Answer to Question #125509 in Macroeconomics for Kalahari

Question

Indicated which two instruments are used by government to influence the spending within the South Africa economy, use examples to explain how each instrument is used.?

Answer 1

The two instruments that can be used by government to influence spending within the South Africa economy are:

1. Government expenditure- An example is government consumption, investment and transfer payments.They are used in order to reduce the savings in the economy hence increase interest rates.
2. Taxation - tax rates can be raised or lowered to influence economic output.Taxes also finance government spending.The adjustment of taxes affect the average consumers income and changes in consumption lead to changes in real GDP.