Beruflich Dokumente
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Economics
Grade 10
Learners Book
Endorsed by the School of Economic and Business Sciences,
Faculty of Commerce, Law and Management, University of the
Witwatersrand, Johannesburg, in the interest of creating future
business and societal leadership, understanding and
knowledge.
J Luiz B Serfontein
e-ISBN: 978-1-4310-1737-9
Contents
1 Economics: Basic concepts............................................................. 1
2 Basic economic problem.............................................................. 17
3 Circular flow and quantitative elements....................................... 35
Circular flow.....................................................................................36
Quantitative elements......................................................................57
4 Business cycles............................................................................. 70
5 Dynamics of markets.................................................................... 87
6 Production possibility curve........................................................ 117
7 Public sector intervention........................................................... 137
8 Growth, development and globalisation.................................... 155
9 History of South African economic growth and development..... 176
10 History of money and banking................................................... 200
11 Population and labour force....................................................... 215
12 Unemployment.......................................................................... 232
13 Labour relations......................................................................... 251
14 Economic redress....................................................................... 268
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Economics:
Basic concepts
What will you learn about in this topic?
l
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k Do you think that being rich means that you have unlimited
Chec f resources?
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myse Name some resources that you think might be limited even when
you have a lot of money.
Word bank
ABC
Topic 1
Do you know about inflation? Think about how much things cost now
compared with three years ago. Can you still buy the same things with the
same amount of money as three years ago? Why do you think this is?
Questions like these are very important in economics. This is because
economics is also about the study of the causes and effects of and solutions to
inflation.
As a Grade 10 learner, you will soon be reaching the end of your school
career. Are you thinking about your future yet? What you do after you
matriculate is a very important decision because you must start preparing
yourself now for the labour market. In economics, people study the dynamics
of various markets, including the labour market (how it functions, how wages
are determined, etc.).
South Africa unfortunately has a very high unemployment rate. This means
that we have a very large number of people who are looking for jobs but
who cannot find any. Unemployment is one of the biggest challenges facing
South Africa. Economics studies the causes and effects of and solutions for
unemployment.
Can you now see how economics is about the issues that affect the quality of
life of yourself, your family and friends all South Africans in fact? So why
are you studying economics?
Economics should be studied by everyone. Some people can use economics to
make a real difference to the building of our economy and society. The study
of economics can help people to become better citizens. As a young South
African, you have a very important role to play in participating in and
contributing to the national debate about the challenges that face South Africa.
To contribute you must be economically literate.
Soon you will be eligible to vote, but voting is not just about choosing a
person or a party to vote for. It is about making well-informed decisions that
affect your own and other peoples futures. It involves understanding your
society and the issues that affect it. So, it means being able to make informed
and critical decisions about economic questions. As a voter, you can influence
which political leaders deal with the problems South Africa faces, and how.
Economics: Basic concepts 3
Your vote counts it says which policies you think are good, workable and
right for our situation. To identify the best policies, you will need a good
understanding of economics.
You also need economics to help you develop a better understanding of your
own actions as a human being. You are always making decisions, so you are
always making choices. Sometimes these choices are not easy or popular, and
sometimes the choices you make mean that you have to give up something
else. This means that the choices that you have made, or are still going to
make, involve a cost something is gained but something is lost.
So now that you know a little about the importance of economics in your own
life, lets think about what the study of economics is all about the what, who,
why and how of economics.
Every single human being has needs and
wants. Psychologists (the people who
study the way people think and act) say
that every person in the world has a need
for love, security and social recognition, as
well as a need for necessities such as food,
shelter and water. However, people have a
list of needs and wants that is usually
much longer than this list. As they get
older and change, their list of wants and
needs will also get longer and change. So
we can say that peoples needs and wants
are continually expanding and changing.
Limited resources
Unlimited needs
and wants
4
Topic 1
Because our needs and wants are unlimited and resources are scarce, we as a
society must make some very hard choices. We have to decide which needs
and wants and, importantly, whose needs and wants will be satisfied. We are
therefore not only facing the issue of economic efficiency but also the
problem of ensuring equality.
Economics can therefore be defined as the study of how individuals,
businesses, government and other organisations in our society choose to use
scarce resources to satisfy needs and wants in a manner that is efficient and
equitable.
Did you make a choice recently for which you had to give up
something?
