Discuss in detail the demand-side approach in promoting growth and development in South Africa. In the context of childhood development, growth is defined as an irreversible constant increase in size, and development is defined as growth in psychomotor capacity. Both processes are highly dependent on genetic, nutritional, and environmental factors
Discuss in detail the demand-side approach in promoting growth and development in South Africa (Growth and development)
INTRODUCTION
Economic growth is responsible for the overall growth of the economy, in order to enhance the well being of the economy as a whole. Whereas economic development would focus on the individual well being of the citizens of a country.
[Any other relevant higher order conclusion]
[Max 2]
BODY-MAIN PART
Growth and Development
A demand-side approach includes discretionary changes in monetary and fiscal policies with the aim of changing the level of aggregate demand. 🗸🗸
Monetary policy
- Is driven by the South African Reserve Bank (SARB). 🗸🗸
- It aims to stabilise prices by managing inflation. 🗸🗸
Fiscal policy
- Is driven by the Department of Finance. 🗸🗸
- It aims to facilitate government, political and economic objectives. 🗸🗸
- A demand-side approach to economic growth and development does not only depend on fiscal and monetary policy. 🗸🗸
- It is dependent on all components of aggregate demand, that is, C, I, X and G. 🗸🗸
South African approach
- The South African approach uses both monetary and fiscal measures to influence aggregate demand in the economy. 🗸🗸
Monetary policy
- The South African Reserve Bank (SARB) as the central bank in South Africa formulates the monetary policy. 🗸🗸
- They use the following instruments:
Interest rate changes
- It is used to influence credit creation by making credit more expensive or cheaper. 🗸🗸
- The exchange rate is stabilised by encouraging inflow or outflows. 🗸🗸
Open market transactions
- To restrict credit the SARB sells securities. When banks buy these securities money flows from banks to the SARB. 🗸🗸
- The banks have less money to lend and cannot extend as much credit as before. 🗸🗸
- To encourage credit creation the SARB buys securities. Money flows into the banking system.🗸🗸
Moral suasion
- The SARB consults with banks to act in a responsible manner based on the prevailing economic conditions. 🗸🗸
Cash Reserve Requirements
- Banks are required to hold a certain minimum cash reserve in the central bank. 🗸🗸
- Banks have a limited amount to give out as credit. 🗸🗸
Fiscal policy
- South Africa’s fiscal policy is put into practice through the budgetary process. 🗸🗸
- The main purpose of fiscal policy is to stimulate macroeconomic growth and employment, and ensure redistribution of wealth. 🗸🗸
- The following instruments are used:
Progressive personal income tax
- Higher income earners are taxed at higher tax rates. 🗸🗸
- These taxes are used to finance social development. 🗸🗸
- The poor benefit more than those with higher incomes. 🗸🗸
Wealth taxes
- Properties are levied (taxed) according to their market values. 🗸🗸
- Transfer duties are paid when properties are bought. 🗸🗸
- Securities (shares and bonds) are taxed when traded. 🗸🗸
- Capital gains tax is levied on gains on the sale of capital goods (e.g. properties, shares). 🗸🗸
- Estate duties are paid on the estates of the deceased. 🗸🗸
- These taxes are used to finance development expenditures which benefit the poor more often. 🗸🗸
Cash benefits
- Old age pensions, disability grants, child support and unemployment insurance are cash grants. These are also known as social security payments. 🗸🗸
- Benefits in kind (natura benefits) 🗸🗸
- These include the provision of healthcare, education, school meals, protection etc. 🗸🗸
- When user fees are charged, poor or low income earners pay less or nothing. 🗸🗸
- Limited quantities of free electricity and water are provided. 🗸🗸
Other redistribution
- Public works programmes, e.g. the Strategic Integrated Projects (SIP) provides employment subsidies and other cash and financial benefits such as training, financing and export incentives.🗸🗸
Land restitution and land redistribution
- Land restitution is the return of land to those that have lost it due to discriminatory laws in the past. 🗸🗸
- Land redistribution focuses on land for residential (town) and production (farm) for previously disadvantaged groups. 🗸🗸
- The money for these programmes is provided in the main budget. 🗸🗸
Subsidies on properties
- It helps people to acquire ownership of fixed residential properties. 🗸🗸
- E.g. government’s housing subsidy scheme provides funding to all people earning less than R3 500 per month🗸🗸
CONCLUSION
The demand-side approach focuses on the expansion of the demand for goods and services produced in the economy. 🗸🗸
OR
To ensure economic growth, there should be an adequate and growing demand for goods and services produced in the economy. 🗸🗸
[Any other relevant higher order conclusion]
[Max 2]