MEASURING ECONOMIC ACTIVITY This task is performed by the compilers of Zimbabwe’s national accounts at the RBZ, Ministry of Finance and CSO - they draw up accounts for the economy as a whole. Economic activity is measured by various indicators or variables which include National Income, GDP, GNP, Inflation and many others. The various measures of economic activity indicate fluctuations in economic activity and these fluctuations set the conditions within which the market, industry and company must operate.

Measuring……..Continued Thus managers must understand economic indicators to make informed decisions. Indicators of economic activity allow us to assess the performance of the economy. The economic indicators / variables can be categorized into two a) Variables for the domestic side and b) Variables for the international side Variables for the domestic side of the economy include Total Output, Price level and the interest rate. Variables the international sides include the exchange rate and the BOP.

VARIABLES USED TO MEASURE ECONOMIC ACTIVITY National Income It is a loose name we give to the money measure of the overall annual flow of goods and services in an economy. It represents the value of goods and services becoming available for consumption plus the net additions to the national stock of capital. Other terms used for National Income include “National Product” or Net National Product”.

Variables continued Gross Domestic Product. It is a money measure of the total output from the factors of production located within the country irrespective of the nationality of the owners of the factors of production. For example GDP of Zimbabwe is the total value of goods and services produced by the local and foreign factor inputs in Zimbabwe.

Variables continued Gross National Product It is a measure of the total output from the factors of production owned by residents of the country. This measure takes account of the income from assets located overseas but owned by residents of the home country and of the income going overseas to foreign owners of assets located in the home country.

Nominal GDP vs Real GDP It is the GDP at current prices while real GDP is the GDP at constant or base year prices. Nominal GDP measures the value of output at the prices prevailing at the time of production while real GDP measures the output produced in any one period at the prices of some base year.

Per Capita Income It is given as total national income divided by the total population of a country. It depicts the value of goods and services received during the year by an average man.

ECONOMIC GROWTH RATE Economic growth rate is a change in the size of national income per given unit of time. Economic growth rate is a term used to indicate the increase per capita Gross domestic product or other measure of aggregate income. Economic growth can either be positive or negative. Negative growth can be referred to by saying that the economy is shrinking. Negative growth is associated with economic recession and economic depression.

E G R continued The topic of economic growth is primarily concerned with the long run. The recent theoretical and empirical literature on economic growth highlights the impact of economic policy choices as well as political and institutional arrangements on growth performance.

Continuation Barro (1977) concluded that real per capita GDP growth rates are positively related to initial schooling, research and development, the maintenance of the rule of law and the terms of trade. Economic growth rates are negatively associated with government consumption, inflation and fertility. Other factors include abundance of natural resources and the difficulty of access to port facilities.

continued Other indicators of economic activity which will be looked later in the course include Price levels and inflation Unemployment Business Cycles Exchange rates