Economics

• Real flow: Factors of production are sold here
• Autonomous consumption: Spending that is independent of income
• Investment: Good example of injection
• Closed economy: Excludes foreign sector
• Resources market: Represents the movement of goods and services
• Money flow: The movement of income and expenditure
• SARB: The publisher of national accounts
• Households sell factors of production through factor markets to businesses
• A market where goods and services are traded. This market is also known as the goods market or output market
• The financial sector facilitates the flow of funds between the participants in the economy
• The financial sector helps to direct the flow of savings from the household sector to the business and government sector in the economy
• The role of households in the circular flow model:

  • Own the factors of production and sell these factors of production in the factor market to firms
  • Receive remuneration for their productive resources from firms in the form of wages and salaries, interest, rent, and profit
  • Use the income earned to buy goods and services from businesses in the goods market
  • Pay taxes to the government
• The role of the business sector in the circular flow model:

  • Buy factors of production from households in the factor market with an aim to produce goods and services
  • Sell goods and services through the goods market to households, government, and the foreign sector and receive income from them
  • Use the earnings received from selling goods to other participants to invest further by producing more goods
  • Pay taxes to the government
• Inflation is the rate at which prices increase over time, leading to decreased purchasing power.
• The financial sector contributes to the South African economy by mobilizing savings and credit across various sectors, injecting funds into the economy through businesses and the government sector, and facilitating the accumulation of capital and the production of goods and services
• Capital Market - long term finance (more than 1 year)
• Johannesburg Security Exchange is a key institution in the capital market
• Products sold in this market include mortgage bonds and shares
• Market equilibrium occurs when supply equals demand, resulting in a stable price and output level.
• Foreign exchange markets involve businesses buying/selling foreign currencies to pay for imported goods and services
• Transactions in foreign exchange markets occur in banks and consist of electronic money transfers from one account to another
• The most important foreign exchange markets are in London, New York, and Tokyo
• The SA rand is freely traded in these markets when a person buys travellers' cheques to travel abroad
• Economic growth occurs when an economy's output increases over time, resulting in higher living standards.
• Imports and exports are real flows accompanied by counter flows of expenditure and revenue on the foreign exchange market
• Supply refers to the quantity of a good or service that producers are willing to sell at a given price.
• Government spending has both direct and indirect effects on the economy
• • Supporting South African businesses by procuring raw materials and increasing market share for locally produced goods and services
  • Ensuring sound business principles for long-term involvement in the economy leading to positive economic growth
  • Using loans to invest in capital goods like machinery for mass production at a lower cost to improve competitiveness
• Business sector can contribute more positively to the economy by:

  • Investing more in labour-intensive projects with a focus on in-service training and skills development of workers
  • Re-investing profits in gross capital formation programs including equipment, tools, transportation assets, and electricity
  • Expanding business operations and investing in the latest technology to uplift the quality of factors of production
  • Diversifying business operations by bringing in a differentiated product offering
• Markets regulate supply and demand, safeguard price stability, and business confidence
• Fiscal policy refers to changes made to taxation or public expenditure with the aim of influencing economic activity
• Discretionary spending is the amount spent by the government that depends on their decisions
• Economic growth occurs when an economy's output increases over time
• Monetary policy refers to changes made by central banks regarding interest rates and reserve requirements.
• The law of demand states that as prices increase, the quantity demanded decreases, while as prices decrease, the quantity demanded increases.
• National Account Aggregates:

  • Base year: A year with minimal price changes, Reserve Bank's current base year is 2010
  • Domestic figures (GDP): Value of all final goods and services produced within a country's borders for a specific period
  • Expenditure method: Adding spending of major sectors of the economy (C+G+I+T+ (X - M))
  • Factor cost/Factor prices: Cost or price paid for factors of production (land, labour, capital, entrepreneurship)
  • Income method: Gross Domestic Income derived by adding all income earned by factor owners
• • National figures (GNP): Value of all final goods and services produced by permanent citizens of a country
  • Net figures: Reflects value after deductions (e.g., net exports)
  • Production method: Adding final values of all goods and services as gross value added
  • Subsidies on production: Unlinked subsidies for goods and services
  • Subsidies on products: Financial incentives for struggling industries or per unit exported
  • Taxes on production: Unlinked taxes on production
  • Taxes on products: Taxes per unit of goods or services
• Final consumption expenditure by households:

  • Spending by households on final goods and services
  • Includes durable goods, semi-durable goods, non-durable goods, and services
  • Households are basic units in the economy
  • Consumption spending by households accounts for about 64% of total spending in the economy
• Final consumption expenditure by government:

  • Indicates how government uses income to finance goods and services for the public sector
  • Includes spending by central, provincial, and local authorities
  • Classified into Functional, Administrative, and Financial divisions
• Governments can use fiscal policy (taxes, government spending) or monetary policy (interest rates, money supply) to influence aggregate demand.