Unit 1 Study Guide

IE301B Unit 1 Macroeconomics
Study Unit 1 Macroeconomics

This unit covers basic macroeconomic concepts that will aid your
understanding of subsequent study units. International economics is
defined and macroeconomic concepts that will help you to gain an
understanding of the rest of the module are discussed.
OUTC OMES
Specific outcomes and assessment criteria
GLOS S AR Y OF TER MS AND R EFER ENC ES
Glossary of terms
S TUDY UNIT 1
Basic economics and terms
The circular flow
Monetary policy and fiscal policy

Market-oriented monetary policy instruments
SARB and influencing the real sector
Fiscal policy, government and taxes
Government budget
Aggregate demand AD and aggregate supply AS
Revision questions
National income accounting
UNIT 1 C ONC LUDE
Progress check
Lesson 1 of 13
00:21
Listen to the voice-over by clicking on the ▶ button
Let's look at the outcomes and assessment criteria for this unit.
Study Unit Specific

Assessment Criteria
Outcome
Study Unit Specific
Assessment Criteria
Outcome
The concepts of
opportunity cost,
equilibrium, and ceteris
paribus are explained with
examples.
The economic units and

markets in the economy are
identified and their role in
the economy is explained.
The interrelationship
Demonstrate an understanding between economic units is
of economic concepts that explained.
provide a solid understanding of
Graphical illustration of a
international economics.
factor of production flows,
financial flows, injection,
and withdrawals are given.
Use the circular flow to

explain the role of financial
institutions and trade in an
economy.
Explain the role of imports

and exports in an open
economy.
Explain the role of monetary

Study Unit Specific
Assessment Criteria
Outcome
policy and fiscal policy in the Explain what monetary

economy. policy and fiscal policy are.
Identify the responsibilities

of the government and
SARB in the economy.
Distinguish between
monetary policy and fiscal
policy.
Explain the role of monetary

policy in the economy.
Illustrate expansionary and

contractionary monetary
policy using a diagram.
Explain the role of fiscal

policy in an economy.
Illustrate expansionary and

fiscal policy using a diagram.
Interpret the impact of fiscal

and monetary policy on the
economy.
Identify the tools for fiscal

policy (taxation and
expenditure).
Identify and explain the

tools for monetary policy
Study Unit Specific
Assessment Criteria
Outcome
(interest rate and quantity

of money).
Explain the monetary

transmission mechanism
(how changes in the
monetary sector influence
change in the real sector).
Illustrate the aggregate

demand and aggregate
supply, using a well-labelled
diagram.
Explain equilibrium in the

economy and economic
growth using AD and AS.
Explain the role of aggregate
Distinguish between the
demand and aggregate supply
components of aggregate
in an economy.
demand and aggregate
supply.
Explain the effect of

changes on the
components of aggregate
demand C, I, G, XZ on the
equilibrium income.
Study Unit Specific
Assessment Criteria
Outcome
Explain how fiscal policy

and monetary policy can be
used to close a recessionary
Demonstrate an understanding and inflationary gap.
of the changes in output in the Illustrate the impact of a
economy. change in the monetary
policy and fiscal policy on
aggregate demand and
equilibrium output.
Study Unit Specific
Assessment Criteria
Outcome
Define gross domestic

product GDP.
Interpret key terms in the

definition of gross domestic
product.
Distinguish between gross

domestic product and gross
national income GNI.
Define gross domestic

Explain the national income expenditure GDE.
accounting concepts.
Identify the difference
between gross domestic
product and gross national
expenditure.
Identify the importance of

these measures in an
economy.
Interpret the difference

between GDP and GNI.
CO N T IN U E
Lesson 2 of 13
Glossary of terms
Glossary of terms
00:10
Aggregate demand
–
Aggregate demand is the total demand for all goods and services.
Aggregate supply
–
Aggregate supply is total production for all goods and services.
Ceteris paribus
–
Ceteris paribus is a Latin phrase that generally means "all other things
being equal." In economics, it acts as a shorthand indication of the effect
one economic variable has on another, provided all other variables
remain the same
Contractionary policy aimed

–
Contractionary policy aimed at reducing economic activities through a
reduction in demand C + I + G + X - Z
Deficit
–
Deficit exists when expenditure is greater than revenue.
Equilibrium
–
Equilibrium is a state of balance where opposing forces are equal.
Exchange control
–
Exchange control is a policy measure to control the amount of money
leaving the borders of a country.
Expansionary policy
–
Expansionary policy is aimed at increasing production, encouraging
growth and stimulating employment.
Fiscal policy
–
Fiscal policy is an intervention by central government in order to influence
aggregate economic activities.
Monetary policy
–
Monetary policy is the indirect intervention by monetary authorities in
order to control inflation through the money supply and interest rates.
Opportunity cost
–
Opportunity cost is the value of the best forgone alternative.
Can you answer the following questions?
Equilibrium is a state of
inbalance where opposing forces are not equal.
balance where opposing forces are equal.
balance where opposing forces are not equal.
SUBMIT
Fiscal policy is an intervention:
in the value of the best forgone alternative.
by monetary authorities in order to control

inflation through the money supply and interest
rates.
by central government in order to influence

aggregate economic activities.
SUBMIT
Ceteris paribus is where:
all influencing factors are held constant.

there is a total demand for all goods and
services.
all factors are held constant.
SUBMIT
CO N T IN U E
Lesson 3 of 13
Basic economics and terms
International economics is a study of

international trade and how trade
activities are financed
00:51
Basic economics
International economics is a study of international trade and
how trade activities are financed. International trade deals with
relationships between firms, consumers, factory owners and
government; and external economies. International finance, on
the other hand, focuses on the significance of trade imbalances,
the determinants of exchange rates, and the effects of
government monetary, fiscal policies, and international
institutions that ensure smooth flow of goods and services by
facilitating transactions between different trade partners.
Modern international economics includes further fields of study
to accommodate changes in the global economy and
contemporary drivers of economic growth.
Economic terms
Ceteris paribus
–
Ceteris paribus is a Latin term that means other things being equal,
meaning all other relevant things remain the same (unchanged). You will
encounter this term in the rest of the module. This assumption is
important in economic analysis. It provides a simple way of
understanding economic processes by studying the impact of one factor
at a time. In reality, economic factors change at the same time, which
complicates the understanding of the whole process.
Ceteris paribus enables economists to add one component at a time in
the economic process and gain an in-depth understanding of the
impact.
An example is if we would like to understand the reason for a decrease in

