1
, Chapter 21
Macroeconomics:
→ Studies the performance, structure, and behavior of a national economy as a whole.
→ It examines aggregate (individual factors and added tg) indicators such as GDP, unemployment, inflation
and exchange rates – as opposed to microeconomics, which focuses on individual markets and decision
makers
Macroeconomics studies the performance, structure, and behavior of a national economy as a whole. It
examines aggregate indicators such as Gross Domestic Product (GDP), unemployment, inflation, interest rates,
exchange rates, trade balances, and overall economic growth.
o It focuses on the economy at a national and global level rather than on individual markets.
o This distinguishes it from microeconomics, which focuses on individual consumers, firms, specific
markets, and pricing decisions.
o Macroeconomics seeks to understand how the economy performs over time and how government policy
can influence national economic outcomes.
o It also examines how the South African economy operates within the global economic system.
Short run vs Long run
Short run:
→ Prices & wages are ‘sticky” and do not adjust immediately.
→ The economy can operate above or below potential GDP
→ Gov can use fiscal and monetary policy to manage demand and stabilize the business cycle
→ In the short run, prices and wages are described as “sticky,” meaning they do not adjust immediately to
changes in supply and demand.
→ Because of this price rigidity, the economy can operate above or below its potential level of output.
→ During the short run, fluctuations in aggregate demand can lead to recessions or booms. Unemployment
can rise if demand falls. In this period, government can use:
→ Fiscal policy (government spending and taxation)
→ Monetary policy (interest rates and money supply, controlled by the South African Reserve Bank)
→ Short-run macroeconomics therefore focuses strongly on stabilising the business cycle.
Long Run:
→ Prices and wages are flexible and fully adjust
→ The economy tends toward full employment, meaning it operates at its potential GDP.
2
, → Long-run growth depends on:
o Labour
o Capital
o Land
o Entrepreneurial ability
o Technology and productivity
→ In the long run, structural reforms and improvements in productivity matter more than short-term
demand management.
5 Macroeconomics objectives:
1. Economic growth
a. Sustained increase in real GDP, improving living standards over time
b. Economic growth is a sustained increase in real GDP over time. It improves living standards and
increases GDP per person. Growth allows for higher incomes, improved infrastructure, and better
social services.
2. Price stability
a. Keeping inflation low and stable
b. Preserving purchasing power (SARB)
c. Price stability means keeping inflation low and predictable. Inflation is a sustained increase in the
general price level.
d. South Africa follows an inflation-targeting framework. The South African Reserve Bank has
revised its inflation target to 3% within a 3–5% tolerance band. Stable inflation preserves
purchasing power and reduces uncertainty.
3. Full employment
a. Reducing unemployment to its natural rate, maximizing productive use of labour
b. Full employment means reducing unemployment to its natural rate. It does not mean zero
unemployment, but rather minimising cyclical unemployment and ensuring that labour resources
are used productively.
c. South Africa faces structurally high unemployment, particularly youth unemployment.
4. Income distribution
a. Reducing inequality
b. Income distribution refers to how income is shared across society. South Africa has one of the
highest levels of inequality in the world. Economic policy aims to reduce inequality while
maintaining growth.
5. External balance
a. Stable balance of payments, sustainable current account, stable exchange rates
b. External balance refers to maintaining a sustainable balance of payments position, a manageable
current account, and a stable exchange rate. Exchange rate stability affects import prices, export
competitiveness, and inflation.
3
, South Africa’s Current Macroeconomic Context
Real GDP – worked out from previous quarter
Recent macroeconomic indicators include:
• Real GDP growth (2025): approximately 1.1%
• Unemployment rate (Q3 2025): 31.9%
• Youth unemployment: 58.5%
• Inflation (December 2025): 3.6%
• Repo rate (January 2026): 6.75%
South Africa achieved four consecutive quarters of GDP growth for the first time since 2018. However, structural
challenges continue to limit potential growth, which is estimated at approximately 1.5–2%.
Education significantly reduces unemployment risk, highlighting the importance of human capital in long-run
growth.
Schools of economic thought (pp. 472–476)
Classical • Free markets
• Lasissez-faire
• Invisible hand
• Supply creates its own demand
• Classical economists believe markets work
best when individuals pursue their own self-
interest. They support limited government
intervention.
• Prices act as signals that guide resources to
their most valued uses. According to this view,
markets tend to self-correct, including labour
markets.
Marxism • Class struggle
• Critique of capitalism
• Redistribution of resources and means of
production
Neoclassical • Rational agents
• Market equilibrium
• Builds on classical with marginal analysis and
mathematical models
• Focuses on:
o Supply and demand
o Equilibrium
4
, Chapter 21
Macroeconomics:
→ Studies the performance, structure, and behavior of a national economy as a whole.