(1)
(2)
Why do you think it is not possible for people to have all the
things they need and want?
(2)
Macroeconomics
Macroeconomics
Aggregate price level
Unemployment
Total level of production
Total level of exports
Economics
Microeconomics
Microeconomics
Individual prices
Unemployment in the
agricultural sector
Production of motor cars
Exports of gold
The study of economics can be divided into two main branches called
microeconomics and macroeconomics.
1. Microeconomics (micro means small) looks at the behaviour of the units
of an economy the businesses (firms), households and individual
consumers. It focuses on how these units make decisions. For example
why households prefer one product over another, or how businesses
choose to produce one product over another. Microeconomics focuses on
individual markets their products, prices and outputs.
2. Macroeconomics (macro means large), on the other hand, looks at the
behaviour of the economy as a whole, for instance the unemployment rate
or the inflation rate of an economy. Macroeconomics is not concerned with
what the individual units are doing.
Macroeconomics is like an aerial photograph of a landscape where the whole
picture can be seen, but the small details are invisible. But microeconomics is
like a walk through the same landscape details can be seen up close but the
big picture is hidden.
Sub-branches of economics
Labour economics
Public economics
Monetary economics
There are many other sub-branches in economics, but they are normally
classified within the broad categories of micro- or macroeconomics. There are
also many different kinds of specialised or expert fields of economics.
Examples of the sub-branches of economics include the following:
l Development economics focuses on the problems of poorer countries.
6
Agricultural economics
Topic 1
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(2)
8
Topic 1
world. Facts do not speak for themselves; they require interpretation. We may
have the same facts but they will mean different things to different people.
Whenever you see the words should or ought, you are probably looking at a
normative statement. And whenever economists move from facts or theories to
the policy level, they are probably moving from positive to normative economics.
Note that a positive statement can be wrong. A statement such as the
unemployment rate for South Africa was 3,5% in 2004 is a positive statement,
but it is wrong. The unemployment rate was much higher.
(2)
Topic 1
Accounting
Mathematics of finance
Economics
Commercial law
Business studies
Economics also forms part of the economic sciences that deal with commercial
subjects, such as accounting, business studies, commercial law and
mathematics of finance. A qualification in commerce usually requires you to
study these subjects, as well as economics.
The field of study for economics is much broader than that of the other
commercial subjects. This is because it involves the functioning of the
economic system, while other subjects deal with specific components of the
economic system.
Accounting involves recording financial transactions and reporting this
information according to certain standards in financial statements. Financial
statements are there to provide information on how well a business is doing
financially.
While an accountant is interested in the profits that the business makes, an
economist will consider issues such as the role of profits in the economy or
whether it is possible to produce the same amount of goods with less costs.
While an accountant will record the actual costs of the business, the economist
will be concerned with the forces that determine the cost of production, as
well as other factors such as pollution, which the accountant would not take
into account.
Much of the financial information provided by accountants is very useful for
economists, and many of the techniques developed by accountants are used
by economists too.
Business studies is concerned with the functioning of a business enterprise
and focuses on topics such as marketing, product development, management,
production methods and labour relations. Business studies teaches how a
business should be run and how the business world works.
The economy has an important impact on any business. For this reason
business studies learners would do well to study economics and understand
how the economy affects the survival of a business.
In economics, business enterprises play an important role in solving the
scarcity problem. This is because they produce the goods and services that we
use to satisfy our needs and wants. Economists therefore pay very close
attention to the behaviour of businesses in the economy. They analyse
elements such as the impact of tax policies on business, business confidence
and the competition between businesses.
Commercial law concerns the rules and regulations that govern commercial
or business transactions in the economy. These laws are part of the
environment in which an economy functions. For an economy to work well,
business contracts must be legally binding and honoured by both parties.
Economists are also interested in the effects and unintended results that laws
and regulations may have on the functioning of the economy. Competition
law, for example, is an area where economists are very active.
Mathematics of finance involves the use of applied mathematics to study and
solve problems relevant to the finance sector. The techniques developed in
this field are very important to economists. Not only because they study
financial markets extensively, but also because they use applied mathematics
in many other branches of economics.
12
(1)
(1)
(1)
Topic 1
when dealing with population, environmental issues and the use of natural
resources.
