Ecw 2730 Assignment

Assignment 1

Nominal GDP is the market value of goods and services produced in the economy regardless of resource ownership in a specified period of time usually a year using the current prices (Gans, King, Stonecash, and Mankiw, 2009). Its the Yx P, that is the output multiply by price currently in the economy. It comprises of four components ,consumption(C), investment(I), government expenditure(G), and net exports(NX)

Consumption is the expenditure by households to acquire all the goods and services they use day to day. This expenditure is on durable, non-durable goods and services (Gans et al). They are two types consumption exogenous (consumption not determined by income) and endogenous (consumption that is determined by the level of income)

Investment is the spending goods to bring future economic benefit which include three types residential fixed, business fixed, and inventory investment. Residential is the spending on houses, business fixed is the spending on plant and equipment that are used in massive production of goods and inventory investment the spending by firms to acquire stock that will increase their inventories.

Government spending is expenditure by government on goods and services that are used in all its functions like provisions of public goods and services. This spending is financed by tax revenue. The government expenditure does not include transfer payments.
Real GDP is the value of goods and services produced in the economy regardless of resource ownership at prices of a certain base year. Output is matched with constant prices to give real economic activity by reducing impact of inflation. Its (output x prices of base year).
Health is the condition of the body and mind that is very important to every worker in the economy to produce goods and services. Good health is important in social well-being of the people in the economy. This become important for every economy to consider the health status of its worker and become its priority to achieve this, that is people saved from diseases to give efficiency and effectiveness.
Education is the knowledge in skills, academics, technical and other disciplines that citizens of the economy have to support the success of their economy. Economies with high levels of education perform very well in achieving growth and development as people with high level of education are productive.
Environmental quality relates to the surroundings and their conditions. Environmental quality is vital for the social well being of the people and if the quality is poor obviously people won’t enjoy in their economy. This include the atmosphere and land. If well managed in the economy people will also enjoy their social well being.
Nominal GDP value if used to determine the economic well being of people in the economy they tend to exaggerate income of the economy due to the effect of price changes. In most economies prices increase more often and will mean that income is being eroded by inflation. There maybe high GDP value from year to year but with no economic improvements experienced, that’s why real GDP tend to give reality in changes in economic well being.
Real GDP do away with price changes and uses prises of a certain base year. This will show real changes in output and makes economic growth well comparable from year to year. The level of economic well being is clearly identified when using this real GDP as it is not affected by price change, but changes in nominal GDP cannot be identified what might have caused the change, price or output giving a conclusion that Real GDP is a better measure of economic well-being than nominal GDP.
However neither of the two GDPs can measure social well-being of the people in economy only they can measure is physical output and price change. Real GDP and nominal GDP only take into account only economic well being not social-well being. Social well being cannot be reflected in output of the economy that is measured by these two GDPs. Economic well being is not enough for the well-being of the people but also social well being is very important these include health, environment quality and education.
Considering health, the economy may have a high GDP but the health standards might be poor like for example working conditions at workplace may be not that safe for the health of the workers but the economy maybe maximising production at the cost of social well being. Most developing economies have got high GDP but poor health standards.
Education is very important in the social well being of the people but this cannot be measured as it is intangible. Most economies with low education levels do not enjoy social benefits like efficiency and high effectiveness in production like most developing countries. Education enables improved technology and skills but cannot be addressed in both GDPs(nominal and real). Education can also enhance civilisation of people in the economy which is important for the social well-being by enable people to interact but unfortunately this cannot be reflected in the GDPs measures.
Environmental quality is also important for the social well being of the people. High GDPs may have been achieved at the expense of the of the environment like land degradation and pollution. Poor environment conditions cannot explain good social- well being of the economy although it may have high GDPs values. Most economies have high levels of GDP from production like mining and industrialisation which tend to harm the environment that affecting the social well being of the people although the economy may enjoy more economic benefits.
Nominal GDP and real GDP can only take into account the economic well being and not social- well being of the people which is very important for the good living standards. It only takes physical output which is not enough to conclude the well being in the economy.

