Macroeconomics is the study of the economic variables at aggregate level.

The macroeconomic
problems facing Zimbabwe are unequal distribution of wealth and unemployment and there are also
financial problems of exchange rates fluctuation and balance of payment deficits and also businesses
are also problems of high interest rates of borrowing. The theory which can be used to solve the
problems of macroeconomics is Lorenz curve and also balance of payment exchange rate theory can
be used to solve balance of problem and purchasing power parity can be used to solve exchange rate
fluctuations and also the theory of Philip’s curve can be used to solve inflation.

First and foremost unequal distribution of income is a macroeconomic problem faced by people in
Zimbabwe. Unequal distribution of wealth occurs when a proportion of people in the country are rich
while others are poor. In Zimbabwe other people have higher levels of income than others hence
they are consuming more than others hence this is unfair as the people in the country should have
the same level of income so that they all consume goods . Unequal distribution of income therefore
results in people consuming more goods than other people in the country.

The problem of unequal distribution of wealth can be solved by Lorenz curve. Lorenz curve is a way of
showing the distribution of wealth or income in an economy and it shows cumulative share of
income from different sections of the economy . Lorenc curve is a describe a way of describing
inequality among size of individuals in ecology Damagaard, Christian , Jacob Weiner (2000). Lorenz
curve shows that if there was a perfect equality that is everyone had the same income for example
the poorest twenty percent of population would gain twenty percent of income .Lorenz curve is
illustrated by a curve which should be closer to the forty five degrees line of equality the closer the
curve to that forty five degree line the more equality in the society and the further the curve from that
forty five degree the more the inequality.

Lorenz curve can be used to solve the unequal distribution of income in Zimbabwe. Lorenz curve
implies that the population has to have same level of income if equality is to be fully achieved hence in
Zimbabwe inequality can be calculated using the theory of Lorenz curve by calculating the Gini
coefficient thus if Gini coefficient is high inequality is also high but if Gini coefficient is low inequality is
also low hence if inequality is calculated measures to ensure equality in distribution of wealth can be
planed and implemented. Lorenz curve therefore helps to calculate inequality of wealth .

However Lorenz curve does not give the solution to reduce inequality it only helps in calculating
inequality of wealth .Measures can be taken to reduce inequality in distribution of income such as
progressive tax system which is a fiscal policy measure to achieve equality in distribution of income
hence Lorenz curve act as a measure of measuring inequality but does not give the solution. Lorenz
curve therefore does not give the solution to reduce inequality in distribution of income

The simple regression model can be used to establish relationship between unequal distribution of
income and progressive tax system. Unequal distribution of income is the dependent variable and
progressive tax system is the independent variable hence high progressive tax system causes
reduction in the unequal distribution of income hence there is a negative relationship between
unequal distribution of income and progressive tax system. Unequal distribution of income therefore
is influenced by progressive tax system as shown below

Simple regression model

Income inequality = β1 + β2progressive tax system + u

Moreover unemployment is another macro economic problem that Zimbabwe is facing.

Unemployment occurs when people who are willing and able to work are unable to work.
Unemployment, according to the Organisation for Economic Co-operation and Development ( OECD ), is
when persons above a specified age are not in paid employment or self-employment and are currently
available for work during the reference. Unemployment is a problem in Zimbabwe because it causes
income poverty hence people are unable to buy goods and services since they have no incomes.
Unemployment therefore causes people to have no incomes to spent on goods and services hence
income poverty is generated.

However Keynesian theory of aggregate demand can be used to solve unemployment. According to
Keynesian theory aggregate demand consist of the elements of consumption, investment,
Government expenditure and net exports and if one of the components increases then aggregate
demand increases. If one of the components of government expenditure increases for example
government expenditure increases then aggregate demand increases then unemployment is
reduced . As aggregate demand increases then unemployment is reduced.

However there are other factors which reduces unemployment in Zimbabwe for example interest
rates and subsidies. If there is a reduction in interest rates this creates opportunities for investment
hence if there is increase in investment unemployment is reduced and also subsidies also reduces cost
of production thereby increasing profits and if profits increases then the business can expand its
operations thereby reducing unemployment by employing more people . Subsidies and low interest
rates reduces unemployment.

An econometric model of simple regression model can be used to describe relationship between
unemployment and interest rates. If there is increase in interest rates then unemployment is
increased since the business could be forced to retrench some workers hence creates
unemployment hence there is a negative relationship between unemployment and interest rates.
Unemployment is the function of unemployment as shown below

Simple regression model

Unemployment = β1 + β2 interest rates + u

Moreover there is this financial problem of exchange rates fluctuation in Zimbabwe. Exchange rate
fluctuation occurs when there is shift in the demand or supply of the country’s currency or foreign
currency. Exchange rate fluctuations causes appreciation and depreciation of the country’s currency
hence appreciation causes exports to be expensive resulting in country’s exported goods being unable
to be bought and also depreciation causes imports to become expensive resulting in the country
unable to buy imported goods. Fluctuations in exchange rates therefore cause appreciation and
depreciation of the country’s currency which in turn causes escalation of Zimbabwe exports and
imports respectively.