Career opportunities
Economics is a skill and discipline that is used in many different jobs. It can
open doors in business and finance you could work as an economist at one
of the big South African or international banks, or for any of our large
companies in tourism, mining, agriculture, pharmaceutics, insurance, etc. You
could even work in government to make public policy decisions or become
the future Minister of Finance. What about a career with one of the large
international development agencies, such as the United Nations, the World
Bank or the International Monetary Fund? Or you could teach economics at
school or university. What about becoming a financial journalist?
14
(3)
Topic 1
Homework activities
1
(2)
(4)
(2)
(2)
(2)
(2)
Extra practice
1
(2)
(2)
(2)
(2)
(4)
5
6
Summary
16
Topic 1
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Basic
economic problem
What will you learn about in this topic?
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Chec f Why is it so difficult for us to satisfy all of our needs and wants?
l Who are the important decision makers in the economy?
myse
Word bank
ABC
18
Topic 2
How will we
produce these goods
and services?
Who are we
going to produce
these goods and
services for?
Economics gives us the tools and knowledge necessary to make these kinds of
choices. It is about deciding how best to use the available resources to satisfy
as many needs and wants as possible. Economics is therefore concerned with
the study of choices and decision-making in a world that has very real limits.
Since we live in a world of scarcity, we have to make choices all the time.
Unfortunately, these choices are not always popular or easy to make.
(3)
(2)
20
Topic 2
For instance, imagine that you want a soccer ball and soccer boots, but you do
not have enough income to purchase both. If you choose to buy the soccer ball
instead of the soccer boots, then the cost of your choice is the soccer boots that
you gave up. Every choice we make involves giving something up, and this
something else or alternative is the cost of our choice. In economics this cost is
called the opportunity cost.
Because of the choices we are forced to make, we are always trading off
options and alternatives. For example, imagine that you have a test tomorrow,
and that you only have this afternoon to study. However, you would really
like to play soccer this afternoon, as you are trying to get on the school team.
You therefore face a choice if you choose to play soccer, you will have less
time to study, and you will probably get a lower grade for your test. If you
miss playing soccer you will have more time to study and will probably get a
higher grade, but you may not get a place on the soccer team. Your limited
resource of time therefore puts a constraint on what you can and cannot do.
Can you now see that you have to make decisions and choices all the time as
you try to manage your limited resources to satisfy your unlimited wants?
Economics takes this one step further by looking at how a society manages its
resources to satisfy its unlimited needs and wants.
Lets look at how these questions affect government. Government has to decide
all the time how to spend limited resources (the revenue that has been raised
through taxation). Decisions must be made on how to allocate this revenue
Basic economic problem 21
between competing needs, for example housing and education. They also have
to consider how it will influence how much is available for defence or health
care. As you know, the state cannot increase its spending on everything,
because there are limited resources available. This is what economics studies.
Economists can help government officials make these decisions because
economics provide the tools to quantify (measure) the costs and benefits of an
action, thereby making informed decisions about the best way forward.
A business also faces opportunity cost. Should it produce fried chicken pieces or
fried chicken burgers? How should it produce the goods and services? Should it
make use of more labour or more capital? If the business decides to produce
fried chicken pieces, the cost of doing that is not producing fried chicken burgers.
In economics the opportunity cost of any decision is the value of the best
alternative that is given up because of that decision.
It is not all the alternatives that are given up, but only that thing you really wanted
but chose not to have. Even if you are given something for free it does not mean it
did not cost something. We could have produced something else instead it is this
something else that is the cost of the goods or service you have received for free.
Can you see that opportunity cost differs from accounting costs? While the
accountant calculates what something actually costs in rand, the economist
estimates it in terms of the best alternative that was given up.
22
(1)
(2)
(2)
(2)
Topic 2
Consumer goods
Capital goods
Consumer goods
Consumer goods are the goods used by households to satisfy their wants,
such as food, cars, clothing and appliances. There are three main categories of
consumer goods:
l Non-durable goods are goods that can only be used once, such as food,
drink and petrol.
l Semi-durable goods are goods that can be used more than once but last
for a limited period, such as clothing and car tyres.
l Durable goods are goods that last for many years and include fridges,
stoves, furniture and cars.
