The United States and the World Economy: Foreign Economic Policy - Coursework Example

Macro and micro economics Gross domestic product (GDP) is the financial estimation of all products and services delivered within a nations fiscal year at the market prices excluding all net income coming from abroad. It is usually used as a measure of how economically healthy a country is and how well the standards of living in that country are. It is calculated on a quarterly basis but revised constantly to ensure all statistics provided on the country are correct. GDP is determined in three ways: the income earned, how many goods and services were sold in the fiscal period and how much was spent by private consumers and government expenditures. It is calculated as (GDP = C+G+I+NX) the addition of the money incurred on private consumption or consumer spending (C) added to the governments’ expenditure (G), expenditure of the business carried out by the country on capital expenses (I) and the addition to all the country’s worth of exports subtracting the imports made (NX). To get the real growth rate of a country which is used to measure its wealth and value of the standard of living, the inflation rate must be subtracted from the GDP to give the real growth of the GDP which is usually termed as the real GDP. There are several factors affecting the GDP of a country. These can be classified as demand and supply side factors. The demand factors are basically affected by a rise in producer consumption, government expenditure, capital expenses and exports leading to a higher growth. These include the Banking Sector, Real Wages, Value of Exchange Rate, Asset Prices, Interest Rates, Consumer Confidence. The long term investments of a country such as great infrastructure, increase in great technology and labor productivity in terms of human labor also influence GDP greatly. An increase in commodity prices of things such as oil; political instability and weather have a great influence on the real GDP. This paper focuses on South Africa, its real GDP, its history of the monetary evolution and the factors affecting it, its position after the great recession, what has been done to improve its financial position and what should be done to improve its current economic health. South Africa has the 18th largest economy in the world. It is characterized by a well developed legal system, great energy production plants, good human labor policies and great infrastructure. Its major sources of income are mining, agriculture and fisheries and tourism. After the Second World War it did experience the apartheid era from 1984 to 1993 (Feinstein, 2005). South Africa experienced economic sanctions leading to a decrease in their real GDP as their currency, the rand, considerably lost its value in the foreign exchange market due to increased capital flight. Imports became expensive leading to a rise of the inflation in the country. South African residents and foreign investors did sell out their assets because of the political and economic instability. They received little or no gain from the sale of their assets. During this era the country did experience a negative real GDP growth from 1988-1992 (Usa, 2009). However upon the end of this era in the next decade 1992-2002 there saw a steady increase in the real GDP of South Africa to over 3% as seen in the World Banks development indicators of 2004 (Bergsten, 2005) with increased imports trade, more foreign investors coming in, improved infrastructure, great investments on human labor among others. Following the end of the apartheid government foreign trade in South Africa has greatly increased. Mining plays a large role in the GDP of this country with it accounting for about 3% of the country’s economy (Jones, 2002). South Africa is the second largest producer of gold, palladium and zirconium and it produces the largest amounts of vermiculite, chrome, manganese, platinum and vanadium. It is the third largest producer of coal and exporter of coal. South Africa has many international key trade partners which include fellow African countries, china, Japan, Brazil, India, Germany, Spain and the United states. This helps keep the key developments in the country at pa. The GDP of South Africa compared to other 25 comparator countries in the emerging markets as at 2005 in the world is relatively average due to its macroeconomic stabilization and structural reforms since 1994 and its great discipline in external debt repayment, financial discipline and government debt (Fund, 2005). This has however seen a decrease since then to 2.25%-2.5% from 2010 – 2014 showing a gap in the output of the GDP from -0.5%-1.3% (Dept., 2014), however growth in other emerging markets has also been slow in the recent years. In South Africa there is a high rate of unemployment leading to issues such as black empowerment. However the International Monetary Fund states that all measures being used by other emerging markets (Dept., 2014) such as large consolidation of revenues and expenditure to the advantage of the primary consumer, cutting of government expenses among others. Real estates, retail and motor businesses, tourism, transport communication and government services have tried to help increase the GDP by maintaining a positive balance percentage of growth always this is as stated by the economic growth data produced by the statistics department of South Africa as at May 2014. Owing to the recent global crisis, inflation, South has experienced a number of factors that seem to be slowing down its economy and affection its real GDP greatly. There needs to be sectored improvements in all major producers of the economy. South Africa is known as one of the countries in the world with duo economy in it. There are very wealthy people in this society and there are also very poor ones. This came to be during the apartheid era with unequal distribution of developmental facilities where some people ended up getting high quality education and good sustaining jobs while the others had no education and no jobs. This has further continued to be even after that era came to pass with lots of people still being uneducated and unable to reach quality education. The government is however