the price of oranges. There are numerous factors that can be attributed
to the change in price from the demand side and supply side. These
factors are too complex to study at the same time. Ceteris paribus helps
us to hold demand factors or supply factors constant and we may
analyse the supply side or demand factors first.
We can add the demand factors or supply factors later to get a complete
picture of the factors affecting the price of oranges. This provides a
holistic and real picture of factors at play, which is not possible if all
factors change at the same time.
Opportunity cost
–
Opportunity cost is an economic concept that arose because of the
scarcity of resources where needs and wants are greater than the
resources. This requires economic agents to make choices, hence
choosing between alternatives. Opportunity cost is the value of the best
alternative that a decision-maker could have chosen, but was not chosen
(the value of the best-forgone alternative). Each time a choice is made,
opportunity cost occurs.
Look at the following examples:
At an individual level, if you had two options to use your lunch hour,
either to finish your assignment or have lunch with your friends. If you
choose to have lunch with your friends the best alternative that you have
forgone is finishing your assignment and maybe getting a distinction. The
assignment- distinction forgone is the opportunity cost of having lunch
with your friends.
At a national level
Suppose the government had an option of using R1 billion raised from
taxes to build a hospital or increase civil servants’ salaries. Suppose the
government finally decides to increase salaries for civil servants, then the
best alternative forgone by choosing the option is the hospital that could
have been constructed. In this case, society bears the cost and it
becomes a social cost.
Equilibrium
–
Equilibrium refers to a state of balance. A market is at equilibrium when
different forces offset each other so that there is no tendency for the
system to change. In economic theory, after examining all factors that are
important in a market, conditions of equilibrium are formulated. For
example, in the goods market, equilibrium is reached when quantity
demand equals quantity supplied. At the equilibrium point, there is no
tendency for the price and the quantity to change.
The price becomes the equilibrium price and the quantity becomes the
equilibrium quantity. In the foreign exchange market, equilibrium is
reached when the quantity of foreign currency supplied equals the
quantity demanded. We can change the underlying forces which also
change the equilibrium price and quantity. A comparison can be made
between the old equilibrium and the new equilibrium.
John has $60 000 from his monthly income and wanted to start a
restaurant. At his workplace, he got promoted and is expected to

enroll for an MBA programme at a cost of R50 000. If John decides to
study, his opportunity cost will be R60 000.
True
False
SUBMIT
Opportunity cost can best be described as
the value of the best alternative forgone.
out-of-pocket money costs incurred when a

decision is made.
the value of all alternatives forgone.
SUBMIT
Discuss the role of financial institutions and trade in South
Africa's economy by referring to the circular flow.
What is the impact of imports from China on South Africa?

Give your opinion.
CO N T IN U E
Lesson 4 of 13
The circular flow
The circular flow shows the relationship

between economic agents within an
economy and the markets
00:43
Circular flow
Income and spending among economic agents and how they are
interrelated
The circular flow provides the interrelationship between
economic agents through the goods and financial flow of
resources.
Income and spending in an economy
The remuneration of factors of production provides income to

the economy. Households sell their labour in the factor market
and get remuneration.
Remuneration for labour - wages/ salary
Entrepreneurship - profit
Capital - interest
Natural resources - land is rented.
This makes the main source of income in an economy a sum of

wages/salaries, profit, interest, and rent. The payment received
by different economic agents is spent in the goods market.
Spending
There are four spending agents in the economy namely

households, firms, government, and the foreign sector.
Click on the pulsing information icons to learn more about
spending.
 
 

Firms
A firm is a unit that hires/ employs factors of production to produce goods and
services that are sold in the goods market or exported.
Firms are rational and always aim to maximize profit.
All people, who work or own firms, are part of households.
Firms invest in capital (capital formation) that is used in the production of goods
and services. This is denoted by the symbol I.

Government
Government spending is a term that refers to any government-related expenditure

from local, provincial, and national spheres.
Households and firms are expected to be rational in their decision-making; the

government may not always be rational faced with national goals that vary from
time to time and personal reasons (e.g. re-election, power, and prestige).
Government expenditure is an injection into the circular flow, while taxes levied on
households and firms is a withdrawal from the circular flow (not available for
spending).
Government expenditure is denoted by the symbol G.


Foreign sector
The fourth source of spending in the economy is the foreign sector. South Africa, as an open
economy, has strong links with the rest of the world.
Some of the goods produced in South Africa are sold to the rest of the world. These are called
exports denoted by X. Exports are an injection into the circular flow.
Exports are goods produced within a country but sold to the rest of the world. South Africans
also buy goods from the rest of the world.
These goods are called imports, denoted by Z. Imports are a withdrawal from the circular flow.
Imports are goods produced by the rest of the world and purchased for the domestic
economy.
Households
These are people who live together and make joint economic decisions.
Members of the household that consume goods are called consumers.
The act of consuming goods is called consumption C.
The total spending of households in an economy is called aggregate consumption

expenditure.
Consumption C is an injection into the economy, while part of the income that
households decide to save S is a linkage in the economy.
00:21
Financial institutions
Financial institutions act as financial intermediaries between the

saving units and the deficit units. When households save part of
their income from the remuneration of factors of production,
they deposit the money with financial institutions, for instance,
the bank, while firms may also approach the bank for loans. The
bank lends to the firms for investment expenditure, using the
savings from the households.
CO N T IN U E
00:36
Aggregate spending in the economy

Aggregate spending denoted by A. This is a summation of all
spending in the economy given by:
A = C + I + G + XZ
XZ provides the position of a country with regard to trading

with the rest of the world. If the net position is positive, it means
the domestic country is exporting more than it is buying from
the rest of the world hence an injection into the economy.
If the net position is negative, this means imports are greater

than exports implying that the domestic economy is buying
more from the rest of the world compared to what it is selling to
the rest of the world. This is a withdrawal from the economy, as
most of the domestic resources are used to pay for imports.
Look at the image below to get a better understanding.
The circular flow / Source: Parkin et al. 2019
CO N T IN U E
00:15
Injections into the circular flow

