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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