ECONOMICS ECS102-8 TERMS CHAPTER 1:INTERDEPENDANCE OF THE MAJOR SECTORS,MARKETS AND FLOWS IN THJ ECONOMY.
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A STOCK :Has no Time dimension: at a moment. can only be measured at a moment,no time still picture of economy:eg water in a dam –"the level of"-.
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A FLOW :Has a time dimension,over a period of time –the period concerned must allways be . specified. eg:water flowing out of a dam-"flowing in/out"Income(from various FOP only) –generates (used to(partly) spend on)- SpendingSpending-Production –generates- Income(from Buys/pays for Production
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period,-
Productions aim :is to use/consume raw or other products to satisfy human wants. VARIOU VARIOUS S sector sectors s of of eco econom nomy: y: a. 2major 2major types= types=ho house usehol holds ds +fir +firms ms b. 4major types= types= Households,Firms Households,Firms,Government,Fo ,Government,Foreign reign sector,: sector,: all participate participate in the the sequence sequence of production production /income /spending and all also contribute to each of the major flows of economy:(incl.towards production) c. 5 major types :Households,Fi :Households,Firms,Governm rms,Government,Foreign ent,Foreign sector,Financial sector,Financial sector: sector: all participate participate in the the sequence sequence of production /income /spending and all also contribute to each of the major flows of economy:(incl.towards production) The fundamental markets in the economy are: i. Goods Goods and and serv servic ices es mar market ket ii. Factors of production production market.(fop market.(fop market)labour/raw market)labour/raw materials/entrepeneur materials/entrepeneurial/capital. ial/capital.
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Exchange (apart from—not incl. production/income / spending ,exchange is another link (–ie relations in economics)between economics)between the economic sectors.ie:takes place on goods+service goods+service market and FOP market.
8. 9.
Income
-is actually the remuneration/reward remuneration/rew ard for application of the factors of production.
RATIONAL : Assumption is that firms are rational-aim to max profit: for all Firms,and for all consumers-max utility or 10. Profit=to Profit=total tal revenuerevenue-expl explicit icit cost
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Total consumption Expenditure (or aggregate C.E)=total consumption /spending in economy(on consumer goods and services by households). households). Symbol="C" 12. Households:all Households:all the individuals individuals who live together and make joint economic decisions,or decisions,or others make for them./individuals,consumers/interchangably used terms.
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FIRMS:Definition of firms:The unit that employs FOP to produce goods and services that are sold in the goods market. 14. TYPES OF FIRMS: FIRMS:P50 P50 BOX BOX a. Indiv Individu idual al /Sole /Sole prop proprie rietor torshi ship p b. Part Partne ners rshi hips ps:: c. Companies d. Clos Close e Cor Corpo pora rati tion ons. s. ------------Main ones top------------e. Co-ope Co-operat rativ ives( es(eg eg agric agricul ultur ture) e) f. Trusts g. Public Public enterpri enterprise se (Gov.eg (Gov.eg eskom,sab eskom,sabc) c) h. Informal Informal sector:spa sector:spaza,ha za,hawker wker,she ,shebeen been,sub ,subsiste sistence nce farmers. farmers. 15. 15. Marke Markett Types; Types; a. Goo Goods Ma Marke rket. b. Fact Factor ors s mark market et The Circular flow of Goods and Services Diagram : Diagram which illustrates the interaction between 16. markets and firms.
17.
The Circular flow of Income and Spending : It's direction is OPPOSITE to Goods and Service flow.
Abbreviations of major Terms: I=Investment in capital goods(machines,bridges,robots etc). C=Households spending on consumer goods and services. G=Government spending on goods and services.
