Transcript File - Year 11 Economics NIS

NIS Economics 2014
- Economic Indicators – Explanation
and use
Today we will look at:
Main Economic Indicators: GDP, HDI, Inflation, Unemployment, Trading
position.
Additional Economic Indicators: GNP, NNP – (see slide 55)
Interpreting Economic Indicators – Case study of Kazakhstan and her
trading partners (other countries)
WHAT IS AN ECONOMIC INDICATOR?
A tool used to understand various aspects an
economy.
A doctor looks at a patient’s blood tests, X-rays
and medical problems – Economists, Investors
and Governments look at an economics
Unemployment, Economic Growth, etc. in order
to make decisions.
GOVERNMENTS USE ECONOMIC DATA
Governments use economic data to help them
make the best policy decisions in order to grow
the economy and improve the lives of the
people.
INVESTORS USE ECONOMIC DATA
Businesses and investors use economic data in
order to discern (decide on) the best possible
strategic plan.
– When to invest?
– What to invest in?
– How much to invest?
The primary aim of a business is to “make profit”
ECONOMISTS USE ECONOMIC DATA
Economists use economic data in order to make
“positive economic” statement in their advice to
governments and investors.
Positive economics looks at facts, actual
numbers- nominative economics relates to
economic opinions, not statistical data.
Positive economics is more “scientific” and less
of a “social” analysis.
AND NOW… THE MAIN ECONOMIC INDICATORS
GROSS DOMESTIC PRODUCT (GDP)
Total dollar value of all goods and services
produced in the economy, indicates the wealth
of a country.
That is:
GDP = C + S + G + (X-M)
Or
GDP = C + I + G + (X-M) … Where S = I
C = Consuption
I = Investment
S = Savings
G = Government spending
(X-M) = Balance of trade
GROSS DOMESTIC PRODUCT (GDP)
Total dollar value of all goods and services (or
“output” produced in the economy, indicates
the wealth of a country.
This output can be accounted for by:
• C = Consumption
• I = Investment (which is the same as savings)
• G = Government spending
• (X-M) = Net value of exports and Imports
NOW… WE WILL GO THROUGH EACH OF THESE
PARTS OF GDP.
GROSS DOMESTIC PRODUCT (GDP)
Consumption
Think about all the money people have in the
economy. In Macroeconomics we say that people
can either
1. Spend that money now (consumption)
2. Save that money now (Savings, Investing)
So Consumption  increased GDP
Hence the model
GDP = C + I + G + (X-M)
GROSS DOMESTIC PRODUCT (GDP)
BUT Savings = Investment… why?
If you don’t spend money you save it. In marcoeconomics
we say that money saved is money invested
Investment = Savings
Because savings in the bank become loans to investors
who use the money to buy goods and services
So Investment  increased GDP
Hence the model
GDP = C + I + G + (X-M)
GROSS DOMESTIC PRODUCT (GDP)
Government spending
Governments spend money to buy goods and
services too. For example: Schools, Hospitals
and roads
So government spending  increased GDP
Hence the model
GDP = C + I + G + (X-M)
GROSS DOMESTIC PRODUCT (GDP)
Exports and Imports
When Kazakhstan exports resources to other
countries it ‘grows the domestic economy’
because they are selling ‘goods’ (output).
Increased output of exports  increased GDP
So increased exports  increased GDP
Hence the model
GDP = C + I + G + (X-M)
GROSS DOMESTIC PRODUCT (GDP)
Exports and Imports
But when Kazakhstan buys cars from china
spending is leaving the economy so this lowers
the domestic level of GDP. This is called a leakage
from the economy.
So Increased imports  decrease GDP
Hence the model
GDP = C + I + G + (X-M)
HUMAN DEVELOPMENT INDEX (HDI)
A tool developed by the United Nations to
measure and rank countries' levels of social and
economic development based on four criteria:
•
•
•
•
Life expectancy at birth,
mean years of schooling,
expected years of schooling and
gross national income per capita.
The HDI makes it possible to track changes in
development levels over time and to compare
development levels in different countries.
Percentage of people living below
the poverty line around the world:
Look at Kazakhstan compared to
China, Uzbekistan, Turkmenistan and
other countries
Can you say five things comparing different counties based on this
“Life expectancy map”
Example: “Life expectancy in Kazakhstan is higher than Russia
but in Africa the average person dies relatively young.”
INFLATION - CPI
Inflation can be defined as an increase in the
average levels of prices in an economy.
Governments actually go to the shops and look at
the prices of many products periodically. Over
time, they can measure changes in average
prices.
The actual index for this average price
measurement is called the CPI
EXAMPLE:
Food, Housing, Transport (etc.) spending chages per month
Interestingly: Medical care price increased, but energy prices fell.
Extreme Inflation – Germany, 1930
Germany, 1930
UNEMPLOYMENT
The number of people who do not have work in a
particular place.
This number does not include the elderly nor the
young.
In addition, in many countries it does not include
those who stay home with children, or those
who don’t want to work (not looking for work)
Many governments pay money to assist the unemployed. This can be
expensive. In addition unemployed people are not contributing to the
economy and are thus adding to inefficiency and slowing economic
growth.
Many people want work but cannot find it. Governments must find
ways to promote industries that can use these workers to expand
economic growth. This benefits the workers and society as a whole.
Europe currently has high unemployment levels, with “youth
unemployment” levels of up to 50% in many places. Not a good start
for a young person.
“youth unemployment” levels of up to
50%
Percentile rank: Unemployment rates around the world
Trading Position
Balance of Payments (BofP)
In simple terms:
BofP: A record of all monetary transactions
between one country and the rest of the world
Trading Position
Balance of Payments
We live in a global economy. Countries trade with
each other in an open market. For example
China exports a huge amount of the worlds
manufactured goods and Kazakhstan is a very
large exporter of primary resources.
Trading Position
The USA import more than it imports. What else can say from this information?
Trading Position
Balance of Payments (BofP)
A BofP surplus is seen as a good thing because
money is flowing into the country.
China and Kazakhstan both have very strong
BofP surpluses due to strong export capacity.
China exports more than it imports, thus they enjoy a health balance
of payments surplus
China’s exports levels have been increasing, as has their share of
world export levels
Economic Indicators tell us about the world
- What do these next slides tell us?
Financial Markets respond to Economic
Indicators
GDP in the world
Global Financial Crisis, 2008
Global Financial Crisis, 2008
Other Economics IndicatorsOther measures of output
Gross National Product (GNP):
Value of goods and services purchased,
less value required to new goods to replace those sold.
Also called market value of output in a year.
Net National Product (NNP):
GDP PLUS income to Australia residents
from overseas, MINUS income paid from Australia
to others overseas.
Today we looked at:
The main Economic Indicators
Who uses this information: Govt., Business, etc.
What the Indicators tell us about the economy
Finally, a look at various countries and their
situation