EKN 120
Economics
Contents
1. Facts about income inequality .............................................................................. 4
2. Causes of income inequality .................................................................................. 6
3. Equality vs efficiency ............................................................................................... 7
4. The economics of poverty ...................................................................................... 9
5. What is the government doing to change all of this? .......................................... 9
Chapter 13: South African in Brief: Private and Public Sectors .................................. 11
1. Private sector ......................................................................................................... 11
2. The public sector ................................................................................................... 14
3. Government’s role: a qualification ...................................................................... 16
4. Government finance ............................................................................................. 17
Chapter 14: Measuring domestic output and national income ............................... 18
1. Assessing the economy’s performance............................................................... 18
2. Gross domestic product vs gross national income ............................................. 18
3. Three ways of looking at GDP............................................................................... 19
4. The expenditure approach................................................................................... 20
5. The income approach .......................................................................................... 21
6. The production approach .................................................................................... 22
7. Other national accounts....................................................................................... 23
8. Nominal GDP vs real GDP ..................................................................................... 24
9. Shortcomings of GDP ............................................................................................ 25
Chapter 15: Basic macroeconomic relationships ...................................................... 26
1. The income-consumption and income-saving relationships ............................. 26
2. The interest-rate-investment relationship ............................................................. 29
3. The multiplier effect ............................................................................................... 30
Chapter 16: The aggregate expenditure model ....................................................... 32
1. introduction ............................................................................................................ 32
2. Consumption/ investment schedules .................................................................. 32
3. Other features of equilibrium GDP ....................................................................... 34
4. Changes in equilibrium GDP and the multiplier .................................................. 34
5. Adding the public sector ...................................................................................... 35
6. Adding international trade ................................................................................... 39
7. Equilibrium vs. full-employment GDP.................................................................... 39
1
, 8. Limitations of the model ........................................................................................ 40
Chapter 17: Aggregate demand and aggregate supply ........................................ 42
1. Aggregate demand.............................................................................................. 42
2. Changes in aggregate demand ......................................................................... 43
3. Aggregate supply.................................................................................................. 44
4. Changes in aggregate supply ............................................................................. 46
5. Equilibrium and changes in equilibrium ............................................................... 47
Chapter 18: Introduction to economic growth, Unemployment and Inflation ....... 49
1. Economic growth .................................................................................................. 49
2. The business cycle ................................................................................................. 50
3. Unemployment ...................................................................................................... 51
4. Inflation ................................................................................................................... 53
5. Does inflation affect output? ................................................................................ 55
Chapter 19: Government and market failure............................................................. 57
1. Public goods .......................................................................................................... 57
2. Externalities ............................................................................................................. 59
3. Information failures ................................................................................................ 63
Chapter 20: Fiscal policy, deficits and debt ............................................................... 66
1. Fiscal policy and the AD-AS model ...................................................................... 66
2. Built-in stability ........................................................................................................ 68
3. Problems, criticisms and complications ............................................................... 68
4. The public debt...................................................................................................... 69
5. False concerns ....................................................................................................... 69
6. Substantive issues ................................................................................................... 70
Chapter 21: Public choice theory and economics of taxation ................................ 72
1. Revealing preferences through majority voting ................................................. 72
2. Government failure ............................................................................................... 73
3. Apportioning tax burden ...................................................................................... 74
4. Tax incidence and efficiency loss ........................................................................ 75
5. The SA tax structure ............................................................................................... 77
Chapter 22: Disputes over macro theory and policy................................................. 78
1. Classical economics and Keynes ......................................................................... 78
2. What causes macro instability .............................................................................. 79
3. Does the economy self-correct?.......................................................................... 81
4. Rules or discretion? ................................................................................................ 82
5. Summary of alternative views ............................................................................... 83
2
,Chapter 23: International Trade................................................................................... 85
1. Economic basis for trade ...................................................................................... 85
2. Comparative advantage: Graphical Analysis .................................................... 85
3. Trade Barriers .......................................................................................................... 88
4. The case for peotection: Acritical review............................................................ 90
5. Offshoring ............................................................................................................... 91
Chapter 24: Exchange rates, balance of payments and trade deficits .................. 93
1. Financing of international trade ........................................................................... 93
2. The Balance of payments ..................................................................................... 93
3. Flexible exchange rates ........................................................................................ 95
4. Fixed exchange rates ............................................................................................ 98
5. Implications of SA trade deficits ........................................................................... 99
Chapter 25: South Africa in Global economy .......................................................... 101
1. International links ................................................................................................. 101
2. South Africa and world trade ............................................................................. 101
3. Government and trade ...................................................................................... 102
4. South African Trade relations .............................................................................. 102
5. The European union ............................................................................................ 103
6. Global competition ............................................................................................. 103
Chapter 26: The Economics of developing countries .............................................. 105
1. Classifications ....................................................................................................... 105
2. Obstacles to economic development .............................................................. 105
3. The vicious circle .................................................................................................. 107
4. The role of government ....................................................................................... 107
5. The role of advanced Nations ............................................................................ 108
6. Where from here? ................................................................................................ 109
3
, Chapter 12: Income Inequality and poverty
1. FACTS ABOUT INCOME INEQUALITY
Distribution
by income
category
Each decile represents 10% of the population
The total reflects the average of the columns
The Lorenz The cumulative percentage of households is measured along
curve the horizontal axis.
