Slides for website Kemiso Charles Makgaba

Slides for website

1. INTERMEDIATE MACROECONOMICS By Makgaba Kemiso

2. Mobile Application Development © 2024 by Makgaba Kemiso is licensed under CC BY-NC 4.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-nc/4.0/

3. The purpose of this intermediate macroeconomics slide is to provide students with a comprehensive understanding of macroeconomic theory, policies, and applications. It aims to bridge the gap between introductory and advanced macroeconomic studies, equipping students with the analytical tools and conceptual frameworks necessary to analyze and interpret economic phenomena at the aggregate level.

4. Chapter 1 1 .1 Monetary policy https://www.youtube.com/watch?v=_tULRch1PRQ&pp=ygUabW9uZXRhcnkgYW5kIGZpc2NhbCBwb2xpY3k%3D Money is one of the most important institutions in the eco nomy . Money, it is said, talks, makes the man (or woman), and makes the world go around. The Bible says that the love of money is the root of all evil. Everyone is fascinated by money. Writers write about it, singers sing about it and people dream about having enough money to satisfy all their wants. Through the centuries, money has taken different forms; cattle, seashells, cigarettes and gold have all served as money. In modern societies paper money is issued by central banks. The American comedian, Will Rogers, once said that there have been three great inventions since the beginning of time: fire, the wheel and central banking. Money is indeed a fascinating subject. In this chapter we take a closer look at money and financial institutions. We start by examining the functions of money. This enables us to define money. We then look at different forms of money and how money is measured in South Africa. This is followed by brief discussions of financial intermediaries and the role of the South African Reserve Bank. We then examine the demand for money and the way in which money is created. We conclude the chapter with a discussion of monetary policy (Mohr, 2015)

5. 1 .2 Functions of SARB Maintaining financial stability: The SARB presently regards financial stability (par ticu larly price stability) as its most important objective. In pursuit of this objective the Bank plays a pivotal role in the following areas: Monetary Policy: SARB is responsible for formulating and implementing monetary policy to achieve and maintain price stability. This involves setting interest rates to control inflation and manage economic growth (Krugman, 2018) Financial Stability: The SARB monitors and promotes the stability of the financial system. This includes overseeing banks and other financial institutions to ensure they operate in a sound and secure manner. Currency Issuance: The SARB is the sole issuer of banknotes and coins in South Africa. It ensures that there is an adequate supply of currency to meet the needs of the economy. Foreign Exchange Control: The SARB manages South Africa's foreign exchange reserves and implements policies related to foreign exchange transactions to stabilize the currency. Banking Services to Government: The SARB acts as a banker to the government, providing various financial services including managing the government’s accounts and facilitating government payments ( Elof et al 2013). Regulation and Supervision: The SARB oversees the banking sector and ensures compliance with regulations to maintain the integrity of the financial system. It conducts regular assessments and stress tests on banks.

6. Chapter 2 2.1 The government The government or public sector in South Africa consists of the following: Central government, which is concerned mainly with national issues such as defence and our relationship with the rest of the world ( ie foreign affairs) • Regional (or provincial) government, which is concerned mainly with regional issues such as housing, health services and education • Local government, which deals with local issues such as the provision of sewerage, local roads, street lighting and traffic control • Public corporations and other government business enterprises such as Eskom, Transnet and Rand Water (Salvatore, 2014) 2.2 Government spending (G) https://www.youtube.com/watch?v=bv-uNNkE39I&pp=ygUabW9uZXRhcnkgYW5kIGZpc2NhbCBwb2xpY3k%3D What determines government spending? Government spending in South Africa has increased quite rapidly in recent decades. From the 1980s onwards, for example, there has been pressure on government to spend more on education, housing, health and safety and security, while defence spending increased rapidly during the 1970s and early 1980s. The important point is that government spending is essentially a political issue. In other words, government spending is related to political objectives rather than to the level of income Y. In fact, government spending G has often been increased after income Y has fallen. There is thus no systematic relationship between G and Y. In symbols we express this as G = G where the bar above the G indicates that G is autonomous with respect to Y. How does the introduction of G affect the level of aggregate spending A? The answer is quite simple. Government spending on goods and services G has to be added to the other components of aggregate spending, that is, consumption spending C and investment spending I. When we add the government, aggregate spending A thus becomes equal to C + I + G.

7. It follows that increases in government spending can be used to raise the level of production and income Y. Any increase in government spending will raise production and income by a multiple of the original increase. This seems to indicate that government spending is a powerful instrument that can be used to increase production and income, and lower unemployment. The problem, however, is that this result only applies in a world in which there is no foreign sector and in which prices, wages and interest rates are fixed. Once these assumptions are dropped, government spending becomes a less powerful and more complicated instrument of economic policy. Moreover, government spending has to be financed. As we explained in previous chapter, government spending is financed largely by taxes, to which we now turn. 2.3 Taxes (T) If government wishes to spend, it should levy taxes. In the circular flow models it is emphasised that government spending G is an injection into the circular flow of income and spending in the economy. We also indicated that taxes T constitute a leakage or withdrawal from the circular flow. We would therefore expect that the impact of taxes T would be the opposite of the impact of government spending G. As a general principle this is indeed the case. But there is a subtle difference between the impact of T and the impact of G. Taxes reduce the income that households have available to spend on goods and services. We say that taxes reduce the disposable (or after-tax) income of households, with the result that households can afford to purchase fewer goods and services than before. By reducing disposable income, taxes indirectly reduce consumption spending C by households. As in the case of government spending G, we wish to know how the introduction of taxes T will affect equilibrium. We also want to know how the government can use taxes to affect the level of income. In other words, we want to know how taxation can be used as an instrument of fiscal policy

8. References: Elof , M., Nel, D., Pretorius, A & Van Zyl, M. 2013. Clever Economics Grade 11. South Africa: Macmillan Krugman, P.R., Obstfeld, M. & Melitz, M.J. 2018. International economics: theory and policy . 11th edition. Harlow, England: Pearson Education, Limited. Philip Mohr, Louis Fourie and associates. 2015. Economics (for South African students). Fifth edition. Pretoria: Van Schaik. Salvatore, D. 2014. International Economics: Trade and Finance . 11th edition. International Student Edition. USA: John Wiley and Sons Inc.