Question

What are the key macroeconomic variables that can indicate a cause for concern in a country like south africa for an example

Answer 1

Main situations prevailing in slowdown in developing countries are:

1. Inflation on the rise

2. Stemming GDP growth

3. Rising unemployment

4. High Current Account Deficit

5. Currency drop

In this concern the policies that the South African Government should follow are:

1. To solve the issue of simultaneous inflation rise and unemployment, i.e. stagflation, the government is forced to raise spending and simultaneously reduce taxes. Public works would add money to the economy and increase local opportunities and taxes would add money to the economy, reducing unemployment. Monetary policy is to raise the interest rates, so inflation continues to fall.

2. The rising CAD can be reduced by reducing imports and promoting exports that can be achieved by favorable industrial policy making.

3. Depreciation of currency without recession will improve export flexibility due to reduced costs, if the government promotes exports then the country can benefit from higher jobs like due to export industry and due to risisng tourism which generates new jobs. Capital inflows will become CAD. Which will bring economic growth.

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