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Discuss in detail the new economic paradigm in smoothing-out business cycles - NSC Economics - Question 5 - 2021 - Paper 1
Question 5
Discuss in detail the new economic paradigm in smoothing-out business cycles. Evaluate the South African government's initiatives to reduce the economic downturn c... show full transcript
Worked Solution & Example Answer:Discuss in detail the new economic paradigm in smoothing-out business cycles - NSC Economics - Question 5 - 2021 - Paper 1
Step 1
Discuss in detail the new economic paradigm in smoothing-out business cycles.
Answer
The new economic paradigm emphasizes a balanced approach to managing business cycles through both demand-side and supply-side policies.
Demand-side policies
These policies focus on stimulating aggregate demand to foster economic growth. For example, the South African Reserve Bank (SARB) can implement expansionary monetary policies during economic downturns, which may include:
- Lowering interest rates to encourage borrowing and investment.
- Increasing the money supply to boost consumer spending.
When economic activity is depressed, these measures can increase production, income, and ultimately employment levels.
Supply-side policies
On the other hand, the supply-side approach focuses on enhancing economic efficiency and productivity. This could involve:
- Reducing regulatory barriers to promote business growth.
- Investing in infrastructure to support higher output levels.
- Implementing tax incentives for businesses to stimulate production and create jobs.
Conclusion
By effectively combining demand-side and supply-side policies, the new economic paradigm aims to mitigate fluctuations in business cycles and sustain long-term economic growth.
Step 2
Evaluate the South African government's initiatives to reduce the economic downturn caused by the Covid-19 pandemic.
Answer
The South African government's initiatives in response to the Covid-19 pandemic have focused on both direct financial aid and structural reforms.
Financial Measures
- Social Grants & Financial Assistance: Increased social grants and emergency relief packages have supported vulnerable segments of the population, helping mitigate the immediate effects of the economic downturn.
- Loan Guarantees: Programs were introduced to provide loan guarantees to small and medium enterprises, ensuring they could survive during periods of low revenue.
Structural Reforms
- Infrastructure Development: The government has prioritized infrastructure projects to stimulate job creation and improve service delivery, which has a multiplier effect on the economy.
- Reforms in Regulation: Efforts to streamline regulations and reduce red tape have been implemented with the aim of fostering a more conducive environment for businesses.
Conclusion
Overall, these initiatives reflect a comprehensive approach aimed at not only addressing the short-term economic challenges posed by the pandemic but also preparing for sustainable long-term recovery.