The following can be seen as injections into the circular flow.
Click on the flashcards below to learn more.
Investment
Withdrawals from the
Government expenditure
circular flow
Exports
Savings
Consumption Taxes
Imports
The following diagram shows the aggregate expenditure from

the four spending sources in the economy, withdrawals, and
leakages.
Aggregate expenditure from the four spending sources in the economy, withdrawals and
leakages.
Can you answer the following question?
Which one of the following is not a factor of production?
Labour
Money
Capital
Land
SUBMIT
Savings are to households as taxes are to ____.
Exports
Firms
Government
SUBMIT
A country experiences a growth in the economy when
there is an increase in taxation

when the domestic economy increases
purchases from the rest of the world
when injections are greater than withdrawals
SUBMIT
The main role of financial institutions in the circular flow is to
facilitate transactions between economic agents

in the circular flow
charge interest to borrowers
make profit from the resources saved by the

households
SUBMIT
Which one of the following in not a component of aggregate
expenditure?
Government expenditure
Savings
Investment
SUBMIT
CO N T IN U E
Lesson 5 of 13
Monetary policy and fiscal policy
The South African Reserve Bank is responsible for the

formulation and implementation of monetary policy
01:00
Fiscal policy
The government is responsible for the formulation and
implementation of fiscal policy. The National Treasury in South
Africa plays a key role in fiscal policy formulation. Fiscal and
monetary policies are called demand management policy
interventions. This is mainly because, in the aggregate demand
and supply framework, the two policies can only influence the
demand for goods and services in the economy C, I, G, XZ.
The fiscal and monetary policy targets five macroeconomic

objectives:
1 Economic growth – the total production of goods and

services increases from one period to the other. We get
more firms entering into production and existing ones
expanding their production, resulting in an increase in
goods and services produced.
2 Equitable distribution of income – a highly unequal

distribution of income creates conflict.
3 Balance of payment stability (external stability) – it is

important to strike a balance between imports and
exports, mainly because a country should earn enough
foreign currency to pay for imports. If a country is
paying more foreign currency than it is earning from
exports, this poses a problem to the balance of
payments. The balance of payments and exchange
Monetary policy
The primary objective of South Africa’s monetary policy is to
achieve and maintain price stability in order for the economy to
obtain balanced and sustainable economic growth. Governed by
the South African Reserve Bank Act No 90 of 1989. The South
African Reserve Bank SARB is the central bank of South Africa
and the monetary authority.
What s all the Yellen About? Monetary Policy and the Fede…
What's all the Yellen About? Monetary Policy and

the Federal Reserve: Crash Course Economics #10
VIEW ON YOUTUBE 
CO N T IN U E
01:13
South African Reserve Bank SARB
The SARB is not owned by the government – is a private

company that is owned by shareholders.
The SARB has over 800 shareholders who have no rights or

involvement in determining financial stability, supervision of
the financial sector, and monetary policy. The rights only
relate to considering the SARB’s annual financial statements,
electing seven of the non-executive directors of the Board
of Directors (the Board), and appointing the external
auditors, and approving their remuneration.
The SARB is instrument-independent but not goal-

independent.
The SARB has discretion over the instruments it can use to

achieve the goal of protecting the value of the currency
(instrument independent).
It is important that a central bank has autonomy for the

effective implementation of monetary policy without control
from the government (independency).
Responsibilities of SARB
The primary objective of the SARB is to protect the value of the

currency in pursuit of sustainable economic growth. The SARB
has four main responsibilities:
1. Service to the government
Custodian of The SARB keeps the country’s gold and foreign

gold and exchange reserves, while banks are allowed to
foreign keep necessary balances. The SARB adds gold
and bullion to the reserves at market-related
exchange prices. The level of gold and foreign exchange
reserves reserves is usually used as a measure of the state
of the economy and prospects for future
economic growth. The same reserves determine
export cover – the period that a country is able to
import without exporting or earning any foreign
currency from exports.
The SARB handled all financial receipts for the

government until the early 1990s, after which the
government held accounts with other banks,
although the SARB remains the principal banker
for the government. The SARB also grants credit,
issues Treasury bills, offers advice, and
Banker and
administers exchange control regulations.
advisor to
government
The SARB is responsible for the movement of
government balances to, from, and between
other banks. These movements have an effect on
the cash holdings of banks and therefore serve
as a convenient additional instrument for
managing the liquidity of banks.
The SARB is responsible for the exchange control

policy administration. The exchange control
Administration restricts the movement of foreign exchange to
of exchange minimise disruptive fluctuations in capital
control movements and international economic shocks.
This is closely related to the maintenance of a
healthy balance of payments.
Provision of The SARB is responsible for the collection,

economic and compilation, and publication of important
statistical statistics that provide an overview of the
services economy. The SARB also carries out research in
support of policy decision-making.
2. Maintaining financial stability
The SARB is responsible for bank supervision

and regulation in South Africa. The Bank has
the mandate to enhance financial stability and
protect financial stability by identifying and
mitigating systematic risks that can potentially
Bank supervision
disrupt the financial system. The Prudential
Authority regulates the market infrastructure
and financial soundness to enhance safety
and soundness in the interests of depositors
with the banks and the economy as a whole.
The SARB is responsible for ensuring the

The National soundness and safety of the national payment
Payment system system, which is the backbone of the SA
financial system.
3. Banker to other banks
SARB is the custodian of minimum cash reserves that banks are

legally expected to hold. The SARB affects the quantity of
money through the ability to control the composition and level
of reserves. The SARB also clears claims and obligations of
banks to one another which is closely related to a sound and
secure National Payments System. The Bank also provides
liquidity to banks through the refinancing system.
The SARB has the sole right to make, issue and

Banknotes destroy notes and coins. The SA Mint Company, a
and coins subsidiary of the bank, mints all coins and prints all
notes for the bank.
4. Monetary policy
Measures taken by the monetary authorities to influence the

interest rate and the quantity of money.
CO N T IN U E
00:47
Inflation targeting in South Africa
South Africa embarked on inflation targeting in February 2000.

