The short story

The short story

Economics is about meeting the unlimited needs of people using the scarce resources available. Microeconomics looks at how individuals and firms solve this economic problem while macroeconomics looks at the aggregated situation – in particular issues such as Economic Growth, Employment and the general price level and the role that Governments play through Fiscal and Monetary policies. Lastly a country’s situation in relation to the rest of the world is also explored.

The longer short story

Economics is about meeting the more or less unlimited needs of people using the scarce resources available. The scarce resources are categorised as Land, Capital, Labour and Entrepreneurship. Microeconomics looks at how individuals and firms solve this economic problem while macroeconomics looks at the aggregated situation – in particular issues such as Economic Growth, Employment and the general price level and the role that Governments play through Fiscal and Monetary policies. The output performance of the National Economy is measured by many indices, the most important being the GDP and the general price level or inflation is tracked mainly by means of the CPI. Lastly a country’s situation in relation to the rest of the world is also explored. It is important to look at the effect of the exchange rate and balance of payments and foreign reserves on the overall trade of a country.

The even longer short story

Not only is Economics the social science that studies how individuals go about meeting the more or less unlimited needs of people using the scarce resources available. It also studies how societies utilise the scarce resources - Land, Capital, Labour and Entrepreneurship to produce and distribute the goods and services produced to the individuals.

While microeconomics looks at how individuals and firms solve the economic problem macroeconomics looks at the aggregated situation. Governments play a role in the economy through Fiscal and Monetary policies to achieve macroeconomic objectives –Economic Growth, Employment and stable price levels and an equitable, fair and just society. The last objective is to maintain the balance of payments and foreign reserves in the longer term.

The performance of a country is normally contained within a policy framework. In the case of South Africa it is essentially described in the National Development Plan. The plan and other policy documents sets out the growth targets as measured by the GDP and the policy of inflation targeting - a CPI of between 2% and 6% and other parameters.

Let us for a moment look at the Fiscal and Monetary policies that governments use. Fiscal policies are not in the normal state of affairs designed to steer the economy in any direction – but by its nature the policies of taxation and spending has a profound effect on the economy. Monetary policies on the other hand – though theoretically there is or should be an arms length relationship between the state and the central bank of a country – monetary policies, through the manipulation of the money supply and interest rate, has a more or less direct effect on the economic activities taking place in an economy.