Download ECONOMICS

ECONOMICS
9 Topics
Topic 1 (3)
Inflation (Causes)
Demand-pull Inflation
Definition: When Demand is
faster than Supply
• Large demand, small supply
• Spend all income, no savings
• No capital formation
• Extravagant spending pattern
• Spending increase,
productivity not
• Reduction in taxes
• Higher exports without
higher production
Cost-push Inflation
Definition: Increase in cost of
goods and services with no
alternatives
• Demand higher wages without
increase in productivity
• Drop in productivity, wages
constant
• Strikes reduce production
• Exchange rate depreciation
• Petrol prices increase
• Shoplifting and losses
Consequences of Inflation
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Purchasing power of money decreases
Income and wealth are redistributed
Entrepreneurs can increase profit margins
Savings will decrease
Industrial an social unrest
Economic growth affected negatively
Unfavourable climate for economic activities
Harmful for free enterprise
Measures to combat inflation
1. Fiscal measures
- Tax increases (direct and indirect)
- Spending cuts (budget)
2. Monetary measures
- Reducing money supply (SARB)
Using interest rates and moral pressure
3. Other
- Price control, wage policy, increase productivity
Encourage personal saving, Import controls
Topic 2 (4)
Tourism
Definition: Activities of people travelling and
staying in places outside their usual homes
Reasons:
1. Leisure and recreation
2. Cultural tourism
3. Ecotourism
4. Business and professional
Effects of Tourism
1.
2.
3.
4.
Employment
Gross domestic product
Poverty
Externalities
*Positive
*Negative
5. The environment
6. Infrastructure
Benefits of Tourism
1. Households
- More people earn money
2. Businesses
- Many benefits – better infrastructure
3. Government
- Earn more money - taxes
4. Infrastructure
- Residents and visitors enjoy better infrastructure
Tourism Policy Initiatives
1. Marketing
Nationally & Internationally
2. Directing spatial distribution
Create representative bodies
Improve marketing
Improve supporting services
3. Taxation
Equity; Efficiency; Simplicity
4. Infrastructure
Improvement – roads, clean water, ambulances
Topic 3 (3)
Environmental Sustainability
Pollution
Conservation
Preservation
Def: Anything that damage Def: Preservation (looking
the natural environment
after) natural resources –
not disappear from
environment
Def: Preserving existing
assets, not used in a way
destructive to environment
1. Technology
- cleaner
2. Government
- control
- marginal decisions
3. Self-interest
- clean beaches
1. Private property
2. Preservation requires
compromise (give and
take)
3. Government policy
1. Conservation of stocks
(resources)
2. Maintaining renewable
stocks
* Market economy
(timber & fishing)
* Direct controls
(permits & quotas)
Externalities
• Definition:
Costs and benefits that were not planned for
Positive Externalities
- Benefits
- Decrease of pollution
Negative Externalities
- Costs
- Air pollution
Measures to ensure Sustainability
1. Market (driven by self-interest)
2. Public sector intervention (Granting property rights;
Environmental taxes; Environmental subsidies; Marketable
permits; Charging for the use of environment)
3. Public sector control (Command and Control [CAC];
3
approaches [quantity, quality, social impact standards]; voluntary
agreements; Education)
4. International measures (Biodiversity loss; Chemical
waste; Hazardous waste; Climate change; Loss of indigenous
knowledge)
5. International Agreements (Rio de Janeiro [UNCED];
Johannesburg [World Summit – WSSD]
Topic 4 (3)
Circular Flow
1 – Definition (Interaction between participants)
2 – Flows (Money flow & Real flow)
3 – Markets (Factor-, Product-, Financial market)
4 – Participants (Households, Businesses,
Government, Foreign sector)
Diagram
15 Key Concepts – p.2 & 3 Mind the Gap
GDP: 3 Calculations
• Production:(Prim. + Sec. + Ter. = Basic prices
+ tax – subsidy = GDP @ market prices)
• Income: (Remuneration + Net operating surplus +
consumption of fixed capital = Factor cost
+ other tax – other subsidy = Basic prices
+ tax – subsidy = GDP @ market prices)
• Expenditure:(C + I + G + residual item + X – M) =
GDP@ market prices
Multiplier
1 – Definition (an increase in spending produces a
proportionately larger increase in income)
2 – Formula (M = 1/1-mpc)
3 – Use the answer (M x amount spend)
4 – Diagram
Topic 5 (5)
Business Cycle
1. Diagram (with labels) & Definition