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T=taxes E=foreign spending on RSA goods and services. Z=RSA spending on foreign goods and services. S=saving 18. Aggregation Aggregation : lump all different different markets into one heading,ie:in heading,ie:in macro economics. economics. 3.3 Introducing the government: Government :includes local,regional or provincial,+national gov.////Incl:polititians ,civil servants,muncipal,mayors,etc, also public corporations eg:Escom/Transnet/SA Reserve Bank. 1. Public Sector Sector :in economics refer refer to public public sectorsector- means government government +everything +everything owned by, by, as representative representative of the people. 2. Primary function function of government government in economy-establish economy-establish framework framework within which which economy economy operates. operates. 3. Secondar Secondary y function functions s of Gov.:INV Gov.:INVOLVES OLVES 3 important important FLOWS: FLOWS: a. "G" =government =government spending spending on Goods and services &Factors of production(mostly production(mostly labour). labour). b. "T' =Taxes levied on households+f households+firms,-used irms,-used to finance finance services eg roads,defense. roads,defense. c. Transfer payments payments :from wealthy to poor poor eg:pensions.(DOES eg:pensions.(DOES NOT AFFECT AFFECT OVERALL OVERALL SIZE OF INCOME/EXPENDITURE/PROD INCOME/EXPENDITURE/PRODUCTION UCTION FLOWS-like taxes and "G" do so no "abbreviation" given for 'economic workings outs'. Introducing the Foreign Foreign Sector 3.4
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consumption (C) The act of using or consuming goods and services is called consumption. The total spending of all households on consumer goods and services is called total or aggregate consumption expenditure, or simply total consumption. The symbol C is used to indicate total consumption or consumer consumer spending in the economy. economy. The most important determinant of consumption spending by households is their disposable income. factor cost (or factor income) Factor cost (or factor income) is the incomes earned by the factors of production (ie their prices). It can be grouped into four categories: wages and salaries (for labour), rent (for land) , interest (for capital) and profits (for entrepreneurship). (more (more flows A flow is measured over a period of time. An example is investment which may be measured as the amount of investment spending per year. A flow variable differs from a stock variable, which measures the physical quantity at a given moment in time. Stocks and flows are related. An increase in the flow will increase the stock. For instance an increase in investment spending increases the stock of capital. Examples of flow variables are: Income, profit, loss, number of births and deaths, saving, demand for labour, gold sales, etc. total spending (expenditure) Total spending (expenditure) in the economy consists of spending by households, firms, the government and the foreign sector. In symbols: symbols: A = C + I + G + (X -Z). (more (more)) 1. 'Open 'Open Econ Economy omy'-s '-stro trong ng link links s with with rest rest of worldworld-exp exp/i /imp/ mp/mul multin tinati ationa onals. ls. 'globalisation'-recent 'globalisation'-recent yearst middle/lows economic links between countries countries grown stronger. 2. "Z" "Z" = Impo Import rts s –rsa –rsa mai mainl nly y capi capita tall &int &inter erme medi diat ate e good goods s 3. "E"= "E"= Exp Expor orts ts-r -rsa sa main mainly ly gold gold & mine minera rals ls 4. World World bank bank classifi classifies es its member members s into 4 groups( groups(leve levels ls of income income):lo ):low w income,lo income,lower wer middl middleinc eincome,u ome,upper pper middl middle e income,high income. 5. 2 broad broad categori categories es for for Foreign Foreign sector sector : develop developing ing countrie countries+in s+indust dustrial rial countrie countries s Financial Institutions in the Circular Flow of Goods and services 1. Financia Financiall Institut Institutions ions act act as links links between between house household holds s +firms +firms with with surplu surplus s funds funds and house household holds s and firms firms which which require funds. 2. Unit Units( s(fi firm rms/ s/or or hou house seho hold lds) s) can can be be clas classi sifi fied ed as; as; i. Surplus Surplus Units-those Units-those in a position position to save save because because spending spending less than income income ii. Deficit Units -those require funds spending spending more than incomeFinan incomeFinancial cial Institutions Institutions act act as links links between between households +firms with surplus funds and households and firms which require funds.
