Question

The core elements of the Growth Employment and Redistribution (GEAR) strategy of the South
African government in 1996, under the leadership of the then finance minister Trevor Manuel were
amongst other things:
 budget reform to strengthen the redistributive thrust of expenditure
 monetary policy to prevent a resurgence of inflation
 a reduction in tariffs to contain input prices 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.
(3 marks)
1.2 Identify and define the macroeconomic variables that can be used to measure whether
the strategy was successful or not. (6 marks)
1.3 With each tool in 1.2, provide a detailed explanation on how it can be measured.
(11 marks)

Answer 1

solution:

Answer 1.1:

Given the core elements, the macro economic objectives of the elements given in the statement above are : Reduction in inequality, decline in inflation rate and increase in industrial growth.

Answer 1.2:

To know whether the strategy was successful or not, some of the macro economic variables that can be used are as follows:

a. Gini Coefficient - It is a macro economic tool used to measure the level of inequality in the economy.

b. Consumer Price Index or GDP Deflator : Consumer Price Index measures the change in the value of the basket of goods from one year to another keeping a year as base year. Thus, it measures the change in the market basket of goods from base year to current year. GDP Deflator is also used to measure change in the level of prices in the economy.

c. Industrial Growth: The index of industrial production in the economy can be used to see the level of industrial growth in the economy.

Answer 1.3:

A statisitical measure of economic inequality in the nation is Gini Coefficient. It measures income distribution in the society. The coefficient ranges from 0 to 1 with 0 representing perfect equality and 1 representing perfect inequality. A graphical measure of economic inequality of the nation is Lorenz Curve. As the area under the curve increases, inequality in the nation increases.

The measure of inflation in the economy are Consumer Price index and GDP deflator. It measures the change in the price level in the economy considering a fixed basket of goods in case of CPI. The inflation rate is given by =

CPI in the current year - CPI in the base year / CPI in the base year * 100.

On the other hand, GDP Deflator in the economy = Nominal GDP / Real GDP * 100.

For measuring the level of industrial activity in the nation, index of industrial production can be used. It measures the total production of the industrial sector especially the manufacturing sector in the economy.

Note: Please comment below if you have any doubts....