Question

Former President Jacob Zuma unveiled the free education plan on the 16 th of December 2017. Further to that, in the 2017 budget speech, former Finance Minister Malusi Gigaba announced that an additional R57 billion over the next three years had been allocated to fund free education for students who come from families with a combined income of R350 000. This was on top of the R10 billion provisionally allocated in the 2017 budget. Furthermore, the value added tax (VAT) increased from 14% to 15% on the 1st of April 2018.

Discuss the DEMAND and SUPPLY SIDE effects of the developments on the performance of the South African economy.

a. At a macroeconomic level (20 Marks)

b. At a microeconomic level (20 Marks)

Answer 1

President announced financial aid : 16.12.2017.
Finance minister announced in the upcoming budget. Which covers 3 years tenure.
Further the VAT has increased from 14% to 15% on 1.4.18.
Microeconomic changes ::
Due to financial aid, the demand of education has been increased both for the poor and non poor group of people. At the same time the tax has increased, but as the education is entitled to be free, so the tax will not dampen the demand of education among the students.

Supply of education : as demand will rise, so the supply of education should be taken by the government. Government is promoting education by giving free education supply.
Macroeconomic
Demand : aggregate demand of education will rise. So the aggregate demand curve will shift upward.

Aggregate supply : aggregate supply of education will rise. Government would like to cover its expenses( free education); by raising VAT.