Question

Question 1

The core elements of the Growth Employment and Redistribution (GEAR) strategy of the South African government in 1996, under the leadership of the then finance minister Trevor Manuel were amongst other things:  budget reform to strengthen the redistributive thrust of expenditure  monetary policy to prevent a resurgence of inflation  a reduction in tariffs to contain input prices and facilitate industrial restructuring, compensating partially for the exchange rate depreciation 1.1 With reference to the above, identify the macroeconomic objectives in these elements

This question required you to only focus on identifying macroeconomic objectives alluded to by the extract (GEAR) i.e. - equitable redistribution of income - price stability and - stable BoP explain each point for total 9 marks

1.2 Identify and define the macroeconomic variables that can be used to measure whether the strategy was successful or not. (6 marks)

As per 1.1 above, the variables required here are;
1. gini coefficient or Lorenz curve
2. Inflation rate
3. Exchange rate or BoP accounts

define each one for 5 marks

1.3 With each tool in 1.2, provide a detailed explanation on how it can be measured.

The focus here should be on measuring the ffg varibles
Lorenz Curve (redistribution of income)
Inflation Rate (stable prices)
Exchange rate or BoP accounts (stable external accounts) - very important 20 marks

Answer 1

1.1

macroeconomic objectives:

• redistribution of government spending and more efficient use of budget funds
• maintaining a foreign trade balance.
• Bring down inflation
• stable price level
• industrial sector support
• stable growth in national output
• make available the basic amenities such as education, health
• reforming the tax system

1.2  

Macroeconomic variables determine the state of a country's economic system.

They are divided into two groups: flow indicators and stock indicators.

Flow indicators can include: aggregate supply, consumption, gross domestic product (GDP), investment, unemployment rate, state budget deficit (surplus), export, import, etc.

Stock indicators include national and personal wealth, fixed assets, the number of unemployed, government debt production capacity, etc.

To measure whether the strategy was successful or not, the three macroeconomic variables which are particularly important:

• gross domestic product (GDP),
• the unemployment rate, and
• the inflation rate.