Measuring economic performance

Macroeconomics - this is where we look at the big picture - not the demand for beer or chocolate, not just the consumption of the Kennedy family and not just the investment of Pick ‘n Pay or Takelot.  Macroeconomics looks at everything – everything that is that is produced in the economy, total consumption by all households and investments by all firms in the economy. 

In any economy five Macroeconomic objectives are present in order to judge the performance of an economy:

-          Economic growth

-          Full employment

-          Price stability

-          Balance of payments and

-          Equitable distribution of income

Lets look at each of the objectives in detail:

Economic growth

Economic growth in any economy will exists if there is an increase in the production of goods and services form one period to the next.  Now how do we measure economic growth? 

The first thing one needs to do is to determine the total level of production as indicated above and we do this by looking at a country’s GDP (Gross Domestic Product) – a measure of economic performance and is defined as:

Total value

Remember we work with macroeconomics so it is the sum of all the production of goods and services

of all final goods and services

FINAL goods and services, not intermediary products or services

produced within a country’s boarder

If you buy a jean and you look at the tag in the jean and it says made in China you are stimulating China’s economy.  We only look at products and services within your country.

within a specific time period.

This is normally within a year or from one quarter to another.

Since we know what economic growth is and we can see if growth occurred by looking at GDP… how do one calculate GDP?

• We can measure GDP by means of the production method, expenditure method and income method.  Watch the video below to see how.

• Measuring at Market Prices and Factor costs.  Watch the video below to see how.

• Measuring at Current Prices (Nominal) and Constant Prices (Real) Watch the video below to see how.

Full employment

The objective of any economy is to keep unemployment as low as possible. It is then practical to measure the level of unemployment in a country – this is done by looking at how many people have jobs at the time of measurement. 

We express unemployment as an unemployment rate which is the number of unemployed persons expressed as a percentage of the total labour market.

The following was published by StatsSA in South Africa :http://www.statssa.gov.za/?p=11897

Price stability

In short, economists are interested in what is happening prices of goods and services in a country.  Specifically we look at a certain index called the CPI index – Consumer Price Index.  StatsSA published the following on the CPI index in South Africa.

Balance of Payments

The balance of payments of any country is the transactions they have with the rest of the world.  The balance of payments consists out of two accounts: Current and financial account.  The current account contains the purchases and sales to and from the rest of the world where the financial account consist of financial flows. 

See the following PDF document published by the South African Reserve Bank containing the Balance of Payments.

SARB Quarterly Bulletin : March 2019

Equitable distribution of income

Every country strive for equal distribution of income but it is almost impossible.  Watch the following video to look how we can illustrate inequality by means of the Lorenz curve.