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What Is Economic Growth?

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1 Economic growth

Economic growth is defined as an increase in an economy’s production of goods and services over a period of time. Economic growth is measured by the country’s Gross Domestic Product (GDP). The economic growth is generally expressed as a percentage either per quarter or year and is adjusted for inflation. The ideal range for GDP growth that is sustainable is between 2% and 4% per annum. At these levels of growth an economy can stay in the expansion phase of the business cycle for longer which stimulates employment growth. The growth rate depends on the size of economy. The smaller the economy the larger its growth rate due to the smaller growth base (Spaulding, 2015). The ideal growth rate for South Africa is 7% and by applying …show more content…

An increase in demand in the short run will create an increase in economic growth. Any spare capacity in the economy will increase aggregate demand which will turn increase real GDP. The formula AD is as follows: In order to increase AD the 2015 budget must increase all factors listed above with the exception of imports which must be reduced.
2.1.1 Consumer spending

The 2015 budget saw an increase in both direct and indirect taxes. An increase in taxes will reduce consumer spending because people will have lower disposable income to spend. The direct income taxes increased by 1% across all tax brackets with exception of people who earn less than ZAR181 900. The introduction of electricity levy at 2c per kilowatt, increase in fuel levy of 5.1%, the increase in transfer duty from 8% to 11% on properties over ZAR2.2 million will definitely reduce consumer spending.
A decrease in the transfer duty for properties under ZAR750 000 may increase property purchases in that segment which will positively impact growth.

2.1.2 …show more content…

High unemployment rate affects economic growth. The economy is at full employment when the unemployment rate is equal to the economy 's natural rate of unemployment, which is also when economic output is at a maximum (Spaulding, 2015). Unemployment is at 25% as of the second quarter of 2014. It is a key driver to economic growth and South Africa greatest challenge. Employment tax incentives, enterprise development and skills delevopment programmes are some of the measures put in place to reduce unemployment. The following are some of the budgeted for the next 3 years:
- ZAR2 billion for manufacturing development incentives and service industries;
- ZAR5.4 billion to manufacturing competitiveness enhancement and provide financial assistance to 1 450 companies;
- The Jobs Fund will spend R4 billion in partnership with the private sector on projects that create new employment, support work-seekers and address structural constraints to more inclusive growth.
The successful implementation of these programes will reduce unemployment and stimulate growth.

4 Funding for the budget under the challenging current economic

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