Welcome to class of Economic Forces

byDr. Satyendra Singh

University of WinnipegCanada

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. Milk US $1.001 Lt. Milk India Rs. 20.00

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