However the exchange rate fluctuations can be solved by adopting a fixed exchange rates. If there
is appreciation in the country’s country there is appreciation or depreciation due to movement of
demand and supply of the country’s and foreign currency then the government can revalue or devalue
its country’s and also fixed exchange rate is not fluctuating it is automatic .

Furthermore there is also another financial the problem of balance of payment deficit in Zimbabwe.
Balance of payment deficit occurs when the country’s Imports exceed Exports . Balance of payment
also means that central bank is running down its reserves or borrowing from abroad Sloman , John
(2004). Balance of payment deficits results in shortage of foreign currency hence the country is will be
unable to purchase goods which are sold abroad as most of the foreign currency that was in the
country is used to purchase imports. Balance of payment deficit therefore results in country unable
to purchase goods from abroad since most of the country’s currency was used to buy imports.

Balance of payment deficit can be solved by Balance of payment theory .According to balance of
payment theory balance of payment deficit and surplus results in depreciation and appreciation of a
country’s currency respectively due to the market forces of demand and supply of the country’s
currency and also of foreign currency .

Moreover there is Balance of payment theory can be used to solve balance of payment deficit.
According to the balance of payment theory a deficit in the balance of payment of a country results
in depreciation of the country’s currency hence if there is depreciation imports become cheap and
exports become cheap hence deficit can be nullified hence there is automatic stabilisation. Balance of
payment theory therefore solves problems of deficit balance of payment.

However they are balance of payment theory has drawbacks. It does not explain what determines
internal value of currency and also it assumes perfect competition with minimal government which is
unrealistic . There also measures which can be taken to solve the deficit of balance of payments such
as devaluation by government through the fixed exchange rate and also adopting import substitution
which reduces importation of goods. Balance of payment deficit therefore can be reduced by import
substitution and devaluation.

The economic model that can be used to find the determinants of balance of payment is a simple
regression model . Simple regression is a model with one independent variable in this case balance of
payment is a function of high disposable income hence there is a positive relationship between
Balance of payment deficit and high disposable income since high disposable income cause people to
buy imports which in turn could cause balance of payment deficit. Its relationship is shown below

Simple regression model

Balance of payment= β1 + β2disposable incone+ u

The information of balance of payment information can be found at the newspapers , Zimbabwe
statistics and also through the internet.

In addition business can also face the problem of wage bargaining from its employees. Wage
bargaining occurs when employees or its representatives which maybe the trade unions want to
negotiate and reach agreement with employers so that employees wages are increased. Wage
bargaining can result in increased wages for employees if employers agree to raise they wages but it is
a problem for the business in that it results in increased cost of production hence the profits of the
business can be reduced.

The marginal revenue productivity of labour can also be used to reduce wage bargaining. According to
marginal revenue productivity of labour workers are employed up to a point where marginal revenue
product is equal to marginal cost of employing an additional unit of labour and also wages are equal to
marginal revenue product and the theory also assumes that wages are homogeneous.

The marginal revenue productivity theory can be used to reduce wage bargaining . If workers are wages
are equal to their marginal revenue then there is no need for them to bargain for higher wages since
their wages are equally proportionate to their marginal revenue .Marginal revenue productivity theory
therefore allows workers wages to equal their productivity.

However marginal revenue productivity theory is unrealistic since wages are not homogeneous due to
different levels of skills. Also other measures could be taken to reduce wage bargaining such as
increasing the fringe benefits could allow workers to reduce their bargaining of higher wages.

The relationship between wage bargaining and non monetary benefits can be expressed in form of
a simple regression model. In simple regression model wage bargaining is the dependant dependent
variable and non monetary benefits is the independent variable hence there is a negative relationship
between wage bargaining and non monetary benefits that is an increase in the non monetary
benefits or fringe benefits results in decrease of workers bargaining for higher wage. Its relationship
is represented below

Simple regression model

Wage bargaining = β1 + β2 Fringe benefits + u

Furthermore another business problem is high interest rates on borrowing. Interest rates on
borrowing is the cost of borrowing money in the bank .High interest rates causes business to not to
expand since the business is unable to borrow money from the bank to expand its operations. High
interest rates therefore cause low investment opportunities.

However high interest rates can be reduced by loanable funds theory. According to loanable funds
theory interest rates are depends on in supply and demand for loanable funds and supply for
loanable funds depends on savings and demand for loanable funds depends from firms seeking
investments , government and households. Increase in supply of loanable funds reduces interest
rates hence interest rates becomes low that is if people save more money there will be more money
available for lending hence interest rates becomes low.

However there are other factors which causes high interest rates such as low inflation . If there is
high inflation interest rates tend to be high since the government through the central bank would
want to reduce money supply which causes inflation by increasing interest rates hence high inflation
causes high interest rates whereas low interest rates causes low inflation.

The relationship between inflation and interest rates can be represented by a simple regression
model. Interest rates is a function of inflation hence if there is high inflation rates then interest rate
tend to be low hence there is a negative relationship between inflation and interest rates .Its
relationship is shown below

Simple regression model

Interest rates= β1 + β2Inflation+ u

REFERENCES

Damgaard, Christian , Jacob Weiner (2000). Describing the inequality of fecundity. p1139-1142

https://stats.oecd.org

.Pengiun.pp 516-517, 555-559