Sunday, February 28, 2016

123. An old Student letter on their Assignments

STUDENT LETTER: Some notes on the Economics assignment.

This note needs to be read in conjunction with the ASSIGNMENT FEEDBACK sheet as well as notes made on the script (if any). Pay particular note to the outline structure given for each question on the assignment feedback form as it relates to the content of each question. Here are some additional points to consider:

  1. When answering a question such as “Explain the effectiveness of the exchange rate regime being used in terms of achieving macroeconomic objectives”, it is imperative that you define the key terms. So one has to define what is meant by an exchange rate, an exchange rate regime and then deal with the various regimes.

  1. When the different regimes are dealt with, it is important not only to mention the features of each type but to clearly state the advantages and disadvantages of each so that one can come to a conclusion as to the impact of each in relation to the economic objectives.
  1. Often learners just dive into answering a question without giving the reader some indication structure of the answer in advance – the introduction. It is important to set out the argument that you will be following in your answer in an introduction. Clearly this paragraph cannot be written until you have written your whole piece. Similarly then – your conclusion should the summarise what you have said and NOT include any new information or argument.

  1. Many students copy too large sections from internet resources. Then also attempt to hide the fact by not referencing adequately. This practice is not tolerated.

  1. When referencing do refer to the resource found here: Many learners do not use the Harvard referencing system correctly – both for in-         line referencing and in the References section at the end of the assignment.

  1. The Tables of Content was generally found to be adequate.

  1. Often graphs are copied (for example the “cost push” and “demand pull”) without adequate reference to the mechanics involved – one has to show and understanding of how things work.

  1. In any discussion on inflation some reference must be made to “money supply” even if it is to criticize the Monetarist based theory.

  1. In answering a question at MBA level learners must take up some stance and attempt to defend their position based on the literature that they have reviewed. Own conclusions motivated by research is the aim.

  1. A too large reliance on one source to compile an answer which lead to one sided views of the situation.

  1. Examples of “creative editing” (just editing large copied sections) was found - this too is not acceptable.

  1. Learners include into their reference list works that they have NOT consulted but have only been included in the reference list of works that they have consulted!

  1. Arguments tend to be taken directly from sources rather than an attempt to independent thinking.

  1. The quantity of resources consulted seem to meet the minimum requirements in most cases.

Charl Heydenrych
November 2012

122. An introductory note on Economics


C. M Heydenrych
November 2015

Demand and supply

Economic Growth

“You can stand in front of an empty fireplace and say “give me heat and I will give you wood” as long as you want and you will not get heat. You have to put the wood in first.”[1]

These are wise words – not only for the individual, an household, a firm or an economy.

In formal terms it can be said that: “Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.”

The question now arises – “What policies can a Government employ to foster economic growth?”

Monetary policies[2]

  1. Encourage savings. Savings is used by firms to acquire productive resources, which leads to economic growth. This is done by lowering taxes. Low taxes also mean that people have more money to spend. Spending according to Keynes will move the Aggregate Demand curve to the right and increase the output of a country.

  1. As a short term measure Keynes indicated that the Government could embark on capital expenditure programs such as road building. This will also put more money in people’s hands which they will be able to spend on consumer goods. It will also help to reduce the cost of production which helps an economy to gow.

            The problem however with increasing government spending, is that the money    has to come from somewhere (taxes) and that will reduce private investment and         private consumption. So unless government has savings (or prepared to risk   inflation,  by creating money - which in itself is a form of indirect taxation), this    route is not recommended

Fiscal policies

  1. Low interest rates will also act as a stimulus for spending


  1. Encourage entrepreneurship. Make it easy to start a business, no onerous entry requirements to start any business.

  1. Decriminalise the sale of some drugs such as marijuana. It is well known that tobacco played an enormous part in the growth of the American economy in the early years as did the sale of heroin in the development of Hong Kong. The legalisation of marijuana (dagga) will boost the depressed economies of the Transkei dramatically. The current decriminalisation of marijuana has benefitted the economy of many states in the US.


Gross Domestic Product is the market value of all the final goods and services produced within the borders of a country within a given time period normally a year. It is the spending on goods and services in a country

It is also equivalent to the money earned by all the production factors employed in a country.

This figure can also be calculated by the value that is added to products and services by the various industries in an economy.

GDP is therefore a measure of the economic well being of a country.

If GDP increases because of more economic freedom (less Government intervention) and real economic activity (production and trade) it will mean that poverty will be reduced since the people would have earned wealth through the production of goods and services required by society and not just the redistribution of wealth. Money will also be available to assist those that cannot help themselves.

One of the macro-economic objectives that societies have is to reduce unemployment – unemployment is when not all the production factors are being utilised fully. The most important one being labour.

Structural unemployment focuses on the structural problems within an economy and inefficiencies in labour markets. It also includes unemployment resulting from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand. Changes that cause a skills gap are part of this phenomenon.

One structural reason for unemployment is the vast numbers of regulations that stifle the free interaction between individuals. These regulations are said to protect consumers, but often the hurt that they cause is unseen.

