Macroeconomics Answers

Explain, using the AD‐AS model, how the South African Government can use fiscal policy as a tool to recover from the negative effects of this COVID‐19 pandemic.  

Your answer must include the following:

 The description of the type of fiscal policy required;

(4)

 An explanation of how the implementation of this tool will work their way through the economy to achieve the desired effect; (6)

 The AD‐AS graph showing the implications of your recommendations. (5)

The following information is provided about an open economy with a government. Use the information to answer the questions that follow:

C = 450 + 0.4Y

I = 350

G = 150

X = 70

Z = 35 + 0.1Y

T = 0.15Y

Yf = 1550

Q.2.4 Calculate the tax revenue to the government of this country when the economy

remains in equilibrium.

(2)

Q.2.5 Calculate what the new equilibrium income should be if the government of this

country decides to cancel all taxes, implying the tax rate would now be 0%.

(6)

Q.2.6 Before the government decreased the tax rate, how much of government

spending was required to bring the economy to full employment?

(4)

Question 6 

What type of unemployment does each of the following represent? Explain your answers.

Q.6.1 Workers at a clothing factory lose their jobs when the firm relocates to another province. (2) Q.6.2 Workers at a factory making floppy disks lose their jobs when the firm goes under due to competition from USB’s.

Q.6.3 Migrant farm workers’ employment is terminated when the harvest is finished.

Q.6.4 Workers at the car plant are laid off as a result of a slump in motorcar sales. 20                 

Q.6.5 Worker decides to resign from his firm to find himself, so he can follow his passion and apply for a different job in a near future