Answer to Question #316258 in Macroeconomics for Jay

Question

Question 1 (20 marks)

Write an essay in which you critically evaluate how South Africa is performing with regard to the five (5) main macroeconomic objectives.

Answer 1

South Africa' Economy

Macroeconomic objectives are the goals that the government wants to achieve for the economy so that there can be an improvement in the standard of living of the people. This paper will further discuss the economic growth, full employment, exchange rate stability, price stability and as well as economic equity.

To start with economic growth. Economic growth refers to an increase in the production of goods and services by the economy. It is measured in terms of the real GDP which is the constant prices that are used to compile businesses cycle. For economic development to occur the economic growth rate must be higher than the population growth rate as this will ensure maximum welfare for the people. The president of the Republic indicated the importance of inclusive economic growth during his State of the Nation Address (SONA) 2020. Moody's international credit rating agency projected the growth rate of South Africa's economy in 2020 at 0.7% which is a very worrying factor for our economy.

Secondly, is achieving full employment. It is when all the people who want to work, who are looking for work must be able to get work. A high level of employment is the most important economic objective of the government as it improves the standard of living of the people. Informal sector activities must be promoted because it is an area where employment increases. The unemployment rate in South Africa (measured in terms of strict unemployment) increased to 29.1% in the fourth quoter of 2020 according to Statistics South Africa. When delivering SONA 2020 president Ramaphosa showed concern on this figure and was more worried about the youth unemployment which he said was above 50% and the government is working to curb it.

Third is the exchange rate stability. It is when the value of the Rand as compared to other currencies does not change much overtime. Effective Fiscal and Monetary policy can be used to keep the exchange rate relatively stable. Depreciation and appreciation of the currency creates uncertainties for producers and traders and should be limited to ensure stable investments. South Africa uses a free floating exchange rate system whereby the forces of demand and supply determine the currency. SARB at times they divert to the managed exchange rate system by buying and selling of domestic and foreign currency in order to ensure that our currency remain stable always.

Lastly but not least is price stability. Price stability means the market prices of goods and services do not change much overtime. Stable prices lead to better results in terms of job creation and economic growth. The SARB inflation target is 3%– 6% and have been successful in keeping inflation within this target in recent years. The SARB uses interest Rates, based on the Repo Rate as the main instrument to achieve price stability. The inflation rate was 4.5% in January 2020 according to Statistics South Africa which is within the inflation target.

Lastly economic equity. It is the reasonable division of income within the population in such a way that the poor also participate in the economy. Redistribution of income and wealth is essential as it leads to increased welfare and an improvement in the standard of living of the people. South Africa uses a progressive personal income tax system where those who earn more income pay more tax and those who earn less income pay less tax. Free social services like education, primary health and other services are offered by government as an attempt to redistribute income to ensure that everybody participate in the economy. The Gini-coefficient of South Africa has always been above 0.6 and the Lorenz Curve has always been far from the line of equality which means that most of the income we generate as a country measured in terms of the real GDP is in the hands of few people.

In conclusion, the government should form and maintain the public private partnerships as the private sector is vital in ensuring that the public sector achieve these objectives, this is the reason why president Ramaphosa asked the help from businesses community to help improve our economy.