Frictional unemployment is the time period between jobs when a worker is searching for or transitioning from one job to another.

Cyclical unemployment is a type of short to medium term unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. Also called recessionary or depressionary unemployment

Classical unemployment occurs when real wages for a jobs are set above the marketing clearing level. This is the big problem in South Africa because of minimum wage laws.


Inflation can be defined as a significant (1-2%) and general rise in prices over time – or conversely the fall of the value of money.

The cause is generally accepted as: an increase in the money supply that is more than the increase in the goods and services being produced in an economy.

There are other theories related to this – such as cost push inflation and demand pull.


Macro economic Objectives

Economic Growth (also see separate heading)

The relationship between economic growth and economic freedom (less government involvement in the lives of people) is undisputed (

Economic Freedom = Economic Growth
Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.

As you will remember from the discussion of the PPF, one way to achieve output and consumption levels outside the limits set by the PPF is through technology, capital formation and trade. Currently the world is on a path to end hunger and achieve food security and improved nutrition for the first time in human history – this is through the use of sustainable agriculture and innovative GMO strains (technological advancement).

The result of economic growth is also that people live healthy lives live longer, obtain better education as well as gender equality and the empowerment of women and girls.

It is generally agreed that free market economies that are unencumbered lead to the most optimum economic outcomes.

Countries with the highest GDP growth are also able to build infrastructure, promote inclusive and sustainable industrialization and foster innovation.

Economic growth also leads to peaceful relations between trading nations.

Economic growth is the result of limiting the size of government and low taxation
Countries with economic growth protects private property and the rule of law
The soundness of money results in faster growing economies
Since trade is one of the cornerstones if wealth creation there is little in the way of trade regulation and tariffs in fast growing economies
Economic growth is positively correlated with  less regulation of business, labour and capital  markets

[2]  Monetary policy is the actions of a central bank or other regulatory committee that determines the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves).

Monday, February 22, 2016

121 A letter from a student - SA Economy

Good day Charl,

Hope this mail finds you well. We had a chat after class on Saturday re more lessons and assistance on Economics. You had suggested that I send you my Eco assignment before submission which I'm still busy with.

Please may I if possible get more info on SA's economic growth, imports and exports i.e. is SA exporting enough, importing. do we have competitive advantage as a country?

The growth of the rand and strength over the past few years. the causes of our rand dropping. what can be done to improve our economy as a country?

This is purely for my understanding of our South African economy. So please if you have information that can be of good use, send it through.

Please advise

Many Thanks in advance

Regards xxxxx

One can look at the Exchange rate of a currency like the “share price” of a country – and ours has dropped consistently over the past few years.

Foreign investors are currently moving out of investing in SA for a number of reasons:

The returns that they can earn here is relatively small

Political developments are worrying them.

Our productivity is lagging (electricity, crime, other issues)

People are selling rands that is why the price is falling. People are not buying (investing).

As a country we have cash flow problems as well as the longer term debt issue.

We will see what Pravin says on Wednesday. If he raises tax we are in trouble. If he sells state assets we may have a chance.

From: xxxxxxxxx

Sent: Thursday, February 18, 2016 11:28 AM

To: Charl Heydenrych

Subject: Fwd: Undeliverable: Economics

120 Entrepreneurship Slides 20 FEB 2016

119 SA GDP and growth

The South African economy expanded an annualized 0.7 percent on quarter in the three months to September of 2015, recovering from a 1.3 percent contraction in the previous period and boosted by a rebound in manufacturing and wholesale and retail trade. However, figures came below market expectations of a 1.1 percent growth and lower than a 2.1 percent expansion seen a year earlier as the drop in commodity prices keeps dragging the mining sector down. GDP Growth Rate in South Africa averaged 2.99 percent from 1993 until 2015, reaching an all time high of 7.60 percent in the fourth quarter of 1994 and a record low of -6.10 percent in the first quarter of 2009. GDP Growth Rate in South Africa is reported by the Statistics South Africa.

Sunday, February 14, 2016

118 #Taxmustfall - The choice before us: Bastiat

(This was written by Bastiat, a French Philosopher/Economist around 1850) The choice before us

This question of legal plunder must be settled once and for all, and there are only three ways to settle it:

1. The few plunder the many.

2. Everybody plunders everybody.

3. Nobody plunders nobody.

We must make our choice among limited plunder, universal plunder, and no plunder. The law can only follow one of these three.

Limited legal plunder; This system prevailed when the right to vote was restricted. One would turn back to this system to prevent the invasion of socialism.

Universal Legal plunder.
We have been threatened with this system since the franchise was made universal. The newly enfranchised majority has decided to formulate law on the same principle of legal plunder that was used by their predecessors when the vote was limited.

No legal plunder: This is the principle of justice, peace, order, stability, Harmony and logic. Until the day of my death, I shall proclaim this principle with all the force of my lungs (which alas! is all too inadequate).*

At the time this was written, Bastiat knew that he was dying of tuberculosis. Within a year he was dead.

Sunday, February 7, 2016