The numerical inflation target set by the SARB is 3%6%. The
SARB monitors credit extension, money supply growth, and
other economic indicators.
The main goals of inflation targeting are:
to make the monetary policy clear to improve planning and

decision-making by both the private and public sectors,
part of a coordinated approach to reduce inflation to

promote high and sustainable economic growth and
employment creation,
to focus monetary policy and improve the accountability of

the Reserve Bank, and
to guide inflation expectations and thus the price and wage-

setting behavior of economic agents.
CO N T IN U E
00:23
The Reserve Bank’s decision-making strategy

Inflation rate
The Reserve Bank’s forecasts of the inflation rate are a crucial

ingredient in its interest rate decision – affects raising and
lowering of the repo rate. If inflation is expected to move below
the inflation target, the SARB will consider lowering the repo
rate. The opposite is true if inflation is expected to move above
the target.
Output gap
Recessionary gap Inflationary gap
The output gap is The output gap is positive, the

negative, inflation might inflation rate will most likely
ease, leaving room to accelerate, so a higher interest
lower the interest rate. rate might be required.
CO N T IN U E
Lesson 6 of 13
A monetary policy instrument is a

variable that the Reserve Bank can
control directly or at least very closely
target
01:11

A monetary policy instrument is a variable that the Reserve Bank
can control directly or at least very closely target. Since the
SARB is the sole issuer of the monetary base, it can fix the price
(interest rate) or the supply (monetary base).
The SARB can use market and non-market controls.
The repo-rate and the refinancing system

The refinancing system refers to the way in which a central
bank extends credit to banks that are short of cash reserves.
The cost at which the banks obtain liquidity from the Reserve
Bank is referred to as the repurchase rate, or simply the repo
rate. Banks keep a cash reserve account and current account
(settlement account) with the SARB. In order to achieve a
liquidity shortage, the Reserve Bank uses two more instruments
displayed in the following column.
Compels banks to keep a certain % of their

Cash reserve deposits in an account at the central bank.
requirements for If a bank experiences an increase in its
banks deposits, it is also required to keep more
reserves.
The Reserve Bank purchases or sells

Open-market government securities (government bonds
operations and Treasury bills) from or to a commercial
bank or the public.
The market for reserves
Banks can borrow money from the interbank market, or they can
borrow from the SARB. Banks exercise a demand for reserves,
while the Reserve Bank supplies reserves.
Non-market oriented monetary policy instruments
C R E DI T C E I L I NG S DE PO S I T R AT E C O NT R O L O T HE R  M O R AL S UAS I O N
The SARB can give banks an instruction not to lend above a stipulated
amount to clients. When the SARB raises a credit ceiling, banks can lend
more which in turn stimulates spending in the economy, positively
affecting output in the economy. If the SARB decides to lower the credit
ceiling, banks lend less and this reduces spending in the economy,
dampening economic activities causing a decline in output.
The SARB may instruct banks on the interest paid to depositors. The
higher the interest the more households save as the opportunity cost of
spending the money is high. This causes a decrease in spending that
dampens economic activities resulting in a fall in output. The opposite
also applies if the SARB determines a lower deposit rate. However, it is
important to note that the SARB has moved away from non-market-
oriented measures in favour of market-oriented monetary policy
instruments.
The SARB can persuade the banks to act in a specific way that aligns
with the monetary policy objective. For instance, the SARB may request
banks to practice prudential lending. The challenge with this approach is
that it is voluntary and depends on the trust between the banks and the
central bank.
Transmission mechanism
The link between the monetary sector and the real sector of the
economy is called the transmission mechanism. The Reserve
Bank identifies three channels through which a change in the
repo rate influences aggregate demand and subsequently
inflation in the economy. Click on the pulsing icons below on
the picture Transmission Channels of a Change in the Repo
Rate / Adapted from Parkin et al. 2019 to find out more about
the channels.
Click on the pulsing icons to get a better understanding of repo

rate.
  

Bank credit transmission channel
As soon as the Monetary Policy Committee MPC announces a new setting for the repo
rate, the cost of funds for banks changes and therefore banks adjust their lending rates.

Interest rate transmission channel
The monetary policy decision taken by the MPC represents a change in the repo rate.
Since the repo rate changes, it affects other interest rates in the economy as well. This
affects planned consumption and investment.

The exchange rate transmission channel
The exchange rate responds to changes in the interest rate in South Africa relative to
the interest rates in other countries – the South African interest rate differential.
If the repo rate increases other interest rates adjust accordingly, causing an
appreciation of the exchange rate. This causes exports to decrease and imports to
increase. Planned expenditure falls.
CO N T IN U E
Lesson 7 of 13
SARB and influencing the real sector
The SARB can use monetary policy to stimulate the

economy
01:12
The South African Reserve Bank uses two methods to influence

the real sector. The expansionary monetary policy and the
contractionary monetary policy. Let's discuss the two policies:
1. Expansionary monetary policy
The SARB can use monetary policy to stimulate the economy.

Remember, the central bank has control over interest rates and
to some extent quantity of money in the economy. When there
is a slowdown in the economy, when the economy is in a
recession (when output is below potential GDP the Reserve
Bank lowers the interest rate (repo rate).
The repo rate (repurchase rate) is the interest rate at which

commercial banks can borrow money from the Reserve Bank.
The decline in the cost of funds for banks causes banks to
lower their lending rates. This causes an increase in the demand
for loans as the banks adjust their lending rates. This is
explained by the credit transmission mechanism. The loans lead
to increased consumption and investment as households and
firms increase their consumption through cheap loans from the
bank. The increase in loans causes an increase in deposits as
households and firms expand consumption and investment.
The increases in consumption and investment lead to increased

aggregate expenditure in the economy, causing an upward shift
in the aggregate demand function. This pushes income to a
higher level. Depending on the initial output gap, the economy
can go back to equilibrium or full employment. The effect of
consumption and investment is amplified by the multiplier
processes which result in more than the initial increase in
aggregate demand.
Expansionary Monetary Policy
 Note
When a country is experiencing a recessionary gap (when

equilibrium output is Y0 and price level P0 – when real GDP
is less than full employment (Yf), expansionary monetary
policy is used. The SARB reduces the repo rate, which
triggers a reduction in lending rates by commercial banks.
The lower interest rate encourages consumption and
investment borrowing. This results in an increase in demand,
causing an outward shift of the demand curve from D0 to
D1. If the increase in demand is sufficient, the economy
moves back to full employment at Yf, although at high price
levels P1.
CO N T IN U E
00:58
2. Contractionary monetary policy