Capital goods
Capital goods are used for the production of other goods. Capital goods are
not consumed to satisfy wants, but are used to produce other goods, e.g. the
Basic economic problem 23
machinery used for manufacturing or farming and the buildings used for
offices. They are very important goods because they allow people to produce
those goods that satisfy consumer wants and needs.
example of each.
(4)
(6)
3 Give examples of a consumer good, a capital good and a public good. (3)
Resources
Production
Consumer goods
24
Consumers
Topic 2
All goods and service need resources to be produced. These resources are
called the factors of production. Through the process of production, the factors
of production (the resources) are combined to produce goods and services. It is
possible to produce the same product by using different combinations of
factors of production. For example, a house can be built with bricks, wood,
straw, concrete or even glass. Different kinds of tools can also be used to build
this house; the mortar can be mixed by hand or by machines, for instance.
Sometimes a decision on how to produce something is easy it is not a good
idea to build a house with gold bars. But most of the time these decisions are
more complicated. Should the house be built with bricks, wood or concrete
blocks? Because the factors of production are scarce, these decisions are
important production must be efficient and use these resources effectively.
As you know, the more effectively and efficiently resources are used, the more
goods and services can be produced, and the more needs and wants can be
satisfied. So the efficient and effective use of the factors of production
contributes to economic growth and the wealth of an economy.
Factors of production
There are four main factors of production: natural resources, labour, capital
and entrepreneurial ability.
Natural resources include land, water, mineral deposits and the environment.
In other words, they are all the resources that exist naturally. Most natural
resources are limited, but with the aid of technology natural resources can be
made more efficient. For example, fertilisers have improved the quality of
land, making more land available for agriculture. Better drilling technology
has opened up oil deposits in frozen areas such as Alaska. Nevertheless, as
natural resources are limited (in fixed supply), the exploitation of natural
resources must be carefully considered. Over-exploitation can cause
environmental damage as well as long-term economic and human suffering.
Labour is the human effort that is put into the production of goods and
services, and includes both physical and mental work. For example, the
writing of this book took both physical work typing and mental effort
using the brain for research and creativity. When we talk about labour, we
need to separate it into the quality and the quantity of labour:
26
Topic 2
This is why different countries in the world specialise in producing certain
goods and services they try to use the factors of production available to
them as efficiently and effectively as possible. The aim of using available
resources efficiently is very important in any economy the more efficient an
economy is in using its factors of production, the more goods and services it
will be able to produce, and the more it will be able to satisfy the needs and
wants of its citizens.
Secondary sector
Tertiary sector
Activities extracting
natural resources from
nature
Examples:
Agriculture
Forestry
Fisheries
Mining
Stone quarries
Examples:
The manufacturing sector
Electricity, gas and water
Construction
Examples:
Trade
Transport
Storage and
communication
Finances and insurance
Community welfare and
local authority services
By comparing the production in the different sectors over the years, we can
see how production in South Africa has changed:
l Primary sector The contribution of this sector declined from 49% in
1911 to 8% in 2009. The decline in the contribution of agriculture is
particularly noticeable. The contribution of mining also shows a marked
decline from 1911 to now. However, in contrast to many other countries,
mining continues to play a major role in the South African economy
today.
l Secondary sector This sectors contribution increased significantly from
5% in 1911 to 22% in 2009. The contribution of the manufacturing industry
in particular shows a marked increase.
l Tertiary sector The contribution of this sector increased from 46% in
1911 to 69% in 2009.
Name the four factors of production and give an example of each. (8)
(3)
28
Topic 2
Not only goods are sold in markets and the service sector now makes up a
large part of many economies worldwide. In some countries the value of the
trade in services is more than that of goods. Examples of service sector
industries are tourism, banking and insurance. Can you think of any others?
A market economy is an economy dominated by buying and selling with little
interference from government. It uses markets to solve the economic problem
of what, how and for whom to produce. It is through the prices of goods and
services that the message of what to produce, how to produce and for whom
to produce is sent through the markets. And as you will see later, prices are
determined by demand and supply in a market.
Price changes are an important way that businesses decide on how much or
how little of a product they should produce. An increase in the price of a
product usually tells businesses to produce more of a product, but a decrease
in the price tells businesses to produce less. Likewise, price changes also tell
individuals and households if they should use more or less of a product.
Usually, an increase in the price of a product tells consumers that the product
is now scarcer, and that they should use less of it. A decrease in the price will
tell consumers to use more of a product.
