Topic 1: Economic growth and development: economic growth

Question 1

What is wealth?

Answer 1

Wealth is assets that are owned by individuals enterprises and the state. Anything that satisfies a want is an asset and therefore wealth

Question 2

Physical wealth

Answer 2

Assets such as clothing, furniture, houses, vehicles and land

Question 3

Financial wealth

Answer 3

Assets such as cash, money, investments, shares and assurances

Question 4

Wealth renders income

Answer 4

Wealth assets, both physical and monetary, render income. In fact, their value often depends on the income they render. To obtain a value for an asset, it’s income is capitalized. Capitalized means dividing the income by desired interest rate

Question 5

Wealth is measured at a specific date

Answer 5

Wealth is measured at a specific date because it’s value fluctuates. The asset shown above can repeat the same profit year after year, but if the interest rate increases its value will decrease and vice versatile. The value of the family home will increase complementary to the inflation rate in building costs. The value of the family car will depreciate year after year because of wear and tear

Question 6

Wealth needs to be maintained

Answer 6

Physical assets need to be cared for: houses must be painted and timber need varnishing. Farm land needs to be fertilized and cattle require food and water must be dipped. Financial wealth also needs attention, which requires time and knowledge. A notice deposit will need to be moved to where it can earn the highest interest. Investments in shares need to be reconsidered as risks and returns change. All this maintenance costs time and money

Question 7

Wealth may have strings attached

Answer 7

Physical assets are often attached. The family house is usually mortgaged and the motorcar and the furniture may be on hire purchase. Financial assets are often ceded

Question 8

Source of wealth

Answer 8

Main sources of wealth are inheritance, savings, entrepreneurial activities and work

Question 9

Source of wealth

Individual savings

Answer 9

When they abstain from consuming all their income. They accumulate wealth when they hold onto cash, make deposits, pay premiums on assurance policies and carry out investments

Question 10

Source of wealth

Businesses save

Answer 10

When they do similar things with their income that individuals do. The physical wealth they acquire may also include things such as buildings, machines and tools

Question 11

Source of wealth

The government saves

Answer 11

When it budgets for current surplus, meaning that its current income exceeds its current expenditures. The current surplus is used to acquire physical wealth such as buildings, equipment and infrastructure

Question 12

The process of wealth creation

Answer 12

Wealth is created by means of savings. Even if wealth is inherited, someone from a previous generation must have saved money for the purpose of buying the asset in question

Question 13

Distribution of income

Answer 13

We all know that people can survive without wealth, but no one can survive without income

Question 14

Income earned

Answer 14

Total income of individuals and households is transfer payment such as pensions. However income among households is often distributed unequally

Question 15

Reasons for the unequal distribution of income

Answer 15

Unequal holdings of wealth:As wealth generates income in the form of profits, interest, and dividends, differentials in wealth cause difference in income

Differences in the composition of households: some households are big and others are small

Differences in skills and qualifications: those with advanced skills are likely to earn high incomes

Discrimination: the income of some groups is adversely affected by discrimination in terms of employment opportunities, pay and promotion chances

Question 16

Inequality of income

Answer 16

In SA, during colonialism and apartheid, black people were subjected to inferior education and they were not allowed to be trained as artisans. They were not allowed to do professional work in white areas and were barred in general from management positions. Their incomes were less than white peoples income. Black people earned no income from wealth because they had no wealth . In general, people with higher income are more able to save

Question 17

Inheritance

Answer 17

Since time immemorial, it was customary for wealth to be passed on from one generation to the next. The inheritance of wealth is only possible if people have a general right to own property and if the law protects such a right. For many decades in South Africa, only whites had property rights in the sense that they were allowed to own land and businesses outside the homelands. Black people were denied this right. In fact, many people were forcibly moved to homelands and thus deprived of the little wealth they had.

Question 18

The market system

Answer 18

The market system rewards successful people. Generous rewards motivate people to use and develop their entrepreneurial talents, acquire better skills, work hard and save. In the market system, it is essential that sizable pockets of wealth are available and can be used to combine with other factors of production to produce more goods and services and employ more people. Wealthy people are essential for economic growth and development

Question 19

How to measure inequality

Answer 19

The Lorenz curve and the Gini coefficient

Question 20

Two methods to measure the extent of income inequality

Answer 20

the Lorenz curve and the Gini coefficient

Question 21

The Lorenz curve

Answer 21

The degree of income inequality is shown by the deviation from the line of equal distribution. the greater the distance between this line and the Lorenz curve, the greater the degree of inequality

Method of measuring the degree of inequality at different stages of production

Question 22

the area between the line of equal distribution and the Lorenz curve is called

Answer 22

The area of inequality

Question 23

The Gini coefficient

Answer 23

is calculated from the information provided by a Lorenz curve and it measures precisely the degree of inequality shown on a Lorenz curve

Question 24

How is the Gini index

Answer 24

When the Gini coefficient is multiplied by 100

Question 25

How much inequality is accepted

Answer 25

Too much inequality. Gross inequality in the distribution of income and wealth leads to poverty and feelings of unfairness and of being excluded. the feelings cause doubt and dispair and often result in inactivity, making people dependent on social welfare or even crime.