Contractionary monetary policy is used when the economy is
overheating, when output is more than potential GDP. This
results in an inflationary gap. To slow down the economy, the
SARB increases the repo rate. This consequently increases the
cost of funds for commercial banks that borrow from the central
bank. The ripple effect of a high cost of funds for commercial
banks is the increase in borrowing rates.
Using the credit transmission mechanism, the increase in the

repo rate discourages borrowing from the banks causing a
decline in loans. A decline in loans also means households and
firms spend less, resulting in a decrease in money supply
through the multiplier process. The fall in spending causes
consumption and investment to shrink, and the decrease in
consumption and investment (aggregate expenditure) is
amplified by the multiplier process to result in a high reduction
in output than initial change in aggregate demand. This causes
a shift in the aggregate demand function inwards to a lower
output level or back to full employment and a lower price level.
Contractionary Monetary Policy
 Note
Initial equilibrium output and price are Y0 and P0. There is an

inflationary gap in the economy. Real GDP exceeds the full
employment level given by Yf. To slow down economic
activities, the SARB increases the repo rate. Other interest
rates adjust accordingly, making the cost of borrowing funds
go up. This dampens consumption and investment
borrowing, thereby reducing expenditure in the economy.
The reduction in expenditure causes the AD0 curve to shift
inwards to AD1 where the equilibrium price level is P1 and
real GDP goes back to full employment at Yf.
The SARB has the following responsibilities except
custodian of gold and foreign exchange

reserves.
issues treasury bills for government.
drafts the tax structure in South Africa.
SUBMIT
CO N T IN U E
Lesson 8 of 13
Fiscal policy, government and taxes
The policy on the level and composition of government

spending, taxation, and borrowing is called fiscal policy
01:51
Fiscal policy
The policy on the level and composition of government

spending, taxation, and borrowing is called fiscal policy.
The custodian of the fiscal policy is the government,
spearheaded by the Ministry of Finance. The fiscal policy
instruments that are used by the government are the following:
revenue
expenditure
borrowing
The main source of government revenue taxes, hence the

policy instruments are commonly referred to as expenditure,
borrowing, and taxation.
The main instrument of

The main policy variables
fiscal policy
Government spending and

The budget
taxation
A budget is a reflection of political decisions about how to

spend, what to spend, and how to finance the spending.
Fiscal policy is one of the demand management policies. This

means fiscal policy affects the demand side of the economy. For
fiscal policy to be effective, there should be harmony with the
monetary policy. For example, if the SARB is executing an
expansionary monetary policy, the fiscal policy should also have
the same stance. If the fiscal policy has an opposite stance –
contractionary fiscal policy – the gains from the monetary policy
are reversed. This causes the economy to remain in the same
position if not a worse off position.
Sources of government revenue

The following are sources of government revenue:
1 Taxes
2 Income from property
3 Borrowing
Let's discuss taxes. Taxes are compulsory payments to the

government and constitute the largest source of government
revenue. A good tax should be:
Neutral: In an open economy, market forces determine what

should be produced, how it should be produced, and for whom.
Taxes affect prices, hence can distort the allocation of
resources. A good tax should minimise this distortion as much
as possible.
Equitable: The tax burden should be spread as fairly as

possible among taxpayers using the ability to pay, horizontal
equity, and benefit principle.
Ability to pay – people should pay tax according to their

ability.
Horizontal equity – people in the same position, if we

consider income tax, should pay the same tax.
Vertical equity – people in different positions should be

taxed differently.
Benefit principle – the more one consumes goods and

services the more tax one pays.
Administrative simplicity – the cost of collecting the tax

should not exceed the benefit of the tax to the government.
Which one of the following is not a policy instrument for fiscal policy?
Spending
Borrowing
Transfers
SUBMIT
CO N T IN U E
00:29
Different types of taxes

Let's explore different types of taxes:
PE R S O NAL R E G R E S S I VE C AP
DI R E C T TAX I NDI R E C T TAX
I NC O M E TAX PE R S O NAL TAX
Levied on people and organizations’ income and wealth, e.g., income tax,
estate duty, and corporate tax.
Indirect taxes are levied on goods and services and are paid by those
who consume them, e.g., customs, VAT, and excise duty/ tax.
Excise tax: Selective tax since it is levied only on certain goods, e.g.,
alcohol and cigarettes.
VAT: A general tax since it is levied on most goods and services.
Customs duty: A tax imposed on goods when they travel across

international borders.
Personal income tax can be regressive, progressive, or proportional.

Personal income tax is levied on an individual’s taxable income. Taxable
income is the legal base obtained by subtracting personal and other
allowances from an individual’s total income. The marginal tax rate is the
rate at which each additional rand of income is taxed. As taxable income
increases the amount of tax paid also increases.
When the ratio between tax and taxable income decreases as taxable
income increases or rises as income falls. For example, VAT.
This tax was introduced in South Africa in the 2001/2000 financial year.
This is a tax on gains from the sale of property or shares.
When the ratio of tax paid to taxable income increases as taxable income
increases. People with high income pay a large percentage of their
income in tax. For example, personal income tax.
When the ratio of tax paid to taxable income is the same at all levels of
income. For example, corporate tax.
Tax incidence (who really pay the tax)
It is not always the case that the entity that SARS imposes tax
on bears the burden of the tax wholly or part of it. Government
can determine the statutory or legal incidence of tax (the one
who hands the tax over to the government) but cannot
determine who bears the burden of the tax. No one wants to
pay tax and will always try to shift the burden to someone else.
Thus, the effective incidence of a tax (burden of a tax) is not
always the same as the statutory incidence of a tax.

A progressive tax is when:
Everyone is taxed the same
Those who earn less are taxed more
Those who earn more are taxed more
SUBMIT
CO N T IN U E
Lesson 9 of 13
Government budget
Government Budget and fiscal policy
01:19
Government budget
The government budget can take any of the following positions:

Government budget
Expansionary fiscal policy

Government increases G and lowers T. This has two effects on
aggregate expenditure. An increase in G increases aggregate
expenditure, while a low T increases disposal income and
lowers taxes on business but reduces government revenue.
This results in an increase in consumption C and investment I.
Taking the economy to a higher aggregate expenditure and
pushing the output to a higher level.
Expansionary fiscal policy
Contractionary fiscal policy

When the government implements a contractionary fiscal policy
there is a reduction in expenditure and an increase in taxation.
The reduction in G causes a decrease in aggregate expenditure.
An increase in taxation reduces disposable income to
households and investment funds for firms. Overall, there is a
decrease in aggregate spending which causes a slowdown in
economic activities.
Monetary and fiscal policy lags
One of the difficulties of stabilising the economy using the
monetary or the fiscal policy or both is the existence of delays
or lags from the time authorities implement the fiscal or
monetary policy stance, to the effect of the policy in the
economy (real sector). Inside lags has to do with actions outside
the authority’s main role of identifying a change and
implementation of a policy. Explore the following lags by clicking
on the tabs.
R E C O G NI T I O N L AG DE C I S I O N L AG I M PL E M E NTAT I O N I M PAC T L AG
 I NS I DE L AG   I NS I DE L AG  L AG  I NS I DE L A. . .  O UT S I DE L AG 
This is a lag between a change in economic activities and the realization

that a change has taken place. This is normally done through a collection
of data or tracking economic indicators. This process takes time and
economic changes would have occurred already.
Once authorities discover changes have occurred in the economy, a