(4)
How does the market for goods differ from the market for
services?
(2)
30
(3)
Topic 2
Is this sustainable?
Economics can create or limit opportunities for people, and for this reason
many believe that it should also be about promoting development. The overall
goal of development is to create a sustainable (continuing) living standard for
all. But development is slightly different from economics. Development
stresses a form of economics in which production is geared towards giving
people more choices and opportunities. It is about creating jobs, ensuring
good health and access to quality education, guaranteeing good nutrition and
thus restoring the dignity of all people.
economic wealth, thereby increasing the range of choices that people have.
Economics cannot make everything equal, but it can try to make sure that
everyone has access to resources to satisfy their basic needs.
32
(4)
Topic 2
Homework activities
1
(2)
(3)
(4)
Extra practice
1
a) Did you make a choice recently for which you had to give
something up?
b) What was it that you had to give up?
c) What is the opportunity cost of the choice you made?
(2)
(4)
Summary
34
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Who do you think are the major role players in the economy
(i.e. who makes important decisions in the economy)?
l How do you think the decisions by the major role players
impact on the economy?
l Why do you think it is important to measure the performance
of the economy?
l Who do you think is responsible for measuring economic
activity?
Circular flow and quantitative elements 35
Circular flow
What do I know already?
The basic economic problem
The basic economic question that all societies must answer is how to use their
scarce resources to satisfy their unlimited needs and wants. In a market
economy this answer is provided by making use of different markets in which
various participants play an important role.
Word bank
ABC
Circular flow is the flow of production, income and spending that take
place in an economy.
Households are groups of people that live together and make economic
decisions.
Business enterprises are the producers of goods and services.
The public sector consists of all levels of government and state-owned
enterprises.
Foreign sector are all the other countries in the world.
Savings is the difference between income and spending.
Investment is the creation of capital goods.
Income taxes are the taxes paid by households and business enterprises on
their income.
Exports are goods and services we produce and sell to the rest of the
world.
Imports are goods and services we buy from the rest of the world.
Factor market is the market where the factors of production are bought
and sold.
Real flows are the flows of physical goods, services and factors of
production.
Nominal flow is a flow of money.
Goods market is the market where goods and services are bought and
sold.
Aggregation is adding things together.
Financial market is the market where savings and loans occur.
Surplus units are the savers in the economy.
Deficit units are the borrowers in the economy.
36
Topic 3
Flow of factors of production is the flow of labour, capital, land and
entrepreneurship in the economy.
Flow of income is the flow of payment in the form of wages and salaries,
rent, interest and profits.
Flow of spending is the flow of spending on goods and services.
Flow of production is the flow of goods and services that are produced.
Leakages are any factors that decrease the flow of spending.
Injections are any factors that increase the flow of spending.
Households
Public sector
Foreign sector
The important decision makers in the economy are households, businesses,
the public sector and the foreign sector
38
Businesses
Topic 3
that are owned by people (households). These households own a firms capital
goods and have a right to its profit in the form of dividends.
Households make these factors of production available to the economy where
it is used to produce goods and services. In exchange for the use of the factors
of production, households receive an income in the following forms:
l Salaries or wages for their labour
l Interest on their capital
l Rent for natural resources such as agricultural land
l Profit from entrepreneurial activities.
The most important source of income for households in South Africa is the
wages and salaries they receive in return for their labour services. To earn an
income, households must therefore take part in the production of goods and
services. This is an important decision that households must make. The more
factors of production a household owns, and the more valuable the factors of
production, the higher the income of the household.
Households save
Savings is the difference between income and spending. The part of income
that a household does not spend is its savings.
There are different reasons why households save. Some households save for a
rainy day that is for those unforeseen events such as the car breaking down
or medical expenses. Sometimes households save for specific events
birthdays, graduations, holidays or for a deposit to buy a house. Another
important reason why households save, and should save, is to provide for an
income when working members retire.
(2)
(2)
(2)
(2)
What does Asanda do with the income she receives from ABC
Manufacturers?
(2)
(2)
Topic 3
In 2009, 61,39% of gross fixed capital formation (investment) in South Africa
originated from private business enterprises, which makes this a very
important sector of the South African economy. One may therefore expect
changes in the investment behaviour of private businesses to have a major
impact on the economy.