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CHAPTER 2 :MEASURING THE PERFORMANCE OF THE ECONOMY. -------------------------------------------------------------------------------------------------------------------------------. 1. GDP (gross domestic product)Definition is :The total value of all final goods and services produced within the borders of a specific country in a particular period. 2. TERM 5 Macroeconomic Objectives used to Judge the Performance of the EcoEnomy a. Economic Growth>most important one,to grow empl.&liveStandards,ec empl.&liveStandards,econ. on. must must grow,eg:pop.in grow,eg:pop.incr cr b. Full Employme Employment nt >need >need econ. econ.grow growth th to fill up, c. Price Price Stabilit Stability y >inflati >inflation-n on-not ot prices-s prices-see ee normalo normalo supply& supply&dema demand nd d. Balance Balance of Payments Payments Stability Stability (or External External Stability Stability)>&fo )>&foreig reign n exchange exchange rate e. Equitable Distribution Distribution of Income. more more normative normative less less positive,social positive,social +political +political threat security 3. TERM "NDP" : Net Domestic Production :is GDP – minus Depreciation Depreciation of machinary etc,it is more correct measure of economic performance,since it adjusts gross production for the decrease in value of capital goods. But GDP not NDP is mostly used because depreciation is difficult to calculate. 4. TERM "Consumption of fixed capital" is Depreciation of eg machinary.this is very important/significant shows what proportion of total output must be saved to maintain economys capacity(ie. :re-invested in capital goods)in 2002 was 13% of SA GDP! Added . 5. TERM GDP is also called GVA-Gross Value Added.
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Term :"Current :"Current Production" means only thatyeargoodsand services produced use tocalculateGDP. 3 SETS of PRICES PRICES that that can be used used to calcu calculate late GDP = PRICES TYPE USED USED FOR CALCULATING : Mark Market et Pric Prices es Expe Expend ndit itur ure e meth method od(F (Fin inal al Final goods Subsidies & LESS this = goods ) Indirect Basic Prices Tax&Subs./Unit good or Taxes on service.Tx-Vat,imp+ service.Tx-Vat,imp+ exp. products Subsidy for exports/Domestic for bread Basic Production method(val.add) Val. added OTHER taxes LESS this = Prices Other Tax&Subs NOT /Unit & subsidies Factor Prices goods/service on products eg:Tax-payroll,land tx,buldings,licence firm. :Subsidies-on employment or payroll Factor Income method(factor cost) Factor cost +"Other"=bas Cost fop TERM: 'Indirect' taxes = taxes on products eg VAT
a.
TERM Taxes and Subsidies on Products i. Taxes on products products =tax payable payable /unit /unit :VAT :VAT & Duties Duties on Imports & Taxes on Exports ii. Subsidies Subsidies on products=sub products=subsidies sidies linked linked to goods/service=p goods/service=per er unit to encourage encourage export & domestic product subsidy eg:bread below cost b. TERM OTHER Taxes and Subsidies (NOT per unit goods or service) i. OTHER taxes =NOT /unit goods&service goods&service eg:payroll eg:payroll,land,build ,land,buildings,busi ings,business ness licence. licence. ii. OTHER subsid subsidies= ies=NOT NOT /unit /unit goods&serv goods&service ice eg:employ eg:employment ment or payroll. payroll. GDP:expressed at current years price levels/not converted TERM GDP at Current prices = Nominal GDP:expressed
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TERM GDP at Constant prices = Real GDP inflation eg1995 GDP-gdp at current prices 11. TERM Nominal GDP-gdp
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:use a BASE years prices,convert others to that years :
GDP-GDP at constant prices TERM Real GDP-GDP
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value-also called :'Monetary value' means in "terms of the name" ie at face value , 5000 TERM Nominal value-also = 5000 or less/more value-means actual or essential,refers to purchasing power ,what? money can buy. 14. TERM Real value-means 15. Inflation :causes :causes monetary values of goods/pricesto goods/pricesto change per year-thus year-thus cannot compare different different years GDP's power -what a certain amount of money can buy.To calculate:The % of the first/base 16. TERM Purchasing power-what years price over the % of currrent years price .