Mancosa Full Time

Economics 1 B

Good morning.

My job is to make you excited about the subject, to ensure that you do well in your assignment, that you pass the exam with good marks and that you are able to interpret what is happening around you and argue in a different way that is different to the “man in the street” (than everybody else) about the economy and economic issues and interpret how the economy affects the welfare of people like ourselves.

We are going to be a bit controversial, outspoken about issues such as:


Price stability (inflation)


Economic Growth

Concepts such as the Developmental state,

Monetary and Fiscal Policies

Economic issues such as The Greek debt crisis

The Exchange rate

And so on.

There are a number of economic concepts that you should learn and understand.

You need to be able to use the terms such as




In an academic way.

The you need to understand the models used in economics and distinguish between Macro and Micro-economic concepts.

You should also develop your own personal economic theory based on you word view and be able to critically analyse the statements made by public figures when they talk about issues that affect the economy.

So let us begin.

What is Economics?

It the study of human being meet their more or less unlimited needs with the limited resources available.

What are these limited resources?

They are grouped into four production factors:





How are each remunerated ?

Rent, Interest, Wages and profit.

The two main players in the economy

Are FIRMS and Households ( 2 roles CONSUMERS & owners of the factors of production) in a more or less Capitalist society

The decisions taken by these parties and the relationships between these are specifically dealt with in Micoeconomics

But when we aggregate the different markets and look at the flow of goods and services on the one hand and a flow of factors of production on the other. And contra to these flows there is money (Income and expenditure).

And especially, in a modern economy these are not the only players – there is also the Government and Financial institutions (Saving and Investments) and then we have The International market (Imports and Exports) which also affects exchange rates and FDI’s

Now we are in the ambit of Macro Economics (p8). The degree to which the state is invloved in the economy is the degree to which the country is said to be mixed (between socialist and capitalist)

So macro economics has come to the fore (that is the role of the government has increased dramatically) since the 1930’s. Why? – because of an event we now call the great depression. And John Meynard Keynes has been a big influence legitimising through his theory, the role that the Governments play in the Economy

That is why Macroeconomics can be seen to be policy oriented.

You will find the issues that the relationship between the Government and the Economy deal with on p9.

The goals of most Macroeconomic policies are aimed at:

Full employment

Price Stability

Economic Growth

Balance of Payments

And one that is mentioned in your study guide on P 12 and that is the equitable distribution of income.

You may notice that your study guide highlights that the last one is more contentious than the others – though one could also question the validity of the first four.

But most economists would agree that attaining economic growth is the most important because it is from this that the others may flow. Economic Growth will ensure that the poor could become wealthier irrespective of the income gap that may exist. For example the economic growth and trade liberalisation and the adoption of free market policies in China and India and indeed Africa has resulted in millions being able to move out of poverty.

Any comments.

Summarise – p 13

Page 15.



Nominal and Real GDP



GDP is the total market value of the final goods and services produced within the borders of a country during a specific period – normally a year.

GDP growth is the annualised percentage growth from one period to the next.

4 elements – make sure that you know these.

Why is it important for business?

Used to make forecasts taking into account the variables that make up the GDP

It is a measure of the health of an ecionomy

Bases of comparison

Evaluate the effectiveness of policies.

An in terms of this the current SA policies are not producing the goodies. Why because political objectives of power is more important than the overall welfare of the country.

As George Bernard Shaw put it – If you rob Peter to pay Paul you can always count on the support of Paul.

Our policies are more aimed on the equitable distribution of wealth than on wealth creation.

This is for example reflected in the main fiscal instrument used by the Government and that is the annual budget which is heavily loaded towards social spending rather than capital spending – a departure from Trevor Manuals budgets under Mandela.

Let us briefly look at the three methods of calculating GDP

Production Method (relates to the definition above)

Expenditure method (relates to the definition above)

Income method

Also look at GNP


Nominal and Real.

Some shortcomings

Nkandla or a power station

NOTE: Question

GDP is the total market value of the final goods and services produced within the borders of a country during a specific period – normally a year.

This definition implies the use of the following method

(a) Production Method

(b) Expenditure method

(c) Income method

(d) Value added method

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