ECS1601 Assignment 4
(COMPLETE ANSWERS)
2025 - DUE 15 September 2025
For assistance contact
Email:
, Question 1: Economic Resilience in Mitchells Plain
To foster economic resilience in Mitchells Plain, two key interventions based on the Circular
Flow Model are:
Investment in Local Businesses: Government or private sector investment in local
enterprises, particularly small to medium-sized businesses (SMEs), can inject capital into
the economy. This intervention targets the firms component of the circular flow.
Increased investment allows firms to expand, hire more workers (flow of income from
firms to households), and produce more goods and services. Households, in turn, spend
their increased income on these goods and services, creating a virtuous cycle. This also
boosts local production, making the community less dependent on external markets and
more resilient to external shocks.
Human Capital Development: Investing in education and skills training for the local
population directly improves the households component. A more skilled workforce is
more attractive to potential employers, both local and external, and can lead to higher
wages and increased consumption. This boosts the flow of income from firms to
households and then back to firms as consumption spending. This intervention also
addresses structural unemployment and improves the overall productivity and
adaptability of the local economy, which are crucial for long-term economic resilience.
Question 2.1: Economic Growth in South Africa and Lesotho
The imposition of tariffs by the United States is detrimental to the economic growth of South
Africa and Lesotho. This can be explained using the AD-AS model .
A tariff on exports from South Africa and Lesotho makes their goods more expensive for US
consumers. This decreases the demand for these goods, leading to a decline in Net Exports
(X−M), which is a component of Aggregate Demand (AD=C+I+G+(X−M)). The decrease in net
exports causes a leftward shift of the Aggregate Demand (AD) curve from AD1 to AD2.
This leftward shift leads to a new equilibrium point. The intersection of the new AD curve (AD2
) and the Aggregate Supply (AS) curve occurs at a lower level of real GDP, representing a
decrease in economic output, and a lower price level. For both countries, this translates to
reduced production, job losses, and a contraction of their economies, which is contrary to
economic growth. The lower price level could indicate deflationary pressures. Therefore, from
an economic growth perspective, this is a negative development for South Africa and Lesotho.
Question 2.2: The U.S. Perspective
From the perspective of the United States, the tariffs are intended to be a good thing for the
economy, specifically in the short term, from the viewpoint of the foreign exchange market and
Net Exports.
(COMPLETE ANSWERS)
2025 - DUE 15 September 2025
For assistance contact
Email:
, Question 1: Economic Resilience in Mitchells Plain
To foster economic resilience in Mitchells Plain, two key interventions based on the Circular
Flow Model are:
Investment in Local Businesses: Government or private sector investment in local
enterprises, particularly small to medium-sized businesses (SMEs), can inject capital into
the economy. This intervention targets the firms component of the circular flow.
Increased investment allows firms to expand, hire more workers (flow of income from
firms to households), and produce more goods and services. Households, in turn, spend
their increased income on these goods and services, creating a virtuous cycle. This also
boosts local production, making the community less dependent on external markets and
more resilient to external shocks.
Human Capital Development: Investing in education and skills training for the local
population directly improves the households component. A more skilled workforce is
more attractive to potential employers, both local and external, and can lead to higher
wages and increased consumption. This boosts the flow of income from firms to
households and then back to firms as consumption spending. This intervention also
addresses structural unemployment and improves the overall productivity and
adaptability of the local economy, which are crucial for long-term economic resilience.
Question 2.1: Economic Growth in South Africa and Lesotho
The imposition of tariffs by the United States is detrimental to the economic growth of South
Africa and Lesotho. This can be explained using the AD-AS model .
A tariff on exports from South Africa and Lesotho makes their goods more expensive for US
consumers. This decreases the demand for these goods, leading to a decline in Net Exports
(X−M), which is a component of Aggregate Demand (AD=C+I+G+(X−M)). The decrease in net
exports causes a leftward shift of the Aggregate Demand (AD) curve from AD1 to AD2.
This leftward shift leads to a new equilibrium point. The intersection of the new AD curve (AD2
) and the Aggregate Supply (AS) curve occurs at a lower level of real GDP, representing a
decrease in economic output, and a lower price level. For both countries, this translates to
reduced production, job losses, and a contraction of their economies, which is contrary to
economic growth. The lower price level could indicate deflationary pressures. Therefore, from
an economic growth perspective, this is a negative development for South Africa and Lesotho.
Question 2.2: The U.S. Perspective
From the perspective of the United States, the tariffs are intended to be a good thing for the
economy, specifically in the short term, from the viewpoint of the foreign exchange market and
Net Exports.