(how much this years go in last years=?70%)EG: 2000=100%=base year,this year 2003 = 115% of that:answer =100%/divided by 115%= 0.87: so to work out a answer you say 0.87 * 5 baskets in 2000 will give purchasing power of 4.35 baskets at current years prices. NUMBER:expresses 17. TERM INDEX NUMBER:express es value of some series over given period as % of it's value in a base period.eg the CPI-consumer price index is an INDEX NUMBER. a. Specific Indices :for :for relative relative changes:Convert changes:Convert all all of different different years prices to percentages percentages of one of of the years prices ,to compare these %'s to each other ie:price/base price*100/1=% of base price.,thus the answer is NOT an increase of eg. 127 %,BUT an increase of 27% and the new price is 127% of the old price-but increase is only 27%!!!!!!!!NOTE!!!! b. General or Composite Composite Indices Indices :for combine combine different different series:CPI series:CPI is a composite composite index index where where a lot of different indexes are compiled(eg % change in bread price is one in series,% for meat another) and this series of prices are combined according to a weighted average(how much bread eaten to meat)to get final composite or general index. 18. TERM Base year:year year:year used as guideline for coverting other years years prices to, to find Real value/Constant Prices Income =GNational P>derived by :(IS NOT GDI,but GDI,but GNI) 19. TERM GNI=Gross National Income=GNational
a. b. 20. 21.
FOP-income earned in borders of SA by FOREIGN NATIONALS. SUBTRACT :all :all FOP-income FOP-income earned outside borders of SA by RSA NATIONALS. :all :all FOP-income i. include include in FOP-Intere FOP-Interest st from money lenders, lenders,divi dividend dends(pr s(profit) ofit) etc. Product =GNI=[GDP-(foreigners+l TERM GNP=Gross National Product=GNI=[GDP-(for eigners+locals ocals overseas)FOP overseas)FOP income] ADD
Payments&Receipts:Payments=to foreigners TERM:Primary TERM:Primary Income Payments&Receipts:Payments=to foreigners ; Receipts=from Receipts=from foreigners. foreigners. – The FOP add/subtract in calculation can also be called this insread. 22. TERM :NET primary income pay.OR rec.=larger minus smaller (name =larger)
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TERM Residual value in national Accounts for aqbove calculayin means-where 3 different methods of calculating GDP conflict-ie Production method,Expenditure method,Income method. Formation :In national accounts Investment spending called capital formation,Note 24. TERM Gross Capital Formation:In includes Gov. spend on Investment.,and Gross means not less depreciation. expenditure- only money spent in the borders :incl.imp./excl.exp TERM GDE =gross domestic expenditure-only 25.
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Exports =(for common GDP calculation) =X-Z TERM Net Exports=(for (TERM Residual value difference 3 methods calc GDP) (TERM:NET (TERM:NET primary income pay.OR rec.=larger minus smaller (name =larger)) Unemployment:of those willing and able to work ,the rate/index/% etc of those not employed. TERM Unemployment:of NUMBER:expresses TERM INDEX NUMBER:express es value of some series over given period as % of it's value in a base
period. a. Specific Indices :for relative relative changes:Con changes:Convert vert all values in a list to percentages. percentages. b. General General or Compos Composite ite Indices Indices :for :for combin combine e different different series series:: Index: is an index of the prices of a representative "basket " of consumer 31. TERM CPI Consumer Price Index:is goods and services: it thus represents the cost of the shopping basket of goods & services of a typical RSA household. good/sevice: ..Stats SA a. TERM Determine Weight of each good/sevice: does a survey 5 yrly to determine relative importance in Av. Consumers Basket. b. TERM Decide on a BASE YEAR for calculating CPI : ..Base year is year in which the Survey(5 yearly) is done 32. TERM: Balance of payments consists of 2 major accounts:
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Current account:Part account:Part of "balance of payments" account,Account of a country of all:Sales:Exports,Purchases:Imports+Primary Income Pay&Rec. Financial account:Account account:Account of country of all flows of money into and out of country9like a bank statement.eg sales +purchases of assets-bonds,shares etc . account:Exports exceeded Imports TERM :Surplus : Surplus on Current account:Exports account:Imports exceeded Exports. TERM :Deficit : Deficit on Current account:Imports
Capital):Inflows of money exceeded TERM :Surplus : Surplus on Financial account:(also –NET INFLOW of Capital):Inflows Outflows of Money.