decision has to be made with regard to monetary or fiscal policy. For
fiscal policy, it takes an even longer period as the decision has to go
through an approval process by different organs of government, e.g.,
parliament.
For monetary policy, the Monetary Policy Committee has to meet and
make a decision. Depending on the decision that is voted in the majority,
a policy stance is adopted. During the process, economic activities will
not stop the turn for the worst in most cases.
Once the decision has been made, it takes time to implement it.
Government spending and taxes cannot change rapidly. National
budgets are implemented over a longer horizon. It is important to note
that monetary policy implementation takes a short time, mainly because
the Reserve Bank is the sole player (this shortens the implementation
period).
This is the time from the implementation of policy measures to the time
when the actual policy affects the economy. For instance, a change in
taxes will not have an immediate impact on the economy but takes a
period of time. Most economists estimate that it takes about 1218
months for a repo rate to have a full effect on prices, production,
employment, and income.
Economic growth is experienced when
aggregate demand is equal to aggregate supply.
when long run aggregate supply shifts inwards.
when long run aggregate supply shifts outward.
SUBMIT
CO N T IN U E
Lesson 10 of 13
Aggregate demand AD and aggregate supply

AS
Aggregate Demand AD and Aggregate Supply AS

provides a powerful, yet simple model to conduct
macroeconomic analysis
01:21
Aggregate-Demand AD and Supply AS

The ASAD model provides a framework for understanding the
forces that cause the economy to expand, that bring inflation,
and that cause fluctuations in the business cycle.
Aggregate demand AD and aggregate supply AS provides a

powerful, yet simple model to conduct macroeconomic analysis.
When total demand and the total supply of an entire economy
are combined, the short-run equilibrium levels of real income
and the average price level can be determined. The average
general price level of all goods and services within the economy
is shown on the vertical axis and referred to by the symbol P.
Aggregate income, aggregate production, and aggregate

expenditure are equal.
These are referred to by the symbol Y and are shown on the

horizontal axis. The inverse relationship between P and total
production and income is referred to as aggregate demand AD.
The positive relationship between P and aggregate output and

employment is referred to as aggregate supply AS.
In macroeconomic analysis, AD shows the negative or inverse
relationship between the general average price level P and
total production or income Y.
This inverse relationship between price and income is caused

by the following factors, assuming that all other factors stay
constant (ceteris paribus).
The inverse relationship
The inverse relationship between price and income is caused by

the following factors listed below. This is with assumption that
all other factors stay constant (ceteris paribus).
The wealth effect

–
Consumers become wealthier, which stimulates the demand for
consumer goods and services C.
The interest rate effect

–
Interest rates fall, which stimulates the demand for investment goods I.
The international trade effect
–
The currency depreciates, which stimulates the demand for net exports
XZ.
Components of aggregate demand
ADCIG XZ
Therefore, it follows that the position of the AD curve will be

influenced by:
Changes in C
Changes in I
Changes in G
Changes in XZ
Acronyms page
If you feel unsure of any of the acronyms - please visit the acronyms page.
ACRONYMS
Aggregate demand curve
CO N T IN U E
00:30
Aggregate Demand AD
Shift in the Aggregate Demand (AD curve
The components of the AD curve are set out above. Any

change in one of the components upward or downwards will
cause the AD curve to shift upwards or downwards.
Expectations, monetary policy, and fiscal policy also cause a
shift in the AD curve through the impact on C, I, G, X, and Z.
The world economy – appreciation or depreciation of the
exchange rate has an impact on X and Z.
 Note
A change in price will cause a movement along the AD curve.

For example, an increase in consumption will cause the AD
curve to shift outwards, resulting in high output as firms
adjust to the increase in demand.
Shifts in the AD curve
Change Impact on AD curve
Upward movement along

Price level increases
the curve
Downward movement along

Price level decreases
the curve
Autonomous
consumption Shift to the right
increases
Investment increases Shift to the right
Government
Shift to the right
spending increases
Taxes decrease Shift to the right
Net exports increase

Shift to the right
XZ
Interest rate
Shift to the right
decreases
Autonomous
consumption Shift to the left
decreases
Investment
Shift to the left
decreases
Government
Shift to the left
spending decreases
Taxes increase Shift to the left
Net exports
Shift to the left
decrease XZ
Interest rate
Shift to the left
increases
CO N T IN U E
01:55
Aggregate Supply AS
1 With AS an important distinction needs to be made

between the short-run SAS and long-run aggregate
supply LRAS curves.
2 The position of the AS curve is affected by the
availability, prices, and productivity of the factors of
production.
3 The slope of the short-run AS curve slopes upward

showing a positive relationship between the general
price level and total real production or income.
4 The AS curve is primarily governed by the cost of

production.
Figure 1.8 Short run aggregate supply AS curve
Shift in the Short-run Aggregate Supply SAS curve
The SAS curve is affected by many factors that affect

production such as changes in the cost of production to
changes in weather that affect production levels. For example, a
fall in production due to drought will cause the AS curve to shift
inwards. This causes equilibrium output to decrease, coupled
with an increase in the general price level.
Shifts in the short-run aggregate supply curve SAS
Factors that cause a shift in the Short-run Aggregate Supply SRAS

curve
Change Impact on AS Curve
Upward movement along the

Price level increases
curve
Downward movement along

Price level decreases
the curve
Prices of factors of the production Curve shifts upward (to the

increase (e.g., wages) left)
Change Impact on AS Curve
Prices of imported capital and

Curve shifts upward (to the
intermediate goods increase (e.g.,
left)
crude oil)

Productivity decreases
left)

Weather conditions deteriorate
left)
Prices of factors of production Curve shifts downward (to

decrease (e.g., wages) the right)
Prices of imported capital and

Curve shifts downward (to
intermediate goods decrease (e.g.,
the right)
crude oil)

Productivity increases
the right)

Weather conditions improve
the right)
Long Run Aggregate Supply curve LRAS
It is important to note that the LRAS is vertical.

