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Economic growth and development - Coggle Diagram
Economic growth and development
Economic growth and development
Economic growth is expressed as a percentage, and is measured by the GDP or GNP of a country and refers to an increase in a country's capacity to produce goods and services, over a specific time.
Economic development is measured using real GDP per capita, and can only occur if there is an improvement in a country's economic growth. It refers to the increase in the welfare or standards of living of citizens.
The Human Development Index can also be used as a measure of economic development and is comprised of life expectancy, education, and GNI per capita.
The demand-side approach intends to improve economic growth and development through aggregate demand. The more money spent by consumers, the more goods and services will be bought, and employment and economic activity will increase.
Formula= C + I + G + (X-M)
An increase in one component leads to a higher demand for goods and services.
Fiscal policy aims to influence the economy through government intervention in taxation, government spending, and borrowing.
Fiscal policy relies on the multiplier effect: a small change in spending will lead to a relatively larger change in income.
Aims:
-to reach full employment.
-to stabilize economic growth.
-to maintain price stability.
-to redistribute income
Policies:
Wealth tax is levied on property, capital gains, and estates.
Benefits-in-kind are provided to the poor- and low-income citizens.
Cash benefits are provided to the poor.
The government provides employment opportunities to redistribute income.
Progressive tax: people are taxed according to their level of income.
Land restitution aims to return land, to those who lost it during apartheid, because of racially discriminative laws.
Land redistribution aims to provide land for residential and productive use to the previously disadvantaged.
The Finance Linked Individual Subsidy Program is a property subsidy provided to low-income earners.
Monetary policy refers to the role of monetary authorities in influencing the circulation of money in the economy, and the management of interest rates to achieve economic goals.
Aims:
-reach full employment.
-ensure high levels of economic growth.
-maintain price stability and protect the value of the Rand.
The SARB controls the money supply, which influences spending.
Open market transactions, also known as quantitative easing, refer to the buying and selling of government securities to commercial banks. This is used to either increase or decrease the money supply because the commercial banks will have less or more money to lend to its consumers. An increase in the money supply leads to greater demand and increased economic activity
Moral suasion is used by the SARB to encourage moral and ethical standards by commercial banks. The SAR encourages honest advertisements, responsible lending, and ensuring that consumers borrow responsibly when interest rates are high.
The repo rate is charged by the SARB to commercial banks. The change in the repo rate influences the interest rate that the commercial banks charge it's customers. A change in interest rate influences the inflows and outflows of capital in the balance of payments
The supply-side policies are used by the government to make supply more responsive to changes in aggregate demand. It is said that when supply is more responsive to changes in demand, it can stimulate or even create demand.
If businesses supply more goods and services, demand will increase, which economic growth- and -development.
The efficiency and effectiveness of markets are promoted through Pareto efficiency: the principle that the allocation of resources betters one person more than the other.
The effectiveness of markets:
An effective market promotes the inclusion of black people in the economy:
-It follows the BBBEE Act, which aims to increase the participation of black individuals in management positions.
-The EEA promotes non-discrimination and aims to create a representative workplace environment.
The efficiency of markets is achieved through:
Competition encourages businesses to create innovative products at a low production cost, to lower the price paid by consumers.
How the government promotes competition:
-create an economic environment with institutions that support competition.
-supporting the creation of SMMEs.
-attracting FDI.
-Removing barriers to entry, as well as dominating businesses.
Deregulation involves limiting government intervention by removing laws that hold back business operations.
Measures:
-removing laws, by-laws, regulations, and government control measures that restrict market freedom.
-creating flexible resource and labor markets.
-getting rid of control on prices, imports, and exchange rates.
Business efficiency has the goals of increasing its productivity, reducing costs, and stimulating economic growth.
Capital consumption estimates the replacement value of the asset due to overuse or the asset becoming outdated. Governments can help reduce the taxes paid by businesses, by deducting depreciation allowances from their profit. This allows businesses to keep up wit changes in technology.
Human resource development occurs through training, education, and skills development of the workforce. This increases the productivity and efficiency of production in the economy.
High taxes discourage workers and investors and increases the price of goods and services. Reducing the tax rate does the opposite.
Free advisory services are targeted at SMMEs because they have limited funding for research and development. These services provide businesses with support to access export markets and venturing into foreign markets.
The cost of doing business
The transport cost of transporting the finished goods and services to its consumers.
The communication cost makes it difficult for communities to access information and employment opportunities. This restricts economic activity.
Energy costs and supply are carried down to consumers, and contribute to economic growth
Effectiveness of South Africa's approaches
Demand-side approach:
-South Africa's fiscal policy has led to growth in consumer spending and investing.
-The government has implemented various programs to reduce poverty and inequality and increase demand for goods and services.
-the Covid-19 pandemic worsened the impact of high unemployment rates, low economic growth, and persistent inequality. This increased the need for them to stimulate demand and support businesses and customers.
-People argue that the government needs to address corruption, inefficient state-owned enterprises, and inadequate infrastructure.
-The inflation targeting between 3 and 6% has contributed to high interest rates, which made borrowing difficult.
Supply-side approach:
-led to infrastructure development, education, and training, but privatization and tax reform led to worsened inequality and unemployment.
-The government has tried to remove barriers that prevent the domestic market from operating freely.
-lower corporate taxes and the introduction of incentives to encourage investment and job creation.
-more effort needs to be made to