The accumulated percentage of their income is measured
along the vertical axis
Graph
Interpretation
Diagonal curve:
4
Economics
Contents
1. Facts about income inequality .............................................................................. 4
2. Causes of income inequality .................................................................................. 6
3. Equality vs efficiency ............................................................................................... 7
4. The economics of poverty ...................................................................................... 9
5. What is the government doing to change all of this? .......................................... 9
Chapter 13: South African in Brief: Private and Public Sectors .................................. 11
1. Private sector ......................................................................................................... 11
2. The public sector ................................................................................................... 14
3. Government’s role: a qualification ...................................................................... 16
4. Government finance ............................................................................................. 17
Chapter 14: Measuring domestic output and national income ............................... 18
1. Assessing the economy’s performance............................................................... 18
2. Gross domestic product vs gross national income ............................................. 18
3. Three ways of looking at GDP............................................................................... 19
4. The expenditure approach................................................................................... 20
5. The income approach .......................................................................................... 21
6. The production approach .................................................................................... 22
7. Other national accounts....................................................................................... 23
8. Nominal GDP vs real GDP ..................................................................................... 24
9. Shortcomings of GDP ............................................................................................ 25
Chapter 15: Basic macroeconomic relationships ...................................................... 26
1. The income-consumption and income-saving relationships ............................. 26
2. The interest-rate-investment relationship ............................................................. 29
3. The multiplier effect ............................................................................................... 30
Chapter 16: The aggregate expenditure model ....................................................... 32
1. introduction ............................................................................................................ 32
2. Consumption/ investment schedules .................................................................. 32
3. Other features of equilibrium GDP ....................................................................... 34
4. Changes in equilibrium GDP and the multiplier .................................................. 34
5. Adding the public sector ...................................................................................... 35
6. Adding international trade ................................................................................... 39
7. Equilibrium vs. full-employment GDP.................................................................... 39
1
, 8. Limitations of the model ........................................................................................ 40
Chapter 17: Aggregate demand and aggregate supply ........................................ 42
1. Aggregate demand.............................................................................................. 42
2. Changes in aggregate demand ......................................................................... 43
3. Aggregate supply.................................................................................................. 44
4. Changes in aggregate supply ............................................................................. 46
5. Equilibrium and changes in equilibrium ............................................................... 47
Chapter 18: Introduction to economic growth, Unemployment and Inflation ....... 49
1. Economic growth .................................................................................................. 49
2. The business cycle ................................................................................................. 50
3. Unemployment ...................................................................................................... 51
4. Inflation ................................................................................................................... 53
5. Does inflation affect output? ................................................................................ 55
Chapter 19: Government and market failure............................................................. 57
1. Public goods .......................................................................................................... 57
2. Externalities ............................................................................................................. 59
3. Information failures ................................................................................................ 63
Chapter 20: Fiscal policy, deficits and debt ............................................................... 66
1. Fiscal policy and the AD-AS model ...................................................................... 66
2. Built-in stability ........................................................................................................ 68
3. Problems, criticisms and complications ............................................................... 68
4. The public debt...................................................................................................... 69
5. False concerns ....................................................................................................... 69
6. Substantive issues ................................................................................................... 70
Chapter 21: Public choice theory and economics of taxation ................................ 72
1. Revealing preferences through majority voting ................................................. 72
2. Government failure ............................................................................................... 73
3. Apportioning tax burden ...................................................................................... 74
4. Tax incidence and efficiency loss ........................................................................ 75
5. The SA tax structure ............................................................................................... 77
Chapter 22: Disputes over macro theory and policy................................................. 78
1. Classical economics and Keynes ......................................................................... 78
2. What causes macro instability .............................................................................. 79
3. Does the economy self-correct?.......................................................................... 81
4. Rules or discretion? ................................................................................................ 82
5. Summary of alternative views ............................................................................... 83
2
,Chapter 23: International Trade................................................................................... 85
1. Economic basis for trade ...................................................................................... 85
2. Comparative advantage: Graphical Analysis .................................................... 85
3. Trade Barriers .......................................................................................................... 88
4. The case for peotection: Acritical review............................................................ 90
5. Offshoring ............................................................................................................... 91
Chapter 24: Exchange rates, balance of payments and trade deficits .................. 93
1. Financing of international trade ........................................................................... 93
2. The Balance of payments ..................................................................................... 93
3. Flexible exchange rates ........................................................................................ 95
4. Fixed exchange rates ............................................................................................ 98
5. Implications of SA trade deficits ........................................................................... 99
Chapter 25: South Africa in Global economy .......................................................... 101
1. International links ................................................................................................. 101
2. South Africa and world trade ............................................................................. 101
3. Government and trade ...................................................................................... 102
4. South African Trade relations .............................................................................. 102
5. The European union ............................................................................................ 103
6. Global competition ............................................................................................. 103
Chapter 26: The Economics of developing countries .............................................. 105
1. Classifications ....................................................................................................... 105
2. Obstacles to economic development .............................................................. 105
3. The vicious circle .................................................................................................. 107
4. The role of government ....................................................................................... 107
5. The role of advanced Nations ............................................................................ 108
6. Where from here? ................................................................................................ 109
3
, Chapter 12: Income Inequality and poverty
1. FACTS ABOUT INCOME INEQUALITY
Distribution
by income
category
Each decile represents 10% of the population
The total reflects the average of the columns
The Lorenz The cumulative percentage of households is measured along
curve the horizontal axis.
The accumulated percentage of their income is measured
along the vertical axis
Graph
Interpretation
Diagonal curve:
4