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TERM :Deficit : Deficit on Financial account:(also –NET OUTFLOW of Capital): Outflows of money exceeded Inflows of Money. Reserves:Add current &financial 37. TERM :Change : Change in the Countries Gold and Foreign Exchange Reserves:Add accounts.-the result serves as the balancing item on the balance of payments. Income :to people/races/levels,all fop included. 38. TERM Personal distribution of Income:to
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Income :Between FOP only. TERM Functional distribution of Income:Between
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TERM Gini Index = Gini coefficient multiply*100 (ie between 0-100 then,not 0-1)
Term A Lorenz Curve is a simple graphic device which illustrates the degree of inequality in dist. of income.(or any other variable)-named after american statistician developed it 1905. 41. TERM Gini coefficient or ratio =area of inequality /divided by/ area of triangle [axes-diagonal]. [axes-diago nal]. TERM Quantile Ratio is [the % income of Highest 20%] divided by [% income of Lowest 20%]
The growth in total production can be measured by The growth on a per capita basis is provided by the growth in the real GDP calculating calculating the percentage change in the real GDP from one per capita.
year to the next.
South Africa
(more more))
South Africa
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19.
economic growth Economic growth is traditionally defined as the annual rate of increase in total production production or income in the economy. This definition has to be qualified in two important respects. First, the production, or income should be measured in real terms, that is, the the effects of inflation should be eliminated. eliminated. Second, the figures should also be adjusted for population growth. growth. In other words it should be expressed on a per capita basis. (more)
b.
full employment Full employment is one of five macroeconomic objectives. It is achieved when all available resources (labour, capital, land, and entrepreneurship) are used to produce goods and services. This goal is commonly indicated by the employment of labour resources (measured by the unemployment rate). ( more more))
c.
price stability Price stability is one of five macroeconomic objectives. objectives. It refers to the objective objective of keeping inflation inflation as low as possible. Inflation is a rise in the general (average) level of prices in the economy. Inflation is calculated by measuring the change in the consumer price index (CPI). The consumer price index reflects the cost of a representative basket of consumer goods and services consumed by the average South African household. (more)
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balance of payments The balance of payments is a systematic statistical record of all economic transactions transactions between residents in the reporting country (eg South Africa) and the rest of the world during a particular period (quarter or year). (more (more
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CHAPTER 3 :THE MONETARY SECTOR.
