• Key concepts
• The performance of an economy
• Economic indicators
• Social indicators
• International comparisons

Economic and social indicators are useful tools to determine a country’s well-being. There are many economic and social indicators, including production, employment, education and demographic indicators.

Overview

11.1 Key concepts

These definitions will help you understand the meaning of key Economics concepts that are used in this study guide. Understand these concepts well.

Use mobile notes to help you learn these key concepts. Learn more about mobile notes on page xiv in the introduction.

11.2 The performance of an economy

When we assess the economy, there are a few things that should be considered:

• Performance
  Economic indicators are used to establish the state of the economy.
  An economic indicator is a statistic (data) that shows the behaviour of one or other variable.
• Comparisons
  Changing statistics (data) inform us of changes in the economy.
  By comparing these changes we can determine whether there is a growth or slowdown in the economy.
• Specifications
  To be meaningful, indicators have to be compiled in terms of their rules of compilation.
• Purposes
  Indicators are compiled for specific purposes. Example, the CPI is calculated to show increases in consumer prices and reflect the cost of living.

11.3 Economic indicators

11.3.1 Price change indicators
Price increases occur either because of scarcities of a product or changes in consumer preferences. Price increases over long periods of time are known as inflation.
There are two key price change indicators:

• Producer Price index (PPI): This is the indicator used to measure an increase or decrease over time in the prices of goods produced locally when they leave the factory floor; and an increase or decrease in the price of imported goods.
• Consumer Price index (CPI): Weights are obtained from the expenditure of households and show changes in the purchasing power of the rand. This is the official index used in inflation targeting.

11.3.2 Foreign trade indicators
International trade is important in a globalised world. Exports stimulate employment and imports widen the choice of consumers.

• Terms of trade: The ratio of export and import prices. If the ratio deteriorates (gets worse), a greater volume of exports must be produced that may cause a spill-over effect into the balance of payments.
• Exchange rate: The value of one country’s currency in relation to another country’s currency.

11.3.3 Employment indicators

• The economically active population (EAP): The labour force between15 – 65 years of age.
• Employment: The number of employed persons as a percentage of the economically active population (EAP), e.g. 73.5% in South Africa.
• Unemployment: The unemployed (who are actively looking for work) as a percentage of the economically active population.

11.3.4 Productivity indicators
Labour productivity is watched very closely, particularly in relation to real wage increases.

• Labour productivity: This is measured by dividing the real GDP by the number of workers employed.
• Remuneration per worker: If productivity increases are lower than the real wage increases, inflationary pressures will occur.

11.3.5 Interest rates
Interest is the charge made for borrowing money.

• Repo rate is one of the most important interest rate indicators. It is the rate at which the SARB lends money to banks.

11.3.6 Money supply
The supply of money is controlled by the SARB. The money is classified in three categories.

• M1: notes and coins in circulation and demand deposits of the domestic private sector at banks.
• M2: M1 plus other short term and medium term deposits of the domestic private sector at banks.
• M3: M2 plus long term deposits of the domestic private sector at banks.

11.4 Social indicators

Social indicators are concerned with people. They monitor identifiable and definable issues related to human well-being over a period of time.

11.4.1 Demographics
The size of the population is important for infrastructure and social programmes.

• Population growth: The population numbered 46.8 million in 2005. Growth is slowing down. Measuring population growth is important for delivering social services and for identifying the size of the tax base (the total number of people paying taxes).
• Life expectancy: South Africa’s life expectancy rate is down from 62,8 years to 47 years.

11.4.2 Nutrition and Health
The standard of living of the population is related to the quality of nutrition and health:
Nutrition

• Child malnutrition: Malnutrition is expressed in two ways – weight for age (under weight) and height for age (dwarfism). The proportion of underweight children is the most important indicator of malnutrition.
• Overweight children: there is an association between obesity of children and other diseases.

Health

• Infant mortality: The number of children that will die before one year of age is one way of measuring the health of a population.
• Under-five mortality: the number of children that will die before the age of 5 years.
• Health expenditure: the amount of health expenditure as a percentage of GDP.
• Access to safe drinking water: the percentage of a population that has reasonable access to safe drinking water.
• Access to sanitation facilities: the percentage of a population with at least adequate sanitation facilities that can prevent human, animal and insect contact.

11.4.3 Education
The standard of living is related to the level of education. Education is a key social indicator:

• Public expenditure: The percentage of the national budget that is directed towards education.
• Secondary enrolment: This shows the percentage of an age group attending high school.
• Primary completion: The percentage of an age group that has completed primary education is an indicator of the efficiency of the education system.
• Youth literacy rate: The percentage of the 15–24 age group that are literate.

11.4.4 Services
A number of services that are vital to enhance people’s lifestyle and level of economic and social development:

• Electricity
• Refuse removal
• Water supply
• Sanitation

11.4.5 Housing and urbanisation
The standard of living of the population is related to the quality of their housing and services:
Housing

• Housing: Many South African citizens are poor and cannot afford property. The government supplies housing subsidies and the private sector provides housing loans.

Urbanisation
The level of urbanisation is one of the indicators of a country’s social development. It is measured by:

• Natural growth of the urban population
• Migration
• Establishment of new towns

11.5 International comparisons

International comparisons are the key means of measuring a country’s economic and social development.
11.5.1 Globalisation

• International trade: Payments are affected by the exchange rate.
• Internationalisation: Branch offices in foreign countries monitor indicators to publish financial reports in a single currency and pay dividends in different currencies.

11.5.2 International standardisation

• Economic and social indicators are useful. International organisations, like the World Bank and the IMF, are very specific in determining, utilising and applying these indicators.
• Benefits from organisations cannot be measured if indicators are not available, e.g. bridging finance from the IMF, World Bank and the UN.

11.5.3 Aid and support

• Foreign countries, governments, international institutions and NGOs are globally involved in providing financial aid.
• A country needs indicators, including domestic income, production and expenditure, poverty, education and health data, to receive aid and to measure the impact of this aid.
• Human rights (children’s rights), environment (pollution) and governance (corruption) indicators might also be requested by aid organisations.

11.5.4 Comparison and forecasting

• Capital markets are liberated through globalisation.
• Capital moves where it receives the best returns.
• Publications for global players give indicator values for the 3 previous and 3 future years to spot underlying trends.

Learn these four points that are used by international organisations to measure a country’s level of economic and social development.

Activity 1
Choose the correct word between brackets:

1. The key rate of interest in SA is the (repo/exchange) rate. (2)
2. The growth performance of a country is measured in terms of the (per capita real GDP/increase in the real GDP). (2)
3. The economically active population is the labour force between 15 and (55/65) years of age. (2)
4. The index used to determine the prices of inputs is called the (consumer/producer) price index. (2)
5. Social indicators are concerned with people, such as education and (corruption/health). (2)
   [10]

Activity 2
Give ONE answer for each of the following:

1. An international bank established to promote economic recovery and development (2)
2. Used to establish the performance of the economy in terms of basic economic objectives of growth, price stability, exchange rate stability and full employment (2)
3. It is depicted in the Lorenz curve and shows the distribution of income (2)
4. The price of one country’s currency in terms of another country’s currency (2)
5. Ratio of export and import prices (2)
   [10]

Activity 3
Distinguish in tabular form between the Consumer Price Index and the Producer Price Index. (2 × 4) [8]

Answers to activity 3