Question

Question 1: (20) The Covid-19 pandemic and the lockdown that followed have served as multiple shocks to the South African economy. The initial 5-week lockdown limited mobility of people and the availability of goods and services, leading to contractions in aggregate demand and supply. Policymakers have responded with expansionary fiscal and monetary policy. The government has implemented a R500bn support package and the Reserve Bank has reduced the repo rate and extended liquidity in the bond market. Apply any, or all of the models that you have learned and explain the impact of the crisis and the policy reaction on the level of output, the interest rate and the price level in South Africa. Make use of graphs and explain the chain reactions and impacts in your own words. Question 2: (20) Financing the government's support package is a contentious issue. Part of it is to come from reprioritisation of spending, part from an IMF loan and part from new debt issued in the local bond market. Some have suggested that the Reserve Bank should simply print the money. Apply the augmented Philips curve policy lesson to the suggestion that the SARB prints the money. Make use of graphs and explain what the impact might be on output and inflation. Question 3: (20) It is clear that the South African economy needs to grow. We need to make up for lost incomes, lost jobs, lost tax revenue. Our fiscal stance will be more sustainable if GDP grows. Apply your knowledge of the drivers of growth and explain what can drive long-run economic growth for South Africa. You can use models, graphs and explain in your own words what plans you propose to get the drivers of growth going. Total mark out of 60

Answer 1