CS102-8
CHAPTER 4 : THE THE PUBLIC PUBLIC SECTOR.(MACROECONOMIC SECTOR.(MACROECONOMICS) S) le of Government in the Economy : An Overview: 16.1p384 The 'Public sector' in SA consists of: o 'General Government' Central Gov.-defence,foreign affairs Provincial Gov-housing,health services,education(TEPD) Local Gov-muncipal-sewerage Gov-muncipal-sewerage etc o Public Corporations-escom,transnet, Corporations-escom,transnet, •
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system-ie:"Free market system' of economy TERM Market system :"invisible hand"coordinates millions- Efficient system-ie:"Free type allocates resources in best possible way.But not necessarily Equity 2. equity or fairness fairness / and and efficient efficient -market -market system is money money votes count only-proble only-problem. m. 3. Reason Reasons s for Gov. Gov. Interve Interventi ntion on in Econom Economy: y: a. Non-effic Non-efficienc iency-Ma y-Market rket failure failure ,if ,if system system sometimes sometimes fails fails.. b. Non-equitable Non-equitable –(fairness –(fairness eg: income ,poverty) ,poverty) outcomes.-but outcomes.-but can be trade off off with efficiency. efficiency. c. Provide recognise property rights,contract rights,contract law,law an order,services-water+lig order,services-water+lights hts etc. etc. 4. Reasons for Non-intervention- market forces are seen as being better solvewhat,how,for solvewhat,how,for whom
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Term Fiscal Policy: Government policy on level and composition of government spending,taxation and borrowing.(from fiscus-roman treasury) Main Instrument OF gov policy :Budget The The Fisc Fiscal al Var Varia iabl bles es are are : a. (G) (G) = Gov. Gov. Spen Spendi ding ng and and b. (T) (T) = Taxa Taxati tion on.. management:an instrument of Fiscal policy is classified as an instrument of Demand .Term Demand management:an management because it is an effective means of influencing Total Spending in the economy.Monetary policy is also such.(Definition: such.(Definition: can be used to manage/regulate manage/regulate the total demand for goods and services in the economy.)
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policies:If TERM Expansionary Fiscal &monetary policies: If economy in Recession,to stimulate economic activitymeans -1-Reduce or Not increase Tax -2-Raise Spending. policies: If economy expanding too rapidly and -1 TERM Contractionary or Retrictive Fiscal &monetary policies:If Inflation -2-Balance of Payments problems experienced:means experienced:means Gov. must-1- Taxes Increase and/or Reduce Spending. Lags/Delays-one of basic difficulties assosiated with attempts stabilise economy. Term Lags/Delays-one
/Surplass:Difference between Gov. spending and Income. Term Budget Deficit /Surplass:Difference 9. Fiscal policy policy can influence influence microeconomi microeconomics cs as well:specifi well:specific c markets/products markets/products tax,subsidy tax,subsidy or town. town. Crowding out effect"-when effect"-when Gov.spending Gov.spending increases increases and crowds crowds out private private sector. sector. Gov spend spendin ing g can can be classi classifie fied d a. econ econom omic ical ally ly i. consump consumption tion spendin spending g :for :for final final consu consumpti mption on = 3% 3% ii. investme investment nt spendin spending g :investme :investment nt in capital capital goods goods = 19% 19% b. functionally: Changed from from War/Internal strife defense/policing type and economic services (mining,agriculture,exporter support) spending to social spending.
/Surplass:Difference between Gov. spending and Gov. Income .80/90's >gov.Invstmt. Future 1) Term Budget Deficit /Surplass:Difference generation must pay for todays borrowing,OK for capital(=returns),not OK for consumption. Term Inflationary Financing: gov.borrowing because increases money supply.
2) 3) Term Public debt: 34%90's34%90's-45% 45% gdp:from gov.borrowing-eg 1990,increases Interest on gov debt.to 20c per R Tax today. -1-Criteria for a good tax: -Adam Smith-equitable,conven Smith-equitable,convenient,economic ient,economic,certain ,certain
a)
Neutrality :The cost(damage) cost(da mage) of taxes must be kept as low as possible:but can also be used to fix i) -1-Distort Relative Prices:allocation Prices:allocation of resources+we resources+welfare-make lfare-make some things things more expensive expensive than others.Relative prices ii) -2-Disincentive -2-Disincentive to owners-FOP:eg owners-FOP:eg workers(work workers(work less)+factories less)+factories not produce certain.
