Economic Indicators
Introduction (Chapter 1)
Interpreting economic data
• Always be acquainted with the definitions of the indicators.
• Determine to which period the data relates.
• Check whether the data are seasonally adjusted.
• Ascertain the geographical coverage of data.
• Check to see if the data has been adjusted for inflation.
• Check who has produced the figures.
• Check whether the data will be revised.
• Ascertain start and end points.
• Avoid mistaking levels with rates of change.
• Bear in mind correlation does not imply causation.
• Be extremely careful with international comparisons.
Volume, price and value
V=P×Q
Constant prices – real terms
Current prices – nominal terms
Percentages
Increase from 20 to 25
1 - 25/20 × 100 = 25% or (25-20)/20 × 100 = 25%
Decrease from 25 to 20
(20-25)/25 × 100 = -20%
Increase from 10% to 11% is a 10% increase but also an increase of 1 percentage point.
Stocks, flows and ratios
A stock has no time dimension and is measured at a particular point in time while a flow is
measured over a period. Ratios can be calculated between 2 stocks or two flows.
Averages
The sum of values of the different observations divided by the number of observations.
Weighted average – R10 per unit (90% weighting) × R100 per unit (10% weighting) =
10×0.9+100×0.1 = 19
Moving average – 20 (2001), 15 (2002), 25 (2003), 20 (2004), 45 (2005)
3 year moving average = 20+15+ = 20
, Total production, income and expenditure: the national accounts (Chapter 2)
Identities and equations
There are two types of equality: and identical equality (or identity) and a conditional equality (or
equation). The difference between an identity and an equation is that any value (s) of the
unknown variable (s) will satisfy an identity while an equation is satisfied by a unique value or set
of values.
Total production, income and expenditure
Product ≡ Income ≡ Expenditure on product
NB This only holds true if all 3 variables pertain to the same period, geographic area, same set of
prices.
Gross Domestic Product
GDP is the total value of all final goods and services produced within the geographic boundaries
of a country in a particular period usually one year.
• The first important element is value. By using the prices of goods and services the
national accounts can obtain the value of production.
• The second important element is final. Only final goods and services are taken into
account to avoid double counting.
• The third important element is “within the boundaries of the country”.
Gross Geographic product
GGP refers to figures that apply to a specific region of a country.
• Only goods and services produced in a particular period can be included.
• No provision has been made for consumption of fixed capital.
3 Approaches to the measurement of GDP
• Income method – focuses on income earned in the form of rent, wages, profits. Total
income by definition must equal total production.
• Expenditure method – total expenditure on final goods and services.
• Production method – calculated as the value added during each round.
Final consumption expenditure is the largest element of total expenditure in the economy.
Gross capital formation is divided into gross fixed capital formation and the change in inventories.
Capital formation is the purchase of capital goods (NB No provision has been made for
consumption of fixed capital).
Changes in inventories reflects goods produced during the period that have not been sold or
goods produced earlier but only sold in the current period. Subject to large variations – account
for significant portion of overall change in GDP.
Market prices = factor cost + all tax – all subsides
Market prices = basic price + all tax – subsides
Basic prices = factor cost + tax – subsides
Basic prices = market price - tax + subsides
Factor cost = market price - tax + subsides
Factor cost = basic price - tax + subsides
Introduction (Chapter 1)
Interpreting economic data
• Always be acquainted with the definitions of the indicators.
• Determine to which period the data relates.
• Check whether the data are seasonally adjusted.
• Ascertain the geographical coverage of data.
• Check to see if the data has been adjusted for inflation.
• Check who has produced the figures.
• Check whether the data will be revised.
• Ascertain start and end points.
• Avoid mistaking levels with rates of change.
• Bear in mind correlation does not imply causation.
• Be extremely careful with international comparisons.
Volume, price and value
V=P×Q
Constant prices – real terms
Current prices – nominal terms
Percentages
Increase from 20 to 25
1 - 25/20 × 100 = 25% or (25-20)/20 × 100 = 25%
Decrease from 25 to 20
(20-25)/25 × 100 = -20%
Increase from 10% to 11% is a 10% increase but also an increase of 1 percentage point.
Stocks, flows and ratios
A stock has no time dimension and is measured at a particular point in time while a flow is
measured over a period. Ratios can be calculated between 2 stocks or two flows.
Averages
The sum of values of the different observations divided by the number of observations.
Weighted average – R10 per unit (90% weighting) × R100 per unit (10% weighting) =
10×0.9+100×0.1 = 19
Moving average – 20 (2001), 15 (2002), 25 (2003), 20 (2004), 45 (2005)
3 year moving average = 20+15+ = 20
, Total production, income and expenditure: the national accounts (Chapter 2)
Identities and equations
There are two types of equality: and identical equality (or identity) and a conditional equality (or
equation). The difference between an identity and an equation is that any value (s) of the
unknown variable (s) will satisfy an identity while an equation is satisfied by a unique value or set
of values.
Total production, income and expenditure
Product ≡ Income ≡ Expenditure on product
NB This only holds true if all 3 variables pertain to the same period, geographic area, same set of
prices.
Gross Domestic Product
GDP is the total value of all final goods and services produced within the geographic boundaries
of a country in a particular period usually one year.
• The first important element is value. By using the prices of goods and services the
national accounts can obtain the value of production.
• The second important element is final. Only final goods and services are taken into
account to avoid double counting.
• The third important element is “within the boundaries of the country”.
Gross Geographic product
GGP refers to figures that apply to a specific region of a country.
• Only goods and services produced in a particular period can be included.
• No provision has been made for consumption of fixed capital.
3 Approaches to the measurement of GDP
• Income method – focuses on income earned in the form of rent, wages, profits. Total
income by definition must equal total production.
• Expenditure method – total expenditure on final goods and services.
• Production method – calculated as the value added during each round.
Final consumption expenditure is the largest element of total expenditure in the economy.
Gross capital formation is divided into gross fixed capital formation and the change in inventories.
Capital formation is the purchase of capital goods (NB No provision has been made for
consumption of fixed capital).
Changes in inventories reflects goods produced during the period that have not been sold or
goods produced earlier but only sold in the current period. Subject to large variations – account
for significant portion of overall change in GDP.
Market prices = factor cost + all tax – all subsides
Market prices = basic price + all tax – subsides
Basic prices = factor cost + tax – subsides
Basic prices = market price - tax + subsides
Factor cost = market price - tax + subsides
Factor cost = basic price - tax + subsides
