Welcome to class of Economic Forces by Dr. Satyendra Singh University of Winnipeg Canada

Dimensions of the Economy…  Important Economic Indicators  Gross National Income (GNI)  GNI/capita  Purchasing Power Parity  Income Distribution  Private consumption  Unit labor costs  Exchange rates  Inflation rates  Interest rates  Balance of payment (BOP)

Dimensions of the Economy Gross National Income (GNI) –The measure of the income generated by a nation’s residents from international and domestic activity –Preferred over GDP GNI/Capita –Used to compare countries with respect to the well-being of their citizens and to assess market or investment potential

Kinds of Economy… Formal economy –Visible, Recorded, Audited –What % of GDP is owned by government UK: 10%  4% China: 80%  50% Chie: 75%  25% Mexico: 66%  33%

Informal Economy (Street, undocumented…)

Underground Economy –Illegal!, USA (10%)

Why Privatize? To get $ from firms Increase firm profitability Ideological reasons Preserve jobs … Unfair because government firms –↓ price unfairly –↓ financing rate –↑ Get government contract –Expert assistance –↓ wages –↑ Has more resources

Characteristics of Economy Developed countries spend twice on –Food –Clothing –… Developing countries spend twice on –Transportation –White goods –Healthcare –Wine/ cigarette

Effects of Economy Sales  willingness to purchase low Wage rate Labor supply Union contract

Wal*Mart Economy $+450b sales 4000 stores 30 countries Only 40 countries (out of 227) above Wal*Mart Ghana $40b (ppp 80b) Manitoba $50b

Economic development Measurement (GNI/Capita), World Bank Low Income (<$1000) Mower middle income ($1000-$3000 Upper middle income ($3000-$9000) Higher income (>$10000) Canada  $40,000 India  $4,000 China  $9,000 Ghana  $3,000

Levels of Economic Development Developed –Nations that are the most technically developed Newly industrialized economies (NIEs) –The fast-growing upper MIG and HIG economies such as Taiwan, Hong Kong, and Singapore Newly industrializing countries (NICs) –Brazil, Mexico, Malaysia, Chile and Thailand Developing –Nations that are less technically developed Emerging Markets –Transformation from controlled to market economy

Purchasing Power Parity (PPP)… –The number of units of a currency required to buy the same amount of goods and services in a domestic market that $1.00 would buy in the U.S. –Helps to make comparisons possible across economies CIA Fact Book

Purchasing Power Parity (PPP) If, 1 Lt. MilkUS$ Lt. MilkIndiaRs Then, PPP: US $1 = Rs. 20 Reality: US $1 = Rs. 40 ie Rs. is 50% undervalued – artificially?! However, PPP is based on consumer expenditure on basket of essential goods