2. Approaches (Monetarist & Keynesian)
(Exogenous & Endogenous)
3. Government policies (5 Monetary
instruments)
4. New economic paradigm (Demand- and
Supply-side policies)
5. Indicators (8 indicators)
Approach
Exogenous (Monetarist)
• Sunspot theory (Friedman)
• Market are inherently stable
• Things from OUTSIDE
influence the market
• Things like weather
conditions and market
shocks
• Government should not
intervene in the market
Endogenous (Keynesian)
• Keynes
• Market are inherently
unstable
• Price mechanism fails to coordinate demand & supply
• Government should
intervene and help to
straighten the curve
Government Policies
1. Interest rates
2. Cash reserve requirements
3. Open market transactions
4. Moral persuasion
5. Exchange rate policy
I Catch One More Elephant
New economic paradigm
Demand-side policies
Inflation
- Demand then supply
- If not price will
- This will lead to inflation
Unemployment
- This stimulate growth
- Phillips curve (relationship)
Supply-side policies
1 - Reduction of costs
Cash incentives
2 - Improving efficiency of
inputs
Develop human resources
3 - Improving efficiency of
markets
Competition
Indicators
1.
2.
3.
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6.
7.
8.
Leading indicators (before)
Lagging indicators (after)
Co-incident indicators (together moving)
Trend (show the way)
Length (left to right)
Amplitude (top to bottom)
Extrapolation (use known facts to predicts)
Moving averages (changes in data over time)
Topic 6 (1)
Budget
Definition: Governments expected income and
planned expenses for one year
Period: 1 April – 31 March
Two categories:
* Main budget – end of February
* MTBPS Medium Term Budget Policy Statement – 3
year budget – October
Other sources of income: Loans, Donations,
Administrative income
Topic 7 (4)
Public Sector
• Problems – provisioning
• Reasons – failure
• Effects of Public sector failure
• 5 Macro Economic Goals
Public Sector
Problems - Provisioning
1.
2.
3.
4.
5.
6.
Accountability
Efficiency
Assessing of needs
Pricing policy
Parastatals
Privitisasion
Reasons - Failure
1.
2.
3.
4.
5.
6.
Management failure
Apathy
Lack of motivation
Bureaucracy
Structural weaknesses
Special interest groups
Effects of Public Sector Failure
• Allocation of resources – should counteract
market-provision incompatibility, if not – waste
resources
• Economic stability – Through fiscal and monetary
policy
• Distribution of income – Progressive income tax
system should redistribute income and wealth
• Social stability – Free services and cash grants to
poor
5 Macro Economic Goals
1. Price Stability
2. Equilibrium of Balance of Payment
3. Economic Growth
4. Full Employment
5. Equality of income
Topic 8 (5)
Foreign Exchange Market
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Reasons
Definition of Balance of Payments
Components of Balance of Payments
Exchange rate systems
Reasons for International Trade
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Demand Reasons
Size of population impacts
demand
Population’s income levels
effect demand
Increase in the wealth
Preferences and tastes
Difference in consumptions
patterns
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Supply Reasons
Natural resources
Climatic conditions
Labour resources
Technological resources
Specialisation
Capital
Balance of Payment
Definition: Record of import and export transactions
Components:
1. Current account
2. Capital Transfer account
3. Financial account
4. Reserve account
Current Account
(Money into country)
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Merchandise Exports
Net gold Exports
Services Receipts
Income Receipts
Current transfers (if +)
Difference between
two – Balance of
Current Account
(Money out of country)
• Merchandise Imports
• Payments for services
• Income Payments
• Current transfers (if -)
Difference between
Exports and Imports –
Trade Balance
Exchange rate systems
1. Free floating exchange rates – Demand and supply
determine exchange rates
2. Controlled exchange rates – Allowed to respond to
market forces within certain limits
3. Fixed exchange rates – Currencies are devaluated
and revaluated – by government
(Appreciation – Up; Depreciation – Down)
Topic 9 (1)
Market Structures
Perfect Markets
Imperfect Markets
Look at:
Number
Nature of product
Market entry
Control over price
Information
Demand Curve
1. Monopoly
2. Oligopoly
3. Monopolistic competition
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