Chapter 3

Example Calculations
Inflation
calculations
 Year CPI index

Activities 19 20X2 100

– 22 are based
on the
following CPI 20X3 106.2
index

20X4 111.5
Calculus
Consider Activity 19 – 22 on pp. 13 – 14 in the Workbook
1. You bought some financial stock for R20 000 in the beginning of 20X4. What is
the real value of the financial stock at the end of 20X4?
Answer: Remember that the person had the stock for 1 year. Thus, you need to
calculate the inflation rate for that year and then deflate the nominal value by the
inflation rate.
Inflation rate: 111.5 – 106.2 ÷ 106.2 x % = 5%
Thus real value : R20 000 ÷ 1.05 = R19 047.62

2. Assume that you bought some financial stock for R40 000 at the beginning of
20x2. What is the real value of the financial stock at the end of 20x4?
Answer: This is different from the previous calculation because CPI index = 100
when you started.
Thus, real value : R40 000 ÷ 111.5 x 100 = R35 874
3. Assume that the CPI index is forecasted to be 116.9 at the end of 20x5. You
started in the beginning of 20x2 with a growth-induced financial asset worth
R10 000. This financial instrument guarantees the protection of the purchasing
power of the initial investment to be paid back at the end of 20x5. What is the
amount that you can expect to be paid out at the end of 20x5?

Answer: Again you started with your investment when the CPI index was 100.
Thus, the inflation rate for the period was 116.9 – 100 ÷ 100 x 100 = 16.9%.
Thus to protect your investment against inflation your asset must be worth:

R10 000 x 1.169 = R11 690 at the end of 20x5.

4. Assume that your nominal salary at the beginning of 20x4 is R600 000 per
annum. What is your real wage at end of 20x4? What is your loss in purchasing
power?

Answer: Inflation rate for 20x4: 111.5 – 106.2 ÷ 106.2 x % = 5%. Thus your real
wage = R600 000 ÷ 1.05 = R571 428.57. You have lost R600 000 – R571 428.57 =
R28 571.43 in purchasing power!!!
Deflate a nominal value
• [Link]% (2 years that are not the base year)
• [Link] (work with base year) = nominal/cpi x100
5. Assume that for 20X5 the expected nominal
GDP of country A is R15bn, the expected CPI
index is 120 and the total population of
country A is 10m people. What is the per
capita GDP for 20X5?
Answer: Real GDP = R15bn ÷ 120 x 100 =
R12.5bn
Per capita GDP : R12 500 000 000 ÷ 10 000
000 = R1250
GDP
calculations
1. Assume that the GDP at market prices for country B is
$25bn, the primary income earned by the citizens and
firms of country B abroad is $500m and the national
income at market prices is $15bn. What is the primary
income generated by foreign firms & nationals in country
B?
Answer:GDP $25bn
+ Primary income from rest of world $500m
- Primary income to the rest of the world $10.5bn
= National income $15bn
(25bn + R500m – R15bn)
2. Assume the following information that
concerns the pork industry:
Value of sales of pig farmers is R15m per
annum;
Value of sales for the abattoirs is R22m per
annum;
Value of sales for the retail sector is R35m;
 The total cost structures for the pig farmers, the
abattoirs and the retail sectors are listed in the
Salaries Rent Interest Profit
following table.
Pig farmers R2m R1m R400 000 R2m
Apply the production and income methods to
determine the contribution of the pig industry to
Abattoirs R5m R2m R600 000 R3m GDP.
Retail R10m R4m R1m R4m Answer: Production method
Stage 1 R15m – 0 = R15m
Stage 2 R22m – R15m = R7m
Stage 3 R35m – R22m = R13m
Thus GDP = R35m
Income method
Salaries = R17m
+ Rent = R7m
+ Interest = R2m
+ Profit = R9m
Thus GDP = R35m
 3. Assume the following table that contains information on the real GDP and the
CPI for a particular country. Calculate the real GDP (actual output), real GDP
(constant prices) and the economic growth rate.
Year Nominal Average Real GDP CPI Real GDP Economic
GDP price (actual output) in Rbn (constant prices) in Rbn growth rate
(%)

20X2
5 𝑏𝑛 𝑏𝑛
R5bn 5 ( )= 𝑹 𝟏 𝒃𝒏 100 ( 5100 )× 100 = 𝑹𝟓 𝒃𝒏
5
20X3 9 𝑏𝑛
( )= 𝑹𝟏 𝒃𝒏 9 𝑏𝑛
( )× 100= 𝑹 𝟓 𝒃𝒏
R9bn 9 9 180 180
 Variables Value 20X5 (Rm)
Primary sector 382 120
Exports 1 106 253
Final consumption expenditure by households 2 187 998
Compensation of employees 1 686 483
Gross capital formation 715 520
4. the information in Secondary sector 586 246
the tables to calculate Final consumption expenditure by general government 781 531
and answer the
questions. Activity Imports 1 293 340
29 on page 27 – 28
Gross operating surplus 1 623 489
of the workbook.
Tertiary sector 2 382 087
Net primary income from the rest of the world -92 366
Additional information
Cpi20X5 1.049
Cpi20X4 0.984
Real GDP market prices20X4 2 606 371
Size of population20X5 52 million
Answer the following questions

Real GDP at market prices in 20X5?

Answer: GDP at market prices = C + I = G = (X-Z) = 2 187
998 + 715 520 + 781 531 + (1 106 253 – 1 293 340) = R3
497 962m
Real GDP: R3 497 962m ÷ 1.049 = R3 334 568m

Economic growth rate 20X5 (according to expenditure

method)?
Answer: Growth rate: R3 334 568m – R2 606 371m ÷ R2
606 371m x % =3. 27.94%
Inflation rate 20X5?
Answer: 1.049 – 0.984 ÷ 0.984 x % = 6.61%

Nominal GDP (expenditure method) per capita 20X5?

Answer: R3 497 962 000 000 ÷ 52 000 000 = R67 268.50

Balance on the current account of the balance of payments for 20X5?

Answer: Exports – Imports = R1 106 253m – R1 293 340m = - R187
087m

Gross national income at market prices for 20X5?

Answer: GDP + primary income from rest of the world – primary income
to rest of the world. It follows that net primary income = income from
rest of the world – income to the rest of the world)
= R3 497 962m – R92 366m = R3 405 596m
Nominal GDP 20X4?
Answer: Remember it was calculated as :
nominal GDP ÷ Cpi20.4 = real income.
Thus nominal GDP20.4 = R2 606
371m x 0.984 = R2 564 669.06m
Unemploym
ent
calculations
 Total population: 20m people
Assume the
following
labour People of working age: 14m people

market
information Active labour force: 10m people
of country C.
Employed: 8m people
Activity 33 on p. 21 of the workbook.

Economically inactive population?

Answer: 14m – 10m = 4m
Unemployed population?
Answer: 10m – 8m = 2m
Unemployment rate?
Answer: 2 ÷ 10 x % = 20%
Labour force participation rate?
Answer: 10 ÷ 14 x % = 71.43%