trying it’s best to close this gap by introducing open market systems, trying to incorporate free education basis for all to be able to access free and quality education. They are also trying to start off micro financing for already existing and developing businesses to be able to increase their capital. There are also very large numbers of unemployed people in South Africa leading to a shortage in quality human labor hence reducing the amount of production of goods and services being produced within production plants in the country. This unemployment rate is also affects the economic ability of the country. While there is a high rate of unemployment the human labor skills are really limited in South Africa this is as a result of people resulting into studying soft degrees such as human sciences and ignoring scientific studies, the high rate of human death owned by the increased spread of HIV-AIDS in the country leading to a shortage in supply of key people such as medical care givers, teachers and production level skilled workers in the country, the large scale of skilled South Africans migrating abroad in search of better paying jobs, the poor deterioration of education standards in South Africa and the government push for job equality leading to business employing inadequately trained skills(Michael Nowak, 2006). The other factors affecting the real GDP of this country include the bank rates, in that the banks no longer charge a very high amount on the borrowing rates, increasing the amounts of loans taken by consumers that unfortunately end up being unpaid hence increasing the loan amounts of the country, this has seen the government slowly move into a face of wanting to discuss on increasing the borrowing rates and generally deeming the borrowing strategy as to reduce its amount of debts.. The value of the exchange rate of the rand has considerably gone low in the past years after the inflation owing to poor government fiscal plans and expenditure of finances. Poor payment of miners has seen recent wage strikes taking place reducing the amount of productivity hence affecting the real GDP negatively(reuters, 2014). Lack of proper governing policies on mining industry has also caused a decrease in the real GDP as it has seen some of the mines close down owing to ownership dispute as the government has wanted to increase the amount of revenue they subject on the owners of the mines. The Quantitative ease (QE) had a great effect on the real GDP of South Africa. The government took its money to bail out most of the organizations out of their debt and then in return they took this advantage to increase on their capital assets by selling out bonds. The government has however tried a lot to resolve this issues that affect the GDP of this country by for example continually increasing medical facilities and care given to all to avoid the spread of this deadly virus that is threatening its production. They have introduced sexual education for all school going children as to educate them on ways of contracting HIV-AIDS and the consequences of the disease upon their lives. They have tried to increase the amount of wage earned in each and every sector so as to increase the stimulation of employees and their productivity. They are trying at most to improve the education standards by restructuring the subjects that students ought to study to avoid this soft degree issue that has ripped them of producing quality scientific students. The government has further formed the National Development Plan (NDP) that has been set to achieve and help reduce inequality in resources distribution and eliminate poverty come the year 2030 (Manuel, 2013). Owing also to the new trade agreement of the BRICS (Brazil, India, China and South Africa) the real GDP is expected to be good as trade amongst these countries has improved, with South Africa taking a major share in all of this for the African continent. This agreement will help modify and diversify its economy(cooperation, 2013) . This agreement has seen South Africa agree to improving its infrastructure by construction of railway lines, improved bus routes across the major cities in the country and hence improving production of goods and services. The South African economy has a great way of expanding in production, vehicles manufacturing and assembly, tourism and agriculture. The elimination of all the factors that hinder its growth should see the economy flourish into a great achievable and admirable real GDP. References Bergsten, C.F. (2005) The United States and the World Economy: Foreign Economic Policy for the Next Decade, Peterson Institute. Briggs, P. (2012) Bradt South Africa Highlights, Bradt Travel Guides. cooperation, D.o.I.R. (2013) BRICS5, 26-27 March, [Online], Available: http://www.brics5.co.za/about-brics/. Dept., I.M.F.A. (2014) South Africa: Selected Issues Paper, International Monetary Fund. Edgar, R.R. (1990) Sanctioning apartheid, in Knight, R. Sanctions, Disinvestment, and U.S. Corporations in South Africa, Africa World Press. Feinstein, C.H. (2005) An Economic History of South Africa: Conquest, Discrimination, and Development, Cambridge University Press. Frank Musgrave, E.K. (2006) AP Micro Macro Economics(2E), 2nd edition, Barrons Educational Series. Fund, I.M. (2005) South Africa: 2005 Article IV Consultation - Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion, International Monetary Fund. Gerhart, G.M. (1994) The 1976 Soweto uprising, University of the Witwatersrand, Institute for Advanced Social Research. Jones, S. (2002) The Decline of the South African Economy, Edward Elgar Publishing. Kroon, G.E. (2006) Macroeconomics the Easy Way, Barrons Educational Series. Manuel, T. (2013) gov, [Online], Available: http://www.gov.za/issues/national-development-plan-2030. Michael Nowak, L.A.R. (2006) Post-Apartheid South Africa: The First Ten Years, International Monetary Fund. reuters (2014) voanews, 20 March, [Online], Available: http://www.voanews.com/content/mining-strike-impacts-south-african-economy/1875262.html. Roux, A. (2005) Everyones Guide to the South African Economy, Zebra. Usa, I. (2009) Us - South Africa Diplomatic and Political Cooperation Handbook, Intl Business Publications. Read More