b)
Equity:People Equity: People must be taxed equally :two principles to this i) Ability Ability to to pay princip principle: le: Must Must pay accor according ding to abilit ability y
(1) Horizontal equity-same income incom e taxpayers to pay equally (2) Vertical equity -Richer must pay more than poorer people. ii)
c)
Benefit principle:or principle:or User Charges-each Charges-each user pay benefits they get from from Gov.-eg Gov.-eg toll rd.,h20,
Administrative Simplicity:Keep costs low + easy admin (tax loopholes +complicated taxes) i) Costs: cost s: user pay accountant to do tax return. ret urn. (1) Compliance costs (2) Administration Administratio n costs.: Gov.costs tax collector
2) Term Tax Avoidance: legal find loopholes-cause frustration those who cannot 3) Term Tax Evasion: illegal-make +sell t-shirts on flea market,not declare taxes. Prices:price of one good relative to another 4) term Relative Prices:price -2-Different Types of Tax:
1) 2) 3) 4) 5) 6)
+Wealth"):Personal+Company+Estate term:Direct term:Direct Tax (or "Taxes on Income +Wealth"):Personal+Co mpany+Estate Duty. term:Indirect term:Indirect tax (or "taxes on Goods and Services") :on transactions :vat.,customs,excise. tax:on variety of things,not specific eg VAT. term:General term:General tax:on tax:on specific things eg: fuel or tobacco or alcohol. term :Selective :Selective tax:on Tax:Per unit:eg R4 on each beer term Specific Excise Tax:Per
tax :% of value eg 5% term Ad Valorem tax:% 7) based based on on ratio ratio of tax tax to income income a) term :Prog :Progress ressive ive Tax:Ri Tax:Rich ch pay high higher er "!! % !!" than than poor.e poor.eg g RSA b) term :Propor :Proportion tional al Tax:Rich Tax:Rich pay pay same levels levels as Poor(in Poor(in %) eg company company tax tax c) term :Regressive :Regressive Tax: takes less as income levels levels increase increase eg VAT(% of income paid out) out) -6-Taxation in RSA. 1) 3 main main typ types es of of tax tax in RSA:' RSA:'
a)
Personal Tax :Most important in i n SA today,on 'taxable income',from income',fro m table with minimum start/rate st art/rate
i)
Rate:rate each additional rand (rate for each level is taxed(=on tax table term Marginal Tax Rate:rate
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ii)
Rate:ratio between rate and income term Average/Effective Tax Rate:ratio iii) last years SA SA less tax brackets(15to brackets(15to 6)+base broadened broadened(More (More fringe fringe benefits taxed) taxed) Tax:sales of fixed property-to compensate nominal/real gains only above 10 000-difficult iv) term Capital Gains Tax:sales to administer,+increases administer,+increases horizontal equity+integrity equity+integrity Personal .Tax Base.(per inc.level)
b)
Company Tax:- was Proportional Proportio nal tax:at 30% flat rate
i)
term Secondary tax :on shares dividends to shareholders.7.5%
c)
VAT: 'regressive tax', thus some goods zero rated for vat. d) Today: personal=#1,vat=2,comp personal=#1,vat=2,companies=3,exci anies=3,excise se =4,customs =4,customs =5 from before before companies companies 2,
-7-Tax Incidence-ie: Who really Pays the Taxes? 1) Fly –paper –paper theory theory:taxe :taxes s stick where where Gov. puts puts them-but them-but not exactl exactly y true 2) term Incide Incidence-n nce-not ot who pays pays the tax,who tax,who is burden burdened ed by it actually actually.. Taxes: Gov. can specify who must hand tax over to them. 3) term Statutory or Legal Incidence of Taxes:
4)
term Effective Incidence of Tax :who actually pays cannot be determined by who hands Rands over to Gov.1because everyone shifts tax forward/backward to customers etc+ 2-changdecision 5) The degree degree to which which a tax can can be shifted shifted depends depends on the price elasticities elasticities of the the goods/services-high goods/services-high=not =not easy,low=easy
CHAPTER 6
1.
