ECS3709 Assignment 3 (COMPLETE ANSWERS) Semester 2 2024 - DUE September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations. For assistance, Whats-App 0.6.7-1.7.1-1.7.3.9. Ensure your success with us..Read the South African Reserve Bank Working Paper, “Identifying Supply and Demand S...
To address how temporary demand shocks during the COVID-19 outbreak affected South Africa,
we can use the Aggregate Demand-Aggregate Supply (AD-AS) model. According to Johannes W.
Fedderke’s paper (2021), demand shocks in South Africa have been relatively prominent, including
during the COVID-19 crisis. When the pandemic hit, a sharp decrease in consumer spending and
investment occurred, leading to a leftward shift of the aggregate demand (AD) curve.
Without government intervention or monetary policy adjustments, this decrease in demand resulted
in lower output, reduced prices, and increased unemployment. The AD-AS model suggests that
when demand decreases, prices and output fall in the short run, reflecting a decline in overall
economic activity. The AD curve shift caused South Africa’s real GDP to contract as businesses
faced declining revenues and were forced to cut jobs, pushing up unemployment levels.
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QUESTION 1
To address how temporary demand shocks during the COVID-19 outbreak affected
South Africa, we can use the Aggregate Demand-Aggregate Supply (AD-AS) model.
According to Johannes W. Fedderke’s paper (2021), demand shocks in South Africa
have been relatively prominent, including during the COVID-19 crisis. When the
pandemic hit, a sharp decrease in consumer spending and investment occurred,
leading to a leftward shift of the aggregate demand (AD) curve.
Without government intervention or monetary policy adjustments, this decrease in
demand resulted in lower output, reduced prices, and increased unemployment. The
AD-AS model suggests that when demand decreases, prices and output fall in the
short run, reflecting a decline in overall economic activity. The AD curve shift caused
South Africa’s real GDP to contract as businesses faced declining revenues and were
forced to cut jobs, pushing up unemployment levels.
Furthermore, with reduced demand for goods and services, inflationary pressures
lessened, leading to deflationary tendencies. Prices fell as businesses tried to adjust
to the lack of demand by lowering prices to attract what little consumer spending
remained.
The COVID-19 demand shock also affected employment severely. As businesses
scaled back production, particularly in industries such as tourism, retail, and
manufacturing, job losses mounted. The unemployment rate, already high before the
pandemic, worsened as both formal and informal sector jobs were shed, further
depressing economic activity.
However, the shock primarily hit demand, not supply. The South African economy’s
productive capacity, reflected in the aggregate supply (AS) curve, remained relatively
stable. There was no substantial destruction of infrastructure or productive resources,
which meant that the long-term aggregate supply curve did not shift significantly. Thus,
in the long run, the economy retained the potential to recover if demand conditions
improved.
With no policy intervention assumed, the economy would eventually reach a new
equilibrium at a lower output and price level. However, the adjustment process could
be prolonged, leading to long-lasting negative effects on employment and output.
Disclaimer
Extreme care has been used to create this document, however the contents are provided “as is” without
any representations or warranties, express or implied. The author assumes no liability as a result of
reliance and use of the contents of this document. This document is to be used for comparison, research
and reference purposes ONLY. No part of this document may be reproduced, resold or transmitted in any
form or by any means.
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