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## Economics, 6th ed., 2016, Prof. Dr. P. Zamaros presentation 11 national metrics Economics, 6th ed., 2016, Prof. Dr. P. Zamaros National income can be measured through three approaches : 1. the product approach measures the activity by

1. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros presentation 11 national metrics

2. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros National income can be measured through three approaches : 1. the product approach measures the activity by considering the market value of all goods and services produced while excluding the value of inputs and intermediary production 2. the income approach measures the income received by households and owners of firms. 3. the expenditure approach measures how much has been spent by various economic actors, specifically the household, firms and government in an open economy. The main assumption is that all three approaches are equivalent

3. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros GDP GDP The expenditure method, being the most common, national income is the sum of total consumption expenditure by the household (C), investment expenditure by the firms (I), spending by the state (G), spending by foreigners on exports minus spending on imports. This is known as net exports (X-M). In other words, GDP = C + I +G + (X – M) This being the nominal value, it has to be adjusted for inflation, which gives the real GDP

4. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Example: the Swiss Federal Statistical Office, located in Neuchatel, establishes the national income statistics in order to quantify the performance of the Swiss economy following the UN system of national accounts . Here is GDP for 2011: Area Classi sifica cation Figures s Percentage (%) Pe C Final consumption expenditure 336’595 58 I Gross capital formation 121’777 20 G General government 65’236 12 X Exports 300’448 M Imports 237’271 Net exports (X – M) 63’177 10 GDP 586’784 100

5. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Other er comm mmon on indica cator ors Other common economic indicators include • GDP/capita: GDP per population • Gross National Product/Income (GNP, GNI): GNP = C + I + G + X + FY (FY = income from abroad) • Net National Product: NNP = GNP – depreciation • Real Gross National Product (RGNP): RGNP = GNP / DGNP, where DGNP (GNP deflator) = (GNP at current prices X 100)/(GNP at constant prices) More economic indicators can be found here: http://www.nationmaster.com/cat/eco-economy&all=1

6. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Issu sues es The purpose of GDP is not only to account for the overall expenditure = output of the economy, but also make comparisons. Thus, according to Index Mundi, in PPP terms, Switzerland ranks 36 th and Thailand 24 th . What does this tell us? We could conclude that Thailand is richer than Switzerland. However if we compare the countries in GDP/capita terms, Switzerland ranks 13 th and Thailand 119 th ! Therefore, different indices = different rankings; we must therefore be careful to compare what is comparable!

7. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros One must also be careful with the comparative base i.e. methodology in use: Gross national income per capita 2011 Purchasing Atlas power parity methodology (international Ranking Economy (US dollars) Ranking Economy dollars) MCO 1 Monaco 183'150 a 3 Qatar 86'440 QAT LIE 2 Liechtenstein 137'070 a 5 Luxembourg 64'260 LUX BMU 3 Bermuda .. a 6 Norway 61'460 NOR NOR 4 Norway 88'890 7 Singapore 59'380 SGP QAT 5 Qatar 80'440 8 Macao SAR, China 56'950 a MAC LUX 6 Luxembourg 77'580 10 Kuwait 53'720 a KWT CHE 7 Switz tzerland nd 76'400 11 11 Switz tzerland nd 52'570 CHE IMY 8 Isle of Man .. a 13 Hong Kong SAR, China 52'350 HKG DNK 9 Denmark 60'120 14 Brunei Darussalam 49'910 a BRN CHI 10 Channel Islands .. a 16 United States 48'820 USA SWE 11 Sweden 53'150 17 United Arab Emirates 47'890 b ARE CYM 12 Cayman Islands .. a 21 Netherlands 43'140 NLD FRO 13 Faeroe Islands .. a 22 Sweden 42'200 SWE KWT 14 Kuwait 48'900 a 23 Austria 42'050 AUT NLD 15 Netherlands 49'650 24 Denmark 41'900 DNK

8. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Asses essmen sment Economic indicators: Give an overall view of an economy’s performance • Allow comparisons between economies • • Are consulted to develop policies • Allow forecasting and predictions However, they are • Inaccurate (e.g. mistakes in accounting) • Established over long periods thus failing to track change (e.g. NE budget)

9. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Fail to record grey economic activities (e.g. in slums) • All-encompassing categories (e.g. unemployment) • Short from including the costs of externalities • Unable to account for the quality of life • Taking into account the above cons, other indicators have been suggested the most well-known being the Human Development Index And an interesting case: Gross National Happiness But are they reliable?

10. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Foreca ecast sting ng Forecasting in economics is about using historical data (i.e. past information) to predict what can happen in the future and thus take the appropriate measures/policies following economic models. The means to achieve this are statistics.

11. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros 1980 107.374 1981 119.231 1982 124.76 1983 130.589 1984 139.404 1985 149.172 Your thoughts? 1986 155.01 1987 161.38 CH GDP hist stori rica cal data ta 1988 172.526 1989 187.078 500 1990 201.174 1991 205.927 450 y = 10.428x - 20559 1992 210.341 R² = 0.975 1993 214.956 1994 222.458 400 1995 228.366 1996 233.848 350 1997 243.307 1998 253.008 300 P) GDP (US\$ PPP) 1999 261.009 2000 277.982 250 2001 288.41 Series1 2002 293.281 Linear (Series1) 200 2003 299.38 2004 315.815 150 2005 336.048 2006 360.573 2007 385.471 100 2008 401.763 2009 396.257 50 2010 412.612 2011 429.124 0 2012 441.64 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2013 456.932 YEAR 2014 472.83

12. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros year %change 1990 3.7% 1991 -0.9% A common way to establish 1992 0.0% 1993 -0.1% 1994 1.3% forecasts is by establishing the % 1995 0.5% 1996 0.5% change in GDP from one year to 1997 2.0% 1998 2.7% 1999 1.4% anotehr and then look at the trend 2000 3.7% 2001 1.2% growth i.e. average over given 2002 0.2% 2003 0.0% periods 2004 2.4% 2005 2.7% 2006 3.8% 2007 3.8% 2008 2.2% 2009 -1.37% 2010 4.13% 2011 4.00% 2012 2.92% 2013 3.46% 2014 3.48% average (1990-2014) = 1.9% average (1990-1999) = 1.1% average (2000-2009) = 2.1% average (2010-2014) = 3.6% average (2008-2014) = 2.7%

13. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Average 1 - Your thoughts? 5.0% 4.0% 3.0% 2.0% nge % chang Series1 Poly. (Series1) 1.0% Linear (Series1) 0.0% 1985 1990 1995 2000 2005 2010 2015 2020 -1.0% -2.0% year

14. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Average 2 - Your thoughts? 4.0% 3.0% 2.0% Axis Title Series1 1.0% Linear (Series1) Poly. (Series1) 0.0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 -1.0% -2.0% Axis Title

15. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Average 3 - Your thoughts? 5.0% 4.0% 3.0% 2.0% nge Series1 % chang Linear (Series1) 1.0% Poly. (Series1) 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -1.0% -2.0% year

16. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Average 4 - Your thoughts? 5.00% 4.50% 4.00% 3.50% 3.00% Axis Title 2.50% Series1 Linear (Series1) 2.00% Poly. (Series1) 1.50% 1.00% 0.50% 0.00% 2009.5 2010 2010.5 2011 2011.5 2012 2012.5 2013 2013.5 2014 2014.5 Axis Title

17. Economics, 6th ed., 2016, Prof. Dr. P. Zamaros Average 5 - Your thoughts? 5.0% 4.0% 3.0% 2.0% nge % chang Series1 Linear (Series1) 1.0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 -1.0% -2.0% year