government money
• decide on issues that affect the economy
• how much foreign investment to allow
• health standards must be followed by
businesses making food, etc.
• government sets the rules and businesses
must follow themBER,Ppt2.ppt
19
Economic Function of Govt.
• Society has decided that providing goods
and services in some circumstances is better
handled by the imposition of government
rules than by voluntary market decisions.
• To regulate the economy, a government
needs resources, which it acquires through
taxes.
• The ability to collect taxes requires government
spending.
• The taxing and spending ability creates an
important dimension of government.
• Rather than "ordering" others what to buy, the
government sector can do so directly.
BER,Ppt2.ppt
20
Role of Taxes
• The role of taxes is important
• Three main consequences:
• taxes reduce the disposable income of the
household sector
• tax revenue is diverted to government control
and provides the government sector with the
revenue it uses to operate
• Tax incentives or disincentives can be used to
encourage or discourage certain businesses
• An effective way of reallocating resources.
BER,Ppt2.ppt
21
4. Foreign sector
• Everyone and everything outside the political
boundaries of the domestic economy
• households, businesses, and governments in other
countries.
• For example Fiji’s principal trading partners are Australia,
New Zealand, Japan, and the United Kingdom – so the
citizens of those countries are members of the foreign
sector of the Fijian economy.
• The main facets of the foreign sector are:
• Exports - goods purchased by the foreign sector that are
produced by the domestic economy
• Imports - goods purchased by the domestic economy that
are produced by the foreign sector.
• Net exports - the difference between exports and imports,
or exports minus imports.
BER,Ppt2.ppt
22
Foreign sector example
• What happens in Fiji?
• The government of Fiji consistently runs a budget deficit
• In 1997, revenues were $665 million with expenditures of
$680 million.
• The balance of trade was also negative
• exports were $544 million
• imports were $1,254 million
• Sugar accounts for about one-third of Fiji’s exports.
• Clothing, fish, gold, and lumber are also important.
• The primary imports are machinery and transportation
equipment, petroleum products, and food.
• In the Fijian economy the foreign sector accounts
for a large proportion of the economy.
www.inkcinct.com.au
BER,Ppt2.ppt
23
How can we measure an economy?
BER,Ppt2.ppt
24
Economics data
• How can an economy be measured?
• What factors need to be considered
when trying to understand what is
going on in a country’s economy?
• or within a segment of an economy?
BER,Ppt2.ppt
25
How to measure an economy
• Economists have ways of gauging a
country's economic status
• These numbers take the form of how much
money is in the economy
• Important to distinguish between the real
numbers and the nominal numbers.
• Real numbers are numbers that are adjusted for
inflation. Inflation makes numbers seem larger
than they really are, so real numbers are nominal
numbers that have had the amount inflation
accounts for removed.
BER,Ppt2.ppt
26
Measures of an Economy
• The usual measures of an economy
are:
• Gross Domestic Product (GDP)
• Unemployment rate
• Inflation rate
• These figures tell us if an economy is:
• expanding or contracting,
• doing better or doing worse and
• look at trends and past performance.
•Statistical bureaus within a country collate and publish these figures
BER,Ppt2.ppt
27
•at frequent intervals e.g. Fiji Islands Bureau of Statistics.
Different types of data
• Four types of economic data:
• Total:
• A study of an overall economy is full of total data - count
everything. Used for calculating gross domestic product.
• Average:
• The arithmetic mean of several observations. A common
average is per capita income - the average income for each
person in the economy.
BER,Ppt2.ppt
28
Different types of data
• Percentage:
• The relative proportion of a value compared to a total. The
unemployment rate--the percent of the labour force
unemployed.
• Index:
• Composite number that shows changes relative to some
given time period or value. Leading economic indicators
combine assorted measurements like the money supply,
stock prices, and unemployment compensation claims
BER,Ppt2.ppt
29
Gross Domestic Product
• GDP measures the combined output within a
country's economy.
• includes all output occurring within a country,
individual income, business income, everything in
one year.
• The most common measure, and when
economists say the economy has risen or fallen
by a certain amount, they mean how the GDP has
changed
• Measures everything occurring within that
country, even if the money was made by
foreigners and foreign
corporations.
BER,Ppt2.ppt
30
Gross Domestic Product ctd
• Gross National Product (or GNP).
• measures the output of a country's businesses and people,
even if they are overseas.