Too little inequality. In terms of the law of diminishing marginal utility an equal distribution of income would be ideal. However, incomes are also incentives. In order to get people to work harder, accept greater responsibility, develop new ideas, undertake long and difficult training, and carry out unpleasant tasks, it may be necessary to offer higher rewards

Question 26

international redistribution methods

Answer 26

taxation
Cash benefits
benefits in kind
labour market policies
macroeconomic policy

Question 27

Cash benefits

Answer 27

In SA, old-age pensions, disability grants, child support grants, and unemployment grants are the most important cash benefits

Question 28

Benefits in kind

Answer 28

include provisions of healthcare, education, school meals, protection, municipal services, and insurance. In SA, limited quantities of free electricity and water are also provided

Question 29

labour market policies

Answer 29

minimum wages, anti-discrimination legislation, and training subsidies reduce income inequality. In SA, similar policies and laws are in force

Question 30

macroeconomic policy

Answer 30

Such policies influence the distribution of income and wealth in a number of ways. for example, measures to create employment may benefit low-income households and regional development policies reduce geographical inequalities in income and wealth

Question 31

Redress redistribution methods

Answer 31

BBBEE
land restitution and land redistribution
Property subsidies

Question 32

BBBEE

Answer 32

The pinnacle of the government’s redress programme was the publication of the Broad-Based Black Empowerment Act no. 53 of 2003. this act provides the foundation for the transformation of the South African economy so that the numbers of black people who own and manage the country’s economy can increase significantly and racial income inequalities will decrease substantially

Question 33

Land restitution

Answer 33

originated from the constitution. the purpose is to return the land to those who lost it as a result of racially discriminatory laws and practices after 19 June 1913

Question 34

Land redistribution

Answer 34

focuses on land for residential and productive use. It is based on a willing- buyer willing- seller principle

Question 35

Property subsidies

Answer 35

Subsidies are used to help beneficiaries acquire ownership of fixed residential property. The government’s housing subsidy scheme provides six funding options to all eligible people earning less than R3 500 per month. Fixed residential properties are ideal wealth assets because they can also be used as collateral for loans of any kind

Question 36

Meaning of economic growth

Answer 36

an increase j=in the production of goods and services in a country over a year in physical terms meaning if you count them there must be more.

Question 37

How is economic growth measured

Answer 37

Economic growth is measured and expressed in real GDP

Question 38

Importance of economic growth

Answer 38

The achievement of high growth is one of the five main objectives of macroeconomic policy. The significance of economic growth lies in its contribution to the general prosperity of the community

Question 39

Method of growing the economy

Answer 39

SA’s approach to growing the economy is embodied in its National Growth Plan

Question 40

Increases in productivity

Answer 40

Output increases while input remains the same
Output increases while input declines
Output increases faster than the input
Output remains constant while input declines
Output declines at a slower rate than the input

Question 41

How are productivity improvements achieved

Answer 41

By managing organisational activities more purposefully

Question 42

Availability and utilisation of factors of production

Answer 42

In terms of the labour force, growth will occur if the ratio of the working population to the total population increases

In terms of capital, capital widening and deepening should be pursued to achieve growth

In terms of land and natural resources an increase is rarely possible but land can be used for new purposes that will render better returns

Question 43

Technological change

Answer 43

Technology is any instrument or technique product or process, physical equipment, or method whereby something is made or done, which extends the human ability

Technology refers to the ways in which goods are produced and services are rendered. If new ways are discovered so that more goods and services can be produced with similar inputs, technology has improved. Most of the time, new technology is acquired through capital investments for example cell phones and the internet and electronics

Question 44

What are effective policies

Answer 44

mean policies that will ensure thAT pre- set objectives are met. Government should have policies in place that will realise for example more exports, growth in tourism, and the expansion of manufacturing industries

Question 45

What are efficient administration

Answer 45

the policies are executed in a manner that minimizes time, wastage, inconvenience, and costs

Question 46

What increases transaction costs for enterprises

Answer 46

Nepotism, corruption, and the indifference or laziness

Question 47

How are investments determined?

Answer 47

Political factors such as political stability, the freedom of doing business, and low crime levels
Economic factors such as profitability, taxes, and interest rates. The level of interest rates is critical

Question 48

What are the important constraints on economic growth in South Africa

Answer 48

HIV and AIDS
Inadequately qualified labour
Low levels of savngs and investments

Question 49

Low level of savings and investments

savings

Answer 49

South African savings amount to about 15% of GDP. Household savings, are very low- less than 1% of disposable income. Too grow at an annual rate of 6% SA needs a savings rate of about 21% of GDP

Question 50

Low level of savings and investments

Investments

Answer 50

South Africas fixed investment rate would have to increase from 15% to at leats 25% if the economy is to grow at more than 5% per annum. Because foreign direct investment is only about 3% domestic savings have to provide most of the funds

Question 51

Inadequately qualified labour

school education

Answer 51

66% of South Africans 20 years and older in 2009 had only completed 10 years of schooling. School literacy and numeracy are low in terms of international standards. The numbers of senior certificates candidates qualifying for university admission for a bachelors degree was only 20% of those who passed

Question 52

Inadequately qualified labour

learnerships

Answer 52

The numbers writing and passing learnerships trade tests in 2009 were increasing, but only 40% of those who wrote passed. the numbers that qualify are altogether inadequate for the needs of the economy

Question 53

HIV and AIDS

working age population

Answer 53

the rate of infection is higher among people in their economically active years. Once infected, they become less productive and if they die thei knowledge and experience are lost prematurely

Question 54

HIV and AIDS

medical costs

Answer 54

the costs of medical treatment for those who are HIV poitive is escalasting at an enormous raate. This will impact increasingly on savings, taxes and profits. eventually, economic growth may come to a halt as the surviving population struggle to continue working and care for the ill

Question 55

Non- monetary factors

four factors

Answer 55

personal freedom- the freedom to visit friends, to travel, and to voice an opinion

Freedom from fear of violence- if a person does not feel safe walking the streets or even at home, then no number of microwave ovens or CD players will compensate for this loss

The working environment- how many hours and how hard people have to work

The social and cultural environment- to speak the language of your choice and to practice your religion

Question 56

Factors that must be considered with regard to the standard of living

Answer 56

the size of the population
Per capita income
Assets and location
Non- monetary factors