ECS2603-notes summary.

ECS2603 CHAPTER 1 1.1 ECONOMIC INDICATORS. Economic indicators only indicate something if compared to something else. Reasons for monitoring indicators:  To expand business and explore new markets  Asses general performance of the economy  Effectiveness of economic policy  Compare economic policies between countries.  Make economic forecasts  Speculators monitor to decide whether to buy or sell socks. ‘Pure’ economic indicator terms:  Gross Domestic Products (GDP)  Rate of economic growth  Consumer price index (CPI)  Producer price Index (PPI)  Inflation rate  The money stock  Balance of payments  Exchange rates  Budget deficit  National Debt 1.2 ASSESING THE PERFORMANCE OF THE ECONOMY At the microeconomic level the following objectives usually serve as criteria for judging the state of the economy:  Economic Growth: How does one measure performance of the economy in relation to the growth target  Full Employment: How is the employment performance of the economy measured?  Price Stability: Inflation how is it measured? What is an index, how are they calculated?  Balance of Payments Stability: What is the BOP? What is the significance of the subaccounts of the BOP?  An Equitable Distribution of Income: How to assess the distribution of income and techniques? 1.3 SOURCE OF ECONOMIC DATA. The main sources of the South African economic data and data required to make comparisons. Two most important agencies which collect economic data in SA are Statistics South Africa (Stats SA) and the South African Reserve Bank (SARB). Stats SA is the central government body in SA that is authorised in terms of the Statistics Act to compile and publish national statistics.  SARB Quarterly Bulletin: Best known and most frequently quoted data sources and contains economic data only. It contains an extensive summary and interpretation of recent economic developments, including short-term policy. Greater part consists of 150+ statistical tables covering most aspects of SA economy.  SARB Annual Report: This incorporates the Annual Economic Report which contains a review of economic and financial conditions during the past 12 months. Data is presented as ratios in rate of changes.  Release of Selected Monthly Data: SARB updates monthly money and banking and other stats by issuing a brief Release Selected Monthly Data.  South African Statistics: This is the most comprehensive collection of annual South African data.  Bulletin of Statistics: Regular quarterly publication of Stats SA which can be used to update South African Statistics.  P Series or Statistical Releases: When data becomes available between the Bulletin of Statistics and South African Statics, SARB publishes the P Series.  Stats in Brief: Annual release pocket guide containing data on 18 different topics.  Quarterly Labour Force Survey: Contains the results of rotating panels household survey specifically designed to measure the dynamics of employment and unemployment in the country.  Budget Review: Published by treasury to coincide with the Minister of Finance Budget speech.  Secondary Data Sources: Data supplied by firms who specialise in providing economic data and making them available to end users. 1 | P a g e  International Economic Data: The IMF, World Bank and United Nations regularly collect and publish data for all countries. Useful source is the International Financial Statistics from the IMF contains data of all IMF countries on exchange rates, international liquidity, banking, trade and prices and national accounting data. 1.4 INTERPRETING ECONOMIC DATA Interpreting data requires an understanding of the data, knowledge of which data to use and an awareness of the limitations of the data. Here below are basic hints when economic data is being interpreted.  The definitions the indicators should always be checked carefully  Determine the period to which the data relates.  Always make sure data is seasonally adjusted.  Always check whether the variable is a stock or flow.  Ascertain the geographic coverage of the data.  Check if the data has been adjusted for inflation.  Check who produced the data, government or private company.  Many time data is not collected but arise as a by-product of some administrative process.  Check whether the data will be revised or if still needs to be revised.  For observations over time, it may be useful to plot the data on a graph.  Ascertain the start and end points for calculating changes.  A frequent mistake is to confuse levels with rates of change (or percentages).  Determine what other yard sticks will aid interpretation.  Bear in mind that correlation does not result in causation.  Be cautious of international interpretations as definitions may differ between countries. 1.5 SOME BASIC CONCEPTS AND TECHNIQUES. Volume, price and value.  Value (PQ) = price (P) x quantity (Q) Or  Volume (Q) = value (PQ) / price (Q) Real and nominal values. Unadjusted original values are expressed at current prices in Nominal Terms. The current price (nominal) data are then deflated by a price index to obtain Constant Price or Real Data.  Nominal value = PQ  Real value = Q = PQ/P Percentages The percentage difference between two numbers is calculated by expressing the absolute difference between the two numbers as a ration of the original number. Percentages, percentage points and basis points. In the financial markets each percentage points consists of 100 basis points. E.g. 100 or 50 basis points. Levels and rates of change. There is a tendency to confuse levels with rates of change when interpreting economic data. I.e. A high level should not be confused with a high rate of change. Stocks, flows and ratios. A stock has no time dimension and is measured at a specific point in time. A flow is measured over a period of time, irrespective of how short. Stocks – Capital stock, money stock, saving balance and wealth of an individual. Flows – production, spending, income, investment, consumption and saving. Averages. A single number which expresses the central or representative value of the data. i.e. Measure of central tendency Simple average or arithmetic mean is the sum of values divided by the number of values. Weighted Averages - calculated when the different observations are not equally important. This is important when price indices and other indices are compiled.