The Multiplier Effect

From the above then we can conclude that:- The multiplier effect is using the principle that says spending by one person becomes the income of the next person, which then becomes that person‘s spending, which turns into the income of yet another person.

2.2

∆Y=1/(1-c)(∆I) where c = marginal propensity to consume ∆I = initial change in investment spending

∆Y=1/(1-c)(∆I)

=(1/(1-0,6))x(R20 billion) =(1/0,4)x (R20 billion) = 2,5 x R20 billion = R50 billion.

2.3

Y₀=1/(1-c)(C̄+Ī)

Where C̄ = R500 million C = 0,6 Ī = R800 million

Y₀=1/(1-c)(C̄+Ī)

=1/(1-0,6)(R500 million + R800 million) =1/0,4(R1300 million) = 2,5 × R1300 million

Y₀ = R3250 million

Question 3

3.1 Y₀=1/(1-c)(Ā) Where Ā = R800

So we can say disposable income is the after-tax amount of money available for spending and saving.

Question 5

Yes it can be used. Because the Phillips curve relates the unemployment rate to the inflation rate.

Stagflation refers to a situation where there is a simultaneous increase in inflation and unemployment. This is the period where inflation and unemployment increase at the same time.

So from the graph below the original Phillips curve is indicated as PP. Let’s suppose that the economy starts off at point A with an inflation of 6 percent and the unemployment of 5 percent. Imagine that then for one reason or another there is increase in import prices, a significant rate increase in the wages, then the Phillips curve shifts to PⁱPⁱ. As a result the economy will move to Point B with a higher inflation rate of 9 percent. And a higher unemployment rate of 8 percent than previously.

We can see that on the new Phillips curve PⁱPⁱ there is a trade-off between inflation and unemployment, with all the possible combinations are worse than before. So we can see that in the Phillips curve stagflation is illustrated by the rightward shift in the of the

Cyclical unemployment happens when people are laid off because there is less demand for people with their expertise. This kind of unemployment happens when there is recession. During recessions, the demand for houses, cars and other durable products decreases. Workers in these industries lose their jobs until there is an increase in demand again.

Seasonal unemployment happens when workers are required for certain periods in a year when the demand for their expertise is high. I remember when I worked for Metal and Engineering Bargaining Council (MEIBC), employees that were working in the Air-conditioning Sector would be laid off during winter because there was less demand for air-conditioners but they will be re-hired again in summer when the demand is higher.

Structural unemployment happens mostly when there is technological changes or improvement in the workplace. I am reminded of Dick Wittington Shoes in Pietermaritzburg in the early 1990’s where many people retrenched because there was a new technology or new technique that was introduced in the factory and there was a new way of producing shoes. This sort of unemployment also happens when the company is relocating from one country to the