The following information is the possible policies that the government could put in place in order to increase the rate of economic growth in South Africa.
There are two main aspects when looking at an economies growth rate, the first is aggregate demand (this means the combination of multiple inputs to form a whole), such as consumer spending levels, the level of investments, government spending levels as well as export levels versus import levels.
Lower interest rates, this reduces the consumer cost of borrowing money which then leads to an increase in the consumer spending levels as well as an increase in the level of investments. Increased wages, this will increase the economic growth rate when the level of wages is higher than the level of inflation. Increased level of exports, this will contribute to economic growth as we could possibly export some of our natural resources to countries around the world. By doing this we would grow our countries level of input into the global market. The devaluation of products, by doing this we inevitably make exports much cheaper but at the same time make imports very expensive, this then leads to consumers spending more money on domestic products as they are cheaper to help grow the economy than rather spending more money to import products from other countries. Then ultimately due to more money being spent in the domestic market the level of wealth will rise, this then leads to consumers spending more money on products or services that they can afford which then also leads to an increase in the level of consumer spending. These are all factors that would increase the level of aggregate demand.
The second aspect is aggregate supply, this is made up of the country’s productive capacity, the level of efficiency of our economy as well as labour productivity.
By outsourcing old outdated technology and replacing it with new technology making the production process easier. The introduction of new managerial techniques where by the relationship between employer and employees is no longer a hostile relationship but rather one where it makes the work place and the production process more comfortable for the employee. Then improved levels of skill and qualification will lead to more people being employed as they are willing to work as well as have the qualifications to perform their required duties. More flexible working practices, where by people would rather work from home as they are more productive working in the home environment than that of the office environment for example. Also increase the number of individuals to acquire a special skill set o0r qualifications of jobs that are in short demand as then more people will be able to find work for them to do. Raise the age or retirement, this would then lead to people working for longer periods of time while at the same time decreasing the unemployment level of the country and increasing the employment level. Increased the level of investment in the public sector, this will lead to the government spending more money to improve the infrastructure nationwide as well as raising the level of healthcare and education to future generations of the country. Due to these different actions taking place would lead to the growth of the level of aggregate supply.
By taking both aspects into consideration only then will we be able to truly raise the economic growth rate. Both the aggregate demand and the aggregate supply work hand in hand with one another and both need to be successful together in order to increase the economic growth rate.
Question 2
The following essay will address trade wars and the impact that they can have on countries that were a part of the trade war.
A trade war is when a country imposes tariffs (which is a certain level of tax) or quotas (which limits the amount of units you may import from a particular country) on imports. Then in order for foreign countries to combat these tariffs and quotas they impose a trade protectionism. This is where by countries raise the price of the imported product which forces consumers to buy locally produced products as a way for fighting the tariffs.
For example the Unites States of America recently imposed a metal tariff on the European Union, Canada as well as Mexico. The European Union then replied to this by imposing their own tariffs on more than 3 billion US dollars’ worth (42 billion, two hundred and seventy million rand) of US goods such as, playing cards, peanut butter and orange juice.
Just by evaluating the example provided this could have a negative effect on the US economy. Due to tariffs being imposed this will affect the sales of this product on an international level. The sales level in the US will decrease drastically as it becomes too expensive for those living in the European Union to purchase these goods and then lead to them possibly buying the same products that are imported from another country as they are at a cheaper price and is more affordable for the consumers. This may also lead to other countries buying less and less of these products to be imported due to the tariffs imposed on them. This would then lead to a large increase in inventory but also a drastic decrease in sales and due to this impact it will inevitably lead to job losses in future. It has been estimated that just this alone will have an effect of 250 000 people who will lose their jobs and an increase of $210
(two thousand nine hundred and fifty eight rand and ninety cents) on the average family for the cost of living.
Due to this large blow to the United States Economy this could possibly lead to a recession. This is where by the economy significantly declines for at least six months.
This is where by there is a significant decline in the five main economic indicators, the first is the “real GDP”, the second is “income”, the third is “employment levels”, the fourth is “manufacturing” and the fifth and final factor is ” retail sales”.
A country is often considered to be in a recession when they have a negative GDP growth rate for two or more consecutives quarters.
Once a trade tariff or quotas are put in place there are many variables that will change within the Macro environment of the country. These variables include the country’s exchange rate, the level of inflation, its monetary policy and the level of unemployment within the country.
Due to these changes local manufacturers who rely on imported raw materials will struggle as the price for these materials has increased accordingly to the tariff. This could then possibly lead to these companies having to raise the price of their product or even reduce the number of employees working for them.
In the long term trade tariffs and quotas drastically slows down the economic growth rate of countries. This then also lead to more of the country’s population becoming unemployed, this is due to the fact of other countries combating against the tariffs imposed.
As time passes and the longer tariffs stay in place we are able to see how the protected domestic industry weakens due to these tariffs. The reason for this is that local industries no longer have to compete with the foreign companies selling the same product so they are no longer obligated to innovate and improve the current product. This then leads to the decreased quality of the locally produced product compared to the high quality of product that are being produced in foreign countries.
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