ID#:111-971

Macroeconomics assignment one

Lecturer. Dr. Kalubi

Question

Explain how balance of payment deficit it can influence economic growth in a short run?

Balance of payment deficit is a situation where a country gets a lot of goods and services from other
countries than it is able to give out to other country. Simply what the country get from other country is
more than what other countries get from it. Balance of payment deficit indicates a negative economy for
the country.

It can stimulate economic growth in the following ways:

Due to pressure of having a balance of payment deficit a country will opt to go for locally produced
goods and services unlike those from outside hence increasing the demand for things that are produced
within the country as a result local goods and services will have high demand.

The same demand for local goods and services will cause firms and companies within the country who
produce goods to allocate more resources to production of theses goods and services to speed up
output to be able to meet the local demand thus contributing to economic growth.

Apart from that, as firms expand their operation there will be need for manpower that means firms will
need some extra workers in their operations hence providing job opportunities for citizens or residence
of the country. Job opportunities will reduce a number of people who will have no jobs and make it
possible for a lot of people to access to money hence stimulating economic growth.

If a lot of people have access to money which means the will be increase in the number of buyers which
will result in growth in the economy.

In addition, due to balance of payment deficit the government would allow more foreign business
investment which along with these businesses comes some development such as infrastructure
development, advancement in technology and technology know how in the end leading to increased
economic activities for the country.

Not only that but also improving living standard for local people as many people will have access to their
basic needs such as food, water and other needs.

There will be also more foreign currency in the country which can be used to clear debts since more
foreign investment is allowed.

Further, balance of payment deficit can lead to government to cut taxes on foreign trade to promote
economic productivity and encourage competitiveness in the industry.

Finally, balance of payment deficit can lead the countries currency to lose value hence making it easy for
foreign buyers and very hard for domestic individuals to import goods which will reduce imports and
boost exports as the result reducing the deficit.
ID#:111-971
Macroeconomics assignment two
Lecturer. Dr. Kalubi

Question
Explain why we cannot rely on one macroeconomic indicator to measure the economic
performance of Zambia?

The following are the reasons as to why we can not rely on one macroeconomic indicator
Since there are various indicators and each indicator has specific issues it looks at so if we only
use one will we have limited information about other issues around macroeconomy.
For example, if we use inflation to find out the heath of the economy alone we may leave
behind issues to do with income distribution, living standards of citizens etc.
Secondly, macroeconomy is big or simply complex, it has different sectors which contribute
differently to the Zambian economy hence looking only at one macroeconomic indicator can
overlook some changes in these sectors.
The effect of one indicator in the economy may cause other indicator to respond to the change
for instance in a situation where the country is experiencing balance of payment deficit can lead
to changes in intertest rate due to depression of the country’s currency.
To add on, some indicators take time to show its effect on the overall economy for
example ,unemployment rate might remain high while exchange rate are low like the current
situation for Zambia where the exchange rate for dollar is $1=K22.98 for this reason it can be
misleading for Zambia to depend on one indicator .and we can be left behind in terms of
changes in the economy.
Furthermore, the choice of economic indicator can be influenced by different factor for
example politician, policy makers will look at these indicators differently hence depending on
one indicator can’t be objective.
Each indicator measure different aspects of economic performance so no one indicator can give
a full picture of the economy as whole.
Finally , to fully understand and be able to measure the health of the economy of Zambia we
need to put int consideration all the indicators and factors that influence choices of these
indicators .