Question

Total Marks 20

Question 1

The core element of the Growth Employment and Redistribution (GEAR) strategy of the South African government in 1996, under the leadership of then finance minister Trevor Manuel were amongst other things:

* budget reform to strengthen redistributive thrust of expenditure

* monetary policy to prevent a resurgence of inflation

* a reduction in tariffs to contain input price and facilitate industrial restructuring, compensating partially for the exchange rate depreciation

1.1 With reference to the above, identify the macroeconomic objectives in these elements.                                                               (3marks)

1.2 Identify and define the macroeconomic variables that can be used to measure whether the strategy was successful or not.       (6marks)

1.3 With each tool on 1.2, provide a detailed explanation on how it can be measured.                                                                       (11marks)

Answer 1

(1.1) The macroeconomics objectives in these elements are:

a) A fast growing competitive economy that creates sufficient jobs for all.

b) Redistribution of opportunities for all.

c) Society containing health, education, etc for all.

d) An environment where homes are safe and secure and workplaces are prodcutive.

(1.2) The macroeconomic variables that can be used to measure whether the strategy was successful or not are:

a) Exchange rate policy that will keep the real effective rate competitively stable.

b) A monetory policy that will be consistent so as to prevent a resurgence of inflation.

c) A step towards the gradual relaxation of exchange controls.

d) Budget reform strengthening the redistributive thrust of expenditure.

e) An appropriately structured flexibility within the bargaining system.

f) A reduction in tariffs.

(1.3) They can be measured as:

a) By implementing the public sector asset restructing programme and also including guidelines for the governance.

b) Consolidation of trade and industrial policy reforms to incorporate a lowering of tariffs to compensate for depreciation, introducing tax incentives for a fixed period to encourage investment.

c) An acceleration of fiscal reform process including a short term fiscal stance to counter inflation.

d) By reducing the minimum wage schedules for young trainees, by reducing indirect wage cost and by increasing the incentives for extra shifts, job sharing, greater employment flexibility.