Answer to Question #251850 in Macroeconomics for renlove

Question

A stimulus package worth R500 billion was designed and by government of South Africa in 202 to keep businesses and households afloat. If the marginal propensity to consume equals 0.75, and R500 billion equals to the change in government spending (∆�), how does change in government affected output and employment? [7 marks] Do you think the size of the multiplier is justifiable in the context of South Africa? [3 marks]. 

Answer 1

Based on Keynesian economics principles, the goal is to increase aggregate demand through increased employment, consumer spending, and investment.

According to the Keynesian principles of economics, an increase in government spending leads to an increase in output. This is because of an increase in aggregate demand which results from increased investments, increase in consumer spending, and increase in employment opportunities. A stimulus package from the government means that the government is injecting funds to the economy to save the nation from effects of recession or potential recession.

The size of multiplier is justifiable to the South Africa nation. Most of South Africa has structural characteristics that are friendly to fiscal shock and notable temporary policy that are friendly to make multiplier suitable for the South African economy.