Question 2a
Unemployment is the state of being unemployed or not having a job and they are two underlying reasons for the existence of unemployment that i am going to discuss which are job search and wage rigidity.
Job search, this is when people move from their current jobs and starting searching for the ideal ones which may match their skills and qualifications. It’s not easy for an individual to find a job that is suitable for his skills and for that time he spends looking for that job he is regarded as unemployed. This occurs mostly when people who were under-employed and those who have upgraded their qualifications are now trying their chance to exercise the full capacity in their abilities.
Wage rigidity is the tendency of wages to be not flexible to adjust in the short run to clear the market (Mankiw, 2010). Wage tend to be stick in the short run if there happens a change in some economic variables that affect it and this due the causes like minimum wages laws, efficiency wages and monopoly power of unions.
Minimum wages laws set a least possible wage that workers should earn that will be above the equilibrium wage. This will mean that workers will supply more labour on the market but firms will only hire reduced quantity as it is more expensive for them and wages will not change to clear the market due to wage rigidity created by these laws .

Monopoly power of unions also contribute to unemployment as workers can form an organisation and act like monopolist to increase wages and this create an entry barrier to non members to find jobs thus allowing the unions to exercise market power( Gans et al). The unions will only supply labour in the market and non members will be unable to succeed creating unemployment in the market and wages cannot adjust because of the rigidity in wages being created.
Efficiency wage are above equilibrium wages paid by firms to increase productivity of the workers by supporting worker health, effort, quality and reducing turnover. (Gans et al). Wages above equilibrium will reduce the demand for labour but create more pool into the labour force market as they are attracted by high wages creating unemployment. Wages will be fixed and are a large firm`s costs and firms will maximise profit by reducing labour intake and improving efficiency by paying more.

Question 2b: South Africa
The current unemployment rate in South Africa is 24% according to the Bureau Statistics of the last quarter 2010 and is high compared to other economies. About 4 137 000 people are currently unemployed and 68,0% of those who were unemployed were in long term unemployment as they were unemployed for 1 year or longer in South Africa.

These high rates can be as a result of low GDP due to fall in sectors like agriculture due to poor environmental conditions like frost and low rainfall. There is also increased in immigration by other citizens from neighbouring countries like Zimbabwe, Malawi, Nigeria and Zambia which is resulting in crowding out of general South Africans from the job markets . Late world economic downturn caused by the recession in 2008 had a little impact also on this economy resulting fall in employment level in mid 2009 to 25.3%. However unemployment decreased in late 2010 because of increased in discouraged workers who were no-longer included in the unemployment family.
Employment level increased in formal sector by 1.3% and informal also went up by 2.4% with Agriculture, mining and construction losing jobs. Industry like community and social services and manufacturing contributed more employment growth of 5.5% and 4.1% respectively. Currently Gauteng and Kwa-Zulu Natal provinces have got the highest unemployment of 3.953 and 2.439 million people respectively with North Cape and Free state experiencing the lowest figures 278000 and 785000 people unemployed.
Black African population has got the highest unemployment rate of 28.1% with coloured sitting on 21.3%. Whites and Indians have got the lowest level of 5.5% and 7.9% respectively. Unemployment remained higher for youth and women of South Africa with 3.072 million youths between 15 and 34 years are unemployed.
Unemployment in South Africa is reasonably high due to poor performance of some industries and sectors like agriculture and construction where most people are losing more jobs due to some changes like in technology where there is more emphasis on machine than human capital. Most sectors are considering this shift from human to capital intensive resulting in retrenching of workers and less job creation. Most youths are facing higher unemployment in South Africa mostly due to the level of experience in this competitive economy as many firms required experi8nced workforce to maximise their production levels.

Reference list
Gans, King, Stonecash and ManGans, King, Stonecash and Mankiw, (2009) Principles of Economics, 4th edn, Cengage Learning Australia
Mankiw (2010), Macroeconomics,7th ed., New York, Worth Publishers
http//www.statssa.gov.za