• Citizens of a country that make income in another country
would be counted in the GNP.
• Multinational corporations would also have their profits
registered in the GNP of their home country.
• GNP minus GDP yields the net foreign income
• Output represented by foreign activity
• Can be positive or negative depending on whether a
country invests more overseas or more overseas countries
invest in it.
• Sometimes, net foreign income is not significant because
overseas profits and foreign profits made domestically may
offset each other.
BER,Ppt2.ppt
31
Unemployment rate
• The proportion of a civilian labour force of
employable age actively seeking employment
• They are unemployed and not engaged in the production of
goods and services.
• The unemployment rate is estimated and reported
monthly by most government statistic bureaus.
• Prime measure of labour unemployment in the economy
• A key indicator of business-cycle instability
• The unemployment rate measures the proportion of
the labour that is willing and able to work, but
unemployed.
Unemployment rate = total unemployed X 100%
BER,Ppt2.ppt
total civilian
labour force
32
Inflation rate
• Rise in prices measured against a standard level of
purchasing power
• Previously the term used to refer to an increase in the
money supply, (now called expansionary monetary policy or
monetary inflation)
• Inflation is measured by:
• comparing two sets of goods at two points in time
• computing the increase in cost not reflected by an increase
in quality
• Many measures of inflation depending on the
specific circumstances.
• The most well known:
• CPI - measures consumer prices
• GDP deflator - measures inflation in the whole economy
• Inflation is caused by the interaction of the supply
33
of money with output BER,Ppt2.ppt
and interest rates.
www.inkcinct.com.au
Inflation rate
• As journalists, you’ll come across these
terms which all relate to inflation:
• deflation - a general falling level of prices
• hyper-inflation - an out of control
inflationary spiral,
• stagflation - a combination of inflation and
poor economic growth.
BER,Ppt2.ppt
34
How do we measure inflation?
• Many different ways to measure inflation.
• Each inflationary measure takes a "basket" of
goods and services
• then the prices of the items in the basket are
compared to a previous time
• then adjustments are made for the changes in
the goods in the basket itself.
• For example if a month ago milk was sold in 1 litre
cartons and this month it is sold in 1.5litre cartons,
then the prices of the two cartons have to be adjusted
for the contents.
• The result is the amount of increase in price which is
attributed to "inflation" and not to improvements in
productivity.
BER,Ppt2.ppt
35
How do we measure inflation?
• Many measures of inflation
• which basket of goods and services are used as
the basis for comparison
• Different kinds of inflation measure are used to
determine the real change in prices, depending
on what the context is.
• Some common measures:
• Consumer Price Index (CPI) - measures the price
of a selection of goods purchased by a "typical
consumer".
• GDP Deflators – uses an entire economy as the
basket of goods and services. The term "deflator"
means the percentage to reduce current prices to
get the equivalent price in a previous period.
BER,Ppt2.ppt
36
How do we measure inflation?
• Purchasing Power Parity - adjusts for the inflationary effects of
goods being non-tradeable between two or more economies,
for example land prices. Used to compare standard of living
purchasing power between two economies. PPP adjustments
are measuring inflation in location, rather than in time. Many
inflation series numbers are also published for particular
geographic regions.
• Historical Inflation - used for the purpose of comparing
absolute standards of living “imputed inflation figures”.
• Note: Most inflation data before the early 20th century is
imputed that is based on the known costs of goods, rather
than compiled at the time. It is used to adjust for the
differences in real standard of living for the presence of
technology. This is equivalent to not adjusting the composition
of baskets over time.
BER,Ppt2.ppt
37
Summary
• The basic structure of an economy
• the flow of products and money throughout a standard
economy.
• Past contribution of subsistence economies in the
development of the world
• Concentrating on the most common economies now.
• Main functions of the economy and the roles
performed by:
•
•
•
•
Households
Manufacturing and service industries
Governments
Foreign sector
• Main measures of an economy
• Common types of economic data.
BER,Ppt2.ppt
38
Coming up!
• The key economic theories that shape the
world
• The role economics plays in business and
everyday life
•
•
•
•
•
•
•
•
Basic Economic Questions
Economic Decision-Making Model
Choices
Opportunity Costs
Economic Systems
Private Sector vs. Public Sector
Micro economics
Macro economics BER,Ppt2.ppt
39
http://longdarkteatime.com/2004_02_01_archive.html
BER,Ppt2.ppt
40