term Says Law : Y –causes- A old school belief of some economists,:SUPPLY WILL CREATE IT'S OWN DEMAND. (JEAN-BABTISTE SAY) –there are automatic mechanisms which keep the economy at full-employment level Advocates:Gov. Intervention of income or that restore this balance.+allsave/leakb balance.+allsave/leakback ack .Advocates:Gov. at: Yf = full employment in Economy to stimulate Tot demand unneeded. . .Equilibrium at: level of income-where all FOP are employed fully. . Direction of Causality:Y –to –A
2. term Keynesian Model
:A –causes- Y Demand Demand or Spending various happenings,incl. great depression caused belief to change:John Maynard Keynes in "general theory of employment,interest &money" wrote .Advocates: Gov. must intervene at times to stimulate 'Aggregate Demand'. at: A=Y or: A=Y or:C+I C+I =Y Aggregate (spending)demand .Equilibrium at: (spending)demand must = Total income.,can occour at any level iof income,will not necessarily tend towards full employment by itself,could need Gov. intervention for under employment or over employment(overtime) . Direction of Causality:A –to –Y
1. 2.
term Exogenous variables :variables outside an economic model.not included in models determining but do influence the model from outside. C+I =Y (Consumption is by -only Firms) A=C+I A= -only Households +Investment +Investment is by -only -only Firms)
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3. 4.
Supp Supply ly is plan plans s of firm firms,d s,dema emand nd is plan plans s or deci decisio sions ns of hous househo eholds lds(bu (butt in MACR MACROEC OECONO ONOMIC MICS S not not only only PLANS PLANS but but ALSO actual things bought are counted. Importan Importantt point:Ma point:Macroe croecono conomic mic Theory Theory are devices devices to Explain( Explain(sect sectors ors economy) economy) ,Predict ,Predict(sec (sectors) tors) ,Policy(a ,Policy(analy nalyse se effects), of various sectors of economy Ex Ante . It deals with 'Plans and Intentions',not Ex Poste events in past like the national accounts.
1.
of Consumer goods&services: goods&services: durable,non-durable,semi-durable,services. term 4 major types of Consumer
a. b. c.
Consumption increases/decreases increases/decreases as Income increases/decreases(di increases/decreases(direct rect relationship) relationship) Consumption Positive even if Income Zero(shows influence non-income determinants on spending) if Income Zero(shows Consumption increases Less than an Income increase. (part (part Saved)
term Marginal Propensity to Consume:= "c"=change Y(income) over change C (consumption) Shows the proportion of EXTRA income that will be used for Consumption ratio Autonomous consumption: consumption: "C-BAR "C-BAR"" is the autonomous consumption.Bar above C indicates it is autonomous/independant from Y.Value of Cbar determines the position of curve from intercept on the vertical axis. Induced consumption: depends on 2 things:
•
1. 2.
a. b. 1. 1. 1.
2.
slope) marginal propensity to consume(which gives the slope) level of income(Y)
"S"= SAVING TERM "S"= capital capital formation formation:inve :investment stment spendi spending ng called called this in in 'national 'national accounts'. accounts'. term Real Real Investment=c Investment=capit apital al goods goods for product production ion purpose purposes s only no shares shares etc etc term Financial Investment = =eg eg shares,bonds,deposits
Term Aggregate spending is the total demand for goods and services in the economy and is given by the following equation: A = C + I + G + (X - Z) C - consumption expenditure I - investment expenditure G - government expenditure X - exports Z - imports
1. 2. 3.
term "Aggregate Spending Function" A = C+I or ( A=Abar cY ) term Y 0 = INCOME equilibrium 45 deg intercept . –see dotted line indicating on graph.
term A0 = DEMAND/ equilibrium 45 deg intercept . –see dotted line indicating on graph. { "Aggregate "Aggregate Spending Function" A = C+I or ( A=Abar cY ) } This Multiplier is one of central concepts in macroeconomics:#@#*Change macroeconomics:#@#*Change in I =change in Y
chapter 7- keynes incl gov + foreign
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