Looking back at our economic problem of what, how and for whom to
produce, businesses are responsible for the how to produce and they are
continuously searching for ways to make the production of goods and
services more efficient. This is important, because our resources are scarce
and we cannot afford to waste them.
(1)
(1)
(1)
Social services
Protection services
Economic services
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Topic 3
Foreign sector
Over the past few years the economies of different countries have become
much more integrated and dependent on each other and we see a much
higher level of interaction between countries. It can be said that the world is
increasingly becoming a global village where a change in one part of the
village affects many other parts of the village. Fundamental changes in trade
flows (the flow of goods and services between countries), financial flows (the
flow of money between countries), the exchange of technology and
information, and the movement of people between countries have led to this
increased level of integration and interdependence. The term globalisation
is used to describe this higher level of integration between countries.
South Africa is an open economy. This means that it does a lot of business
with the rest of the world, and international trade therefore has a very
important impact on the South African economy.
(2)
(2)
44
Topic 3
Savers
Financial institution
Borrowers
Surplus units or savers deposit their surplus funds with institutions in the
financial markets, such as banks. The institution then uses this surplus to lend
money to those deficit units that qualify for credit or a loan.
(1)
(1)
(1)
Businesses
Topic 3
households is called consumption spending. Businesses supply households
with goods and services. This is shown by the bottom dotted purple line in
the diagram. Businesses are therefore part of the flow of production.
This flow of spending by households and flow of production by businesses
take place in the goods market, which is the black circle in the diagram.
Note that the flow of spending is in the opposite direction of the flow of
production. The flow of spending is a monetary flow and the flow of
production is a real flow.
Households
Consumption spending
Figure 3.2: Monetary flow between households and businesses
Draw the simplified circular flow model and show what happens
with the flow of income and flow of spending if:
a) business enterprises increase their production
b) households increase their spending.
(4)
What happens to the real flows in the goods market and the
factor market if:
a) business enterprises increase their production
b) households increase their spending.
(4)
Businesses
Consumption spending
Savings
Figure 3.3: Leakages and injections
Investment is an injection
Investment is an injection and the financial market plays an important role
concerning this. The financial market channels the savings from households
(which are considered a leakage) to businesses in the form of loans, which
they then use to finance their investment spending. Investment spending is
the production of capital goods. As these goods are produced, more factors of
production are employed and the income flow to households increases.
Investment spending is therefore an injection into the circular flow, as it
increases the spending flow.
48
Injection
Leakage
Households
Investment
Topic 3
(6)
(4)
Taxes
Disposable income
Government spending
Injection
Government
Consumption spending
Savings
Figure 3.4: Circular flow between households, businesses and government
Businesses
Injection
Leakage
Households
Investment
Topic 3
Taxation is a leakage
Government needs revenue to finance its spending. It gets this revenue from
taxation. There are different kinds of taxes, of which income tax is the most
important. Before households can spend their income they must first pay their
taxes. The income that is left after they have paid their taxes is called their
disposable income.
Taxation decreases the income available for households to spend. In other
words, their disposable income decreases. So, there will be less income
available in the circular flow. And the lower the income flow, the lower the
spending flow and production flow. Taxation is therefore a leakage because it
decreases the income and spending flows in the economy.
Businesses
Figure 3.5: Circular flow between households, government and the foreign sector
52
Topic 3
l Government
l Foreign sector
Businesses also use the savings of households for investment spending, which
is an injection. This happens through the financial market. The higher the
investment, the higher the spending and income flows in the economy will be.
The government buys goods and services (textbooks, medicine and bricks for
instance) on the goods market. This buying of goods and services is part of the
flow of spending. Government then supplies households and businesses with
goods and services. These include police services, education, the defence
force, roads, etc. The more goods and services government buys, the higher
the spending, income and production flows in the economy. To pay for these
goods and services the government imposes taxes on households and
businesses. Taxation is therefore part of the flow of payments to government
and it is a leakage. The more taxes the government collects, the lower the flow
of spending, income and production in the economy.
The foreign sector buys goods and services on the goods market and it is part
of the spending flow of goods and services called exports. If foreign countries
buy more goods and services from South Africa, our exports increase and
consequently the flows of spending, production and income in the economy
increase. Exports are therefore an injection into the spending, production and
income flow.
Businesses
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