Question 1 Describe three methods of measuring country’s total output Introduction In every economy there is need to measure its overal performance
Describe three methods of measuring country’s total output
In every economy there is need to measure its overal performance, to assess if there is growth, recession or the economy is constant and this helps in the formulation of policies to improve in the areas of concern for the betterment of its citizens. To derive formulations of these policies there is need to sum up or aggregate total output of a country .Total output or Gross Domestic Product (GDP) is the total aggregate of goods and service produced and supplied in an economy or income accruing from economic activites annually. It can be measured in monetary value of final good and service produced. Total output or Gross Domestic Product includes the output of foreign owned firms that are situated in a country following foreign direct investment. There are three strategies for estimating nation’s aggregate yield that has same outcome, that is Gross domestic product = National Item = National Wage = National Consumption
The Income Approach
The Income approach sums up the incomes generated by production thus total output from people in who are self employed or in jobs for an example; the salaries &wages to employees , profits from private owned companies or busineses thus interest earned,income from leasing or rentals. The strategy approaches national wage from appropriation side hence, national salary is ascertained by including the lease of land, wages and pay rates of workers, enthusiasm on capital, benefits of business visionaries (counting undistributed corporate benefits) and wages of independently employed individuals. Incomes received in the form of transfer payments ,illegal money from smuggling,lotteries and prizes won are not included. Receipts from the sale of second-hand goods are not be treated as a part of national income because the sale of second-hand goods does not create new flows goods and services in the current year.
The Output Approach
The Output Approach measures the value added at each stage of production in the economy. The value added by business is obtained by deducting expenditure incurred on raw materials and unfinished goods.Adding up the value of output presents two conceptual problems. The first is the valuation of inventories of goods produced but unsold and valued at market prices which has the effect of recording as part of current output(and income)the profits that will only be received by the firm when and if the goods are sold. The second problem is double counting (or multiple-counting depending on the number of market values of the outputs of firms added up) which occurs when we add up market values of outputs of all firms. Under this method, the economy is divided into different industrial sectors such as agriculture, fishing, mining, construction, manufacturing, trade and commerce, transport, communication and other services. This method has an advantage of that it reveals the relative importance of the different sectors of the economy by showing their respective contributions to the national income but it does not include value of services of housewives because it is not easy to find out correctly the value of their services and the value of intermediate goods must not be counted while measuring value added because this will amount to double counting.
The Expenditure Approach
The expenditure approach analyses the flows of expenditure needed to purchase acountry’s output. It adds up the value of purchases made by the final users, as an example the consumption of food, televisions and medical services by households; the investments in machinery and equipment buy companies; and the purchase of goods and service by the government and foreigners. Consumption expenditure is the largest component of gross domestic product this is summed up by GDP=C+I+G+(X-M) Where C=Consumption,I=Income,G=Government spending and (X-M)=Export of good;services –Import of goods ;services. With this method expenditure made on second goods should not be included because it does not contribute to the current year production,purchases of old share and bonds from other peopleand companies should not be included while estimating GDP. Expenditures on transfer payments by government such as unemployment benefits should not be included,it is difficult to measure national income in countries like Zimbabwe due to general lack of adequate statistical data. Inadequacy, non-availability and unreliability of statistics is a great handicap in measuring national income in these countries.
Discuss the major causes of unemployment in Zimbabwe
Unemployment is whereby an able bodied and employable person or economically active population between the ages of 18-65 years will be actively looking for work but cannot find one,they will be failing to get gainful employment. In 1990-1995 Zimbabwe embarked on a progragmme known as Economical Structural Adjustment Programme (ESAP) which saw a large number of people being out of work and there was drought,this increased number of employable indivivuals being jobless.Unemployment rate is measured by number of unemployed over working population.
The main causes of unemployment are Seasonal unemployment,Cyclical /Demand efficiency Unemployment,Structural unemployment,Technological unemployment,Frictional unemployment and Voluntary unemployment.