1 The long-run level of output is also called potential
output, full-employment output, or the natural rate of
output.
2 According to this widely held view, the price level does

not affect the level of production in the long run.
3 Total production, in the long run, depends essentially on

the quantity and quality (productivity) of the available
factors of production (natural resources, labour, capital,
and entrepreneurship).
4 Even though this is true we focus on the upward-

sloping short-run AS curve as this curve is more
applicable in practice.
5 We will refer to the long-run supply curve as a

reference for the full employment level of output/
production.
Long run aggregate supply curve LRAS
Shifts in the Long Run Supply curve LRAS
The LRAS curve denotes potential output/gross domestic

product GDP when all the resources in the economy are
employed. When the LRAS curve shifts outward, it denotes
economic growth or a change in potential GDP. This can be
caused by:
1 Increase in the quantity of capital
2 Advance in technology
3 Increase in the full-employment quantity of labour
CO N T IN U E
00:07
ASAD model equilibrium
The equilibrium in this model is where AD equal AS.
Equilibrium in the short run
1 The vertical axis represents general price level P (price

index).
2 On the horizontal axis real value of production/ output

or income is represented by Y.
3 AD shows the relationship between total expenditure

and prices. AS shows the relationship between levels of
output Y supplied at different prices.
4 P0 is the equilibrium price
5 Y0 is the equilibrium output.
Impact of a shift in AD or AS on equilibrium price level and output
CO N T IN U E
02:28
Expansionary / Contractionary monetary policy in the

ADAS model
Expansionary monetary policy

This policy stance is taken when the output gap is negative or
recessionary. This means that the equilibrium is below the
potential GDP or output LRAS. The equilibrium occurs inside
the LAS.
The SARB, in an effort to stimulate the economy, reacts by

reducing the interest rate (repo rate). The banks lower their
lending rates (credit transmission channel) to household and
business borrowing.
This causes an increase in consumption C and investment I

resulting in the outward shift of the AD curve. If the interest rate
adjustment was sufficient, it takes the economy back to
potential GDP.
Note that through the multiplier process the change in C and I

that results from a lower interest rate does not need to match
the output gap. The multiplier process amplifies the impact on
output. The opposite is true when the output gap is positive
(when the equilibrium output is greater than potential GDP.
This results in an inflationary gap (the economy will be
overheating).
The monetary authorities respond by increasing the interest rate
to slow down economic activities. The banks also increase their
lending rates, reducing the demand for loans by households and
firms. This subsequently lowers the demand for goods and
services causing the AD curve to shift inwards, back to potential
GDP if the change in C and I was sufficient. If it was not
sufficient the monetary authorities will have another round of
interest rate adjustment.
Expansionary monetary policy
Expansionary fiscal policy in the ADAS model
Expansionary fiscal policy stance is taken when the economy is

in a recession (negative output gap) – when equilibrium output
is below potential GDP. The government responds by increasing
government expenditure or reducing taxes. An increase in G
causes the AD curve to shift outwards to a high potential GDP
although at a cost of higher prices.
The same effect can be achieved with a reduction in taxes that

positively affect C and I. Households and firms will have high
incomes to spend due to a reduction in taxes. The changes in C
and I do not have to be the same as the output gap. These
changes are amplified by the multiplier to take the economy
back to potential GDP LAS if the changes in G, C, or I were
sufficient. If these changes were not sufficient the government
will have to adjust G or taxes again to have a second round of
adjustment until the negative output gap is closed.
A contractionary fiscal policy is the opposite of the

expansionary fiscal policy where the output gap is positive
(inflationary gap). Equilibrium output is greater than potential
GDP. The government can cut expenditure G or raise taxes. This
causes the AD curve to shift inwards to lower output (back to
potential GDP if the adjustment is sufficient.
Expansionary fiscal policy stance is taken when the economy is

in a recession (negative output gap) – when equilibrium output
is below potential GDP. The government responds by increasing
government expenditure or reducing taxes. An increase in G
causes the AD curve to shift outwards to a high potential GDP
although at a cost of higher prices.
The same effect can be achieved with a reduction in taxes that

positively affect C and I. Households and firms will have high
incomes to spend due to a reduction in taxes. The changes in C
and I do not have to be the same as the output gap. These
changes are amplified by the multiplier to take the economy
back to potential GDP LAS if the changes in G, C, or I were
sufficient. If these changes were not sufficient the government
will have to adjust G or taxes again to have a second round of
adjustment until the negative output gap is closed.
A contractionary fiscal policy is the opposite of the

expansionary fiscal policy where the output gap is positive
(inflationary gap). Equilibrium output is greater than potential
GDP. The government can cut expenditure G or raise taxes. This
causes the AD curve to shift inwards to lower output (back to
potential GDP if the adjustment is sufficient.
Expansionary and contractionary fiscal policy
CO N T IN U E
Lesson 11 of 13
Revision questions
Statistics South Africa and the National Treasury are the

two key institutions in measuring GDP
00:55
Revision questions
Can you answer the following questions? If you can't answer the
questions, please revisit the content.
Use the ADAS model to illustrate and explain how the

authorities can use monetary and fiscal policies to stimulate
the economy. What side effects would such policies have?
What is the significance of the slope of the AS curve in this
regard?
Do you know the answer?

Click the checkbox if you do!
Complete the content above before moving on.
The side-effect is clearly an increase in the price level (from P0 to P in the figure). The slope of
the AS curve (which reflects supply conditions) is clearly important. The steeper the curve, the
greater the impact on the price level and the smaller the impact on the level of output (and
employment). In the extreme case, where the AS curve is vertical, the full impact will be on the
price level, as illustrated in the diagram.
The flatter the AS curve, the greater the impact on output (and employment) and the smaller the
impact on the price level. In the extreme case, where the AS curve is horizontal, the full impact
will be on output and employment, as illustrated in the second diagram.
CO N T IN U E
Briefly describe the different channels through which a

change in the repo rate may potentially affect the price level
and the level of real output in the economy.
They are the interest rate channel, the exchange rate channel,
the asset price channel and the credit channel. The interest rate
channel involves the impact of changes in interest rates on the
components of aggregate demand (e.g., investment and
consumption spending), which may then influence the price
level and the level of production, income and employment in the
economy. The exchange rate channel centres around the
possible impact of interest rate changes on exchange rates (via
the impact of interest rate differentials on international capital
flows) and eventually on prices, production, income and
employment. The asset price channel relates to the impact of
interest rate changes on the prices of assets such as shares,
property and bonds, that is, on different forms of wealth. Actual
or perceived changes in wealth may affect spending behaviour
and eventually also prices, production, income and employment
in the economy. The credit channel refers to the impact of
interest rate changes on the cost of borrowing. For example, a
decrease in interest rates makes it cheaper to borrow and this
may stimulate the creation of credit to finance consumption and
investment spending, which will have an impact on prices,
production, income and employment in the economy. See the
textbook for further details.
CO N T IN U E
Discuss the various lags associated with monetary and fiscal

policy and explain why the timing of policy decisions and
actions is so important.

