ECS1601 Assignment 04 Alternative Year 2025
QUESTION 1
With reference to the Circular flow model as well as economic growth, two
interventions that would most effectively support economic resilience in Mitchells
Plain are:
1. Infrastructure investment– Improved transport andcommunication
infrastructure lowers costs for firms, boosts productivity, and attracts private
investment. This increases employment and strengthens the flow of goods
and money in the circular flow.
2. Support for Small and Medium Enterprises (SMEs)–Providing training
and subsidies helps local entrepreneurs expand output and hire labour. This
raises household consumption and boosts aggregate demand, reinforcing
economic growth.
Together, these interventions stimulate income, spending, and job creation,
strengthening resilience in the local economy.
Word count: 99 words
QUESTION 2
2.1.High US tariffs on South African (30%) and Lesotho (50%) goods reduce their
export competitiveness. In the AD-AS framework, lower exports reduce net exports
(NX), a component of aggregate demand.
, ● Aggregate Demand (AD): Tariffs make SA/Lesotho exports more expensive,
lowering demand in the US. This reduces export revenues, causing a leftward
shift of the AD curve (AD1 → AD2).
● Real GDP: With weaker AD, equilibrium output decreases, showing slower
growth and higher unemployment.
● Price Level: Lower demand reduces inflationary pressure, potentially lowering
prices.
● Aggregate Supply (AS): In South Africa, higher import costs (due to retaliation
or reduced trade) may also increase production costs, shifting AS leftwards.
For Lesotho (a small open economy), dependence on textiles and exports means the
shock is severe, sharply reducing growth. For South Africa, reduced export revenues
discourage investment, further weakening long-term growth prospects.
QUESTION 1
With reference to the Circular flow model as well as economic growth, two
interventions that would most effectively support economic resilience in Mitchells
Plain are:
1. Infrastructure investment– Improved transport andcommunication
infrastructure lowers costs for firms, boosts productivity, and attracts private
investment. This increases employment and strengthens the flow of goods
and money in the circular flow.
2. Support for Small and Medium Enterprises (SMEs)–Providing training
and subsidies helps local entrepreneurs expand output and hire labour. This
raises household consumption and boosts aggregate demand, reinforcing
economic growth.
Together, these interventions stimulate income, spending, and job creation,
strengthening resilience in the local economy.
Word count: 99 words
QUESTION 2
2.1.High US tariffs on South African (30%) and Lesotho (50%) goods reduce their
export competitiveness. In the AD-AS framework, lower exports reduce net exports
(NX), a component of aggregate demand.
, ● Aggregate Demand (AD): Tariffs make SA/Lesotho exports more expensive,
lowering demand in the US. This reduces export revenues, causing a leftward
shift of the AD curve (AD1 → AD2).
● Real GDP: With weaker AD, equilibrium output decreases, showing slower
growth and higher unemployment.
● Price Level: Lower demand reduces inflationary pressure, potentially lowering
prices.
● Aggregate Supply (AS): In South Africa, higher import costs (due to retaliation
or reduced trade) may also increase production costs, shifting AS leftwards.
For Lesotho (a small open economy), dependence on textiles and exports means the
shock is severe, sharply reducing growth. For South Africa, reduced export revenues
discourage investment, further weakening long-term growth prospects.