→ It examines aggregate (individual factors and added tg) indicators such as GDP, unemployment, inflation
and exchange rates – as opposed to microeconomics, which focuses on individual markets and decision
makers
Macroeconomics studies the performance, structure, and behavior of a national economy as a whole. It
examines aggregate indicators such as Gross Domestic Product (GDP), unemployment, inflation, interest rates,
exchange rates, trade balances, and overall economic growth.
o It focuses on the economy at a national and global level rather than on individual markets.
o This distinguishes it from microeconomics, which focuses on individual consumers, firms, specific
markets, and pricing decisions.
o Macroeconomics seeks to understand how the economy performs over time and how government policy
can influence national economic outcomes.
o It also examines how the South African economy operates within the global economic system.
Short run vs Long run
Short run:
→ Prices & wages are ‘sticky” and do not adjust immediately.
→ The economy can operate above or below potential GDP
→ Gov can use fiscal and monetary policy to manage demand and stabilize the business cycle
→ In the short run, prices and wages are described as “sticky,” meaning they do not adjust immediately to
changes in supply and demand.
→ Because of this price rigidity, the economy can operate above or below its potential level of output.
→ During the short run, fluctuations in aggregate demand can lead to recessions or booms. Unemployment
can rise if demand falls. In this period, government can use:
→ Fiscal policy (government spending and taxation)
→ Monetary policy (interest rates and money supply, controlled by the South African Reserve Bank)
→ Short-run macroeconomics therefore focuses strongly on stabilising the business cycle.
Long Run:
→ Prices and wages are flexible and fully adjust
→ The economy tends toward full employment, meaning it operates at its potential GDP.
2
, → Long-run growth depends on:
o Labour
o Capital
o Land
o Entrepreneurial ability
o Technology and productivity
→ In the long run, structural reforms and improvements in productivity matter more than short-term
demand management.
5 Macroeconomics objectives:
1. Economic growth
a. Sustained increase in real GDP, improving living standards over time
b. Economic growth is a sustained increase in real GDP over time. It improves living standards and
increases GDP per person. Growth allows for higher incomes, improved infrastructure, and better
social services.
2. Price stability
a. Keeping inflation low and stable
b. Preserving purchasing power (SARB)
c. Price stability means keeping inflation low and predictable. Inflation is a sustained increase in the
general price level.
d. South Africa follows an inflation-targeting framework. The South African Reserve Bank has
revised its inflation target to 3% within a 3–5% tolerance band. Stable inflation preserves
purchasing power and reduces uncertainty.
3. Full employment
a. Reducing unemployment to its natural rate, maximizing productive use of labour
b. Full employment means reducing unemployment to its natural rate. It does not mean zero
unemployment, but rather minimising cyclical unemployment and ensuring that labour resources
are used productively.
c. South Africa faces structurally high unemployment, particularly youth unemployment.
4. Income distribution
a. Reducing inequality
b. Income distribution refers to how income is shared across society. South Africa has one of the
highest levels of inequality in the world. Economic policy aims to reduce inequality while
maintaining growth.
5. External balance
a. Stable balance of payments, sustainable current account, stable exchange rates
b. External balance refers to maintaining a sustainable balance of payments position, a manageable
current account, and a stable exchange rate. Exchange rate stability affects import prices, export
competitiveness, and inflation.
3
, South Africa’s Current Macroeconomic Context
Real GDP – worked out from previous quarter
Recent macroeconomic indicators include:
• Real GDP growth (2025): approximately 1.1%
• Unemployment rate (Q3 2025): 31.9%
• Youth unemployment: 58.5%
• Inflation (December 2025): 3.6%
• Repo rate (January 2026): 6.75%
South Africa achieved four consecutive quarters of GDP growth for the first time since 2018. However, structural
challenges continue to limit potential growth, which is estimated at approximately 1.5–2%.
Education significantly reduces unemployment risk, highlighting the importance of human capital in long-run
growth.
Schools of economic thought (pp. 472–476)
Classical • Free markets
• Lasissez-faire
• Invisible hand
• Supply creates its own demand
• Classical economists believe markets work
best when individuals pursue their own self-
interest. They support limited government
intervention.
• Prices act as signals that guide resources to
their most valued uses. According to this view,
markets tend to self-correct, including labour
markets.
Marxism • Class struggle
• Critique of capitalism
• Redistribution of resources and means of
production
Neoclassical • Rational agents
• Market equilibrium
• Builds on classical with marginal analysis and
mathematical models
• Focuses on:
o Supply and demand
o Equilibrium
4