This is a situation of unemployment that arises due to season where during peak period more workers will be employed and off season large group of workers will be laid off .In Zimbabwe our economy is mostly based on agriculture for example we grow tobacco,cotton tea/coffee during picking seasons of cotton ,tobacco,coffee most farm workers will be employed and laid off after picking period less workers for the processing and auctioning of the products.We also experience this in tourism sector there are times when its on peak and more people are employed in hospitality industries and when its off peak more are laid off.
To combut this kind of situation workers need to be multi tasked or skilled tobe able to earn income when one is laid off at work.
Cyclical /Demand Efficiency Unemployment
This kind of unemployment occurs when there economic recession or melt down of an economy, large number of employees will be retrenched. There is insufficient demand of good and services produced,sales drops this was witnessed in Zimbabwe during the period of 2002-2008 hyper inflationary environment.
In this environment government need to reduce taxes and interest rates to stimulate aggregate demand and more goods and services will be demanded hence more will be produced.There is also need for the government to gain investor confidence to invest in an economy by revising some the policies.
This kind of unemployment is caused by changes in the structure of the economy or organisation.Structural changes are caused by closure of an industry due to depletion of critical raw materials ,drought and floods and economic sanctions.In Zimbabwe we experienced a rush of diamonds more people earned a living in the minerals industry but when government placed prohibitive structures and depletion of Diamond in Chiadzwa more people were jobless.We also experienced drought in 1990-1995 during Economic Structural Adjustment Programme(ESAP) more workers were retrenched and lastly imposition of economic sanctions during land reformed period had an impact on our economy less were being produced more people were out of work and the country was not exporting hence there was less foreign currencies and our local money was devaluing.
There is need to change policies and build relations with other countries and to reduce government expenditure and promote investment expenditure and build up reserves in case of natural disasters like droughts and floods.
Technological unemployment arises when human beings are being replaced by machines or gadgets. Technology has its own advantages and disadvantages.One of the advantages is they performe some of work with minimal or eliminated errors whilst a human errors will be slightly high and its time efficient. Some of the disadvantages is that where there used to be 5 people working,there will be 2 people manning the machine. In Zimbabwe we are still lagging behind in terms of technology but are getting there slowly,with what we have in place so far for example most of bank teller lost their jobs when there was introduction of Automated Teller Machines(ATM),workers also lost their jobs in bakery industries where we have a dough mixer machines which can operated by 2 people.We can also cite thepeanut butter industry were we have now embraced technology of having the shelling machines,roasting machines which cost unemployment to humans.
There is need to adopt labour intensive technologies and keeping labour prices within limit.
Frictional unemployment is when the job is available but there are barriers for labour mobility and this may be caused by lack of infromation,increase in relocation cost and family committement.it can also stem from lackof coordination or poor which restricts a peson from moving to a new location.
Efficient transport/communication network which swill minimise lack of coordination between employer and job seekers,introduce information centres for information accessibility.
This happens when an able bodied workers decide not to work even if there are jobs in the market , due lower wage rate, laziness or when one has inherited wealth.In Zimbabwe this type of unemployment is minimal,there is need to increase wages packages.
Effects of Unemployment in an Economy
When there is low economic growth, loss of international competitiveness a country is bound experience high rate of unemployment which cause unrest in an economy. It leads to high levels of poverty, since one will be unemployed or if those who remained working their income does not increase this takes a toll low income earners who end up earning a whole month salary enough for one busfare, this means he cannot afford to put food on the table, he cannot school fees for the children or clothing. There is a high rate of corruption, mostly because able bodied will be idle, an “idle mind is an evil mind”. In the case of Zimbabwe most of the time one has to pay bribe for safe passage or getting service done for rate of corruption is just too much what in it for me remains a question to many.there is alos high rate of substance abuse eg Bronco , musombodhiya and cocaine.
Zimbabwe is mostly affeceted by Seasonal unemployment,Cyclical /Demand efficiency Unemployment,Structural unemployment and slowly technological unemployment. Government and all stakeholders and citizens must be actively involved in the reduction of unemployment, it needs combined effort to attract investor confidence, tabling good policies like Zimbabwe is open for business efforts and I recommend that government need to reduce expenditure and impart more skills to its citizens through incorporating life skills programmes in primary to tertiary schools.
Principles of Economics II module , E dundu and R M karonga (2016)
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