The different lags are the recognition lag, the decision lag, the
implementation lag and the impact lag. Each of these lags refer
to a delay in the policy process. The combined result of all the
lags is that the impact of a policy may be felt at a time when
exactly the opposite type of policy is required. For example, if
the economy weakens (meaning that production, income and
employment decline), it takes some time before policymakers
realise there is a problem (recognition lag). Then it takes some
further time before they decide how to respond to the problem
(decision lag). Thereafter there is another delay before the
policy they have decided on may be implemented
(implementation lag). Finally, it takes time before the policies
that have been implemented have their effects on economic
behaviour and economic performance (impact lag). It is thus
quite conceivable that by the time the policies have their
impact, the economy could already have recovered and that
contractionary policies are actually required. The timing of
policy decisions and actions are very important and due
consideration should always be given to the existence and
possible length of policy lags. Also note the differences
between the lags associated with monetary policy and those
associated with fiscal policy.
CO N T IN U E
Lesson 12 of 13
Statistics South Africa and the National Treasury are the

two key institutions in measuring GDP
00:55
Statistics South Africa and the National Treasury are the two
key institutions in measuring GDP. Market prices include direct
taxes and exclude subsidies. Factor prices or factor incomes do
not include indirect taxes but do include subsidies. Below are
two links that will take you to Statistics South Africa and the
National Treasuries website.
STATSSA
Statistics South Africa | The South Africa I Know,

The Home I Understand
READ MORE STATSSA 
TREASURY
National Treasury
READ MORE TREASURY 
Gross Domestic Product GDP
Gross domestic product means that
depreciation is included in the total value of
goods and services.
Market prices include direct taxes and exclude subsidies. Factor

prices or factor incomes do not include indirect taxes but do
include subsidies. This is the market value of final goods and
services produced within a country in a given time period. The
definition has five aspects that are important:
1 Market value
2 To measure total production, the value of items

produced must be added together. GDP values items at
market price, the value goods are traded in the market.
3 Produced within a country – only goods produced within
a country count as part of GDP.
4 In a given time period – this can be annual or quarterly

data.
5 Final goods and services
GDP
Market value
Time
Final goods and services
Local produces products
Total production
A final good is a good that is bought by the final user during a
specified time and this is in contrast to intermediate goods.
This eliminates the problem of double-counting in national
accounting.
Double counting is when the value of
intermediate goods and services is added to
the value of the final goods and services.
Recall the three methods of measuring GDP
I NC O M E APPR O AC H E X PE NDI T UR E APPR O AC H PR O DUC T I O N APPR O AC H
All income earned by four factors of production namely wages, rent, profit
and interest).
GDP = factor income + indirect taxes - subsidies + depreciation

GDP = C = I = G = XZ
This method is sometimes called the value-added approach. The value

added by a firm is equal to the value of its production minus the value of
intermediate goods used in the production.
 Example
Firm Z produces flour with resources at its disposal and sells

it to a bakery Firm W at R200. Firm W produces loaves of
bread worth R500.
Firm W has added R500R200 (used to pay for the flour) =

R300.
The total value of goods from Firm Z to W is R200 plus

another R300 added by Firm W = R500 and not R200 +
R500R700 (this is double counting)
Other national income accounting terms
GNI measures production by factors of production from South

Africa irrespective of their location.
 Example
If a South African resident is working in Botswana, the

income payments are included in the GNI. What is important
when accounting for GNI is the income received both
domestically and from overseas, regardless of whether the
factors of production are located locally or abroad. GNI
excludes the income earned by foreign factors of production
located inside the borders of South Africa.
If GDP is greater than GNI it means that foreign payments are
greater than receipts received from abroad. This reflects that
South Africa has a large proportion of foreign resources in the
economy.
GDE indicates the total value of spending within a country

where no distinction is made between domestic or foreign-
produced goods.
When consumption increases
this causes a higher output level.
this results in a recessionary gap.
this results in economic growth.

SUBMIT
South Africa experienced an advancement in technology in the
production of a number of goods. This will result in
a shift in the AD curve inwards.
a shift in AS inwards.
a shift of the long run aggregate supply curve

outwards.
SUBMIT
The AD curve will only shift outwards if

exports are equal to imports.
exports exceed imports.
imports exceed exports.
SUBMIT
CO N T IN U E
Lesson 13 of 13
Progress check
Progress check
00:18
Progress check
You have covered all the sections in the study unit.

You have attempted the revision exercises at the end of
each section.
If you struggled to answer the questions in the exercise,

you have gone through the content again.
Open the list of questions and make sure that you can answer
every question. If you can, well done! Then you can proceed
to the next unit.
Macroeconomics Questions.pdf
57.4 KB
CO N T IN U E
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IE301B Unit 1 Macroeconomics

Study Unit 1 Macroeconomics

Specific outcomes and assessment criteria

GLOS S AR Y OF TER MS AND R EFER ENC ES

Basic economics and terms

The circular flow

Monetary policy and fiscal policy

SARB and influencing the real sector

Fiscal policy, government and taxes

Aggregate demand AD and aggregate supply AS

National income accounting

UNIT 1 C ONC LUDE

Specific outcomes and assessment criteria

Specific outcomes and assessment criteria

Listen to the voice-over by clicking on the ▶ button

Study Unit Specific

The economic units and

Use the circular flow to

Explain the role of imports

Explain the role of monetary

policy and fiscal policy in the Explain what monetary

Identify the responsibilities

Explain the role of monetary

Illustrate expansionary and

Explain the role of fiscal

Illustrate expansionary and

Interpret the impact of fiscal

Identify the tools for fiscal

Identify and explain the

(interest rate and quantity

Explain the monetary

Illustrate the aggregate

Explain equilibrium in the

Explain the effect of

Explain how fiscal policy

Define gross domestic

Interpret key terms in the

Distinguish between gross

Define gross domestic

Identify the importance of

Interpret the difference

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Contractionary policy aimed

Can you answer the following questions?

inbalance where opposing forces are not equal.

balance where opposing forces are equal.

balance where opposing forces are not equal.

in the value of the best forgone alternative.

by monetary authorities in order to control

by central government in order to influence

Ceteris paribus is where:

all influencing factors are held constant.

all factors are held constant.

Basic economics and terms

International economics is a study of

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An example is if we would like to understand the reason for a decrease in

Look at the following examples:

Can you answer the following questions?

restaurant. At his workplace, he got promoted and is expected to

study, his opportunity cost will be R60 000.

Opportunity cost can best be described as

the value of the best alternative forgone.