Microeconomics, main concepts for an economy study: capital formation, production, consumption, employment, credit multiplier, money demand, money supply, prime rate, Keynesian transmission mechanism, exports, imports and government expenditures

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Financial investment and interest rates have a positive relationship. Financial investment represents investment in bonds or shares or money saving in the bank. If the interest rate increases, the return of investment will be better. You will get more return on shares (or bonds) and earn more money on savings. In conclusion, the higher the interest rate, the higher the financial investment. The South African economy continues to grow. The Gross Domestic Product has been on a steady increase on an annual basis, since 1998 (SARB, 2007: S-148). In 1998, the rate of growth was 0,5 % (the lowest in the last decade). In 2006, it was 5,0%. The private sector capital formation (investment) has increased gradually since 1998 (at 4,8%), except for the year 1999 when we observe a negative growth: -7,6%. In 2006, the growth exceeded 12% (SARB, 2007: S-148, S-114-120). The private sector employment declined until 2001. However, since this year, we can observe a change in the trend with a growth of employment rates to reach exceptional figures last year (SARB, 2007: S-132, S-152).

Extraits

[...] The Gross Domestic Product has been on a steady increase on an annual basis, since 1998 (SARB, 2007: 148). In 1998, the rate of growth was (the lowest in the last decade). In 2006, it was The private sector capital formation The private sector capital formation (investment) has increased gradually since 1998 (at except for the year 1999 when we observe a negative growth: In 2006, the growth exceeded 12% (SARB, 2007: S-148, S-114- 120) The private sector employment The private sector employment declined until 2001. [...]

[...] Government Consumption Expenditure Inventories Production Real GDP and Y 4 Corresponding movement: GDP and fixed capital formation There is a positive relationship between real GDP and fixed capital formation. ↓Fixed Capital formation Total expenditure Inventory Production Real GDP and Y. GDP and Capital Formation The money demand MD = f [interest rate Income Price - + + The amount of money people require for transactions, determines the total demand for money. There are 3 types of demand, or reasons for holding money namely: Transactions demand: - where money is in active form for transactions - amount of transactions are determined by Y and P. [...]

[...] The interest rates came down during 1990 to 1994.This corresponds with economic growth that is seen from 1992 to 1996. The pattern is obvious. Rising interest rates cuts into investment, household expenditure, production, GDP & Y. The economic realization is more or less a year after the interest rate changes are implemented. Government consumption was not really affected by interest rate changes. The clear drop in government consumption from 1994 to 1996 was due to political change taking place. >>>Expenditure↑>>>Inventories↓>>>Production↑>>>GDP&Y↑>>>MD↑ Bibliography Fourie, F.C.v N How to think and reason in macroeconomics. 2nd edn. [...]

[...] If Y increases, (economy is in an upswing and economic activity increases) more goods are produced and exchanged, and more money is required to conclude transactions, which results in an increased demand for money. Effect of Increase in Income For a decrease in MD will decrease, and curve will move to the left. A decrease in the average price will require less money to conduct transactions, which will lead to a decrease in money demand. Effect of decrease in Price The credit multiplier Total reserve R = 3,5 + 3,5 = = 0.07 Credit multiplier = 1/R = 0.07 = 14.285714 = 14.3 The prime rate The lowest rate at which a clearing bank will lend money to its clients on overdraft is called the prime rate. [...]

[...] Microeconomics, main concepts for an economy study: capital formation, production, consumption, employment, credit multiplier, money demand, money supply, prime rate, Keynesian transmission mechanism, exports, imports, government expenditures Table of contents 1 The Capital Formation (Investment) The negative relationship between Investment and Interest Rates The positive relationship between Financial Investment and Interest Rates A reduction in the government expenditure A reduction in the exports Economic variables studies The real GDP The private sector capital formation The private sector employment The real sector : production and expenditure Corresponding movement: GDP and household consumption Corresponding movement: GDP and Government Consumption Corresponding movement: GDP and fixed capital formation The money demand The credit multiplier The prime rate Decrease in money demand The demand for and supply of money Increase in interest rate Increase in interest rate The Keynesian transmission mechanism The impact of government borrowing on interest rates The relationship between the money supply and the interest rates Linkages between the monetary and the real sector 17 Bibliography The Capital Formation (Investment) 2 The negative relationship between Investment and Interest Rates Investment and interest rates have a negative relationship. [...]