ECON 512 Assignment

Question 1

Counting the cost of state capture

State capture is estimated to have cost South Africa upwards of R100bn. Some economists say the actual figure is much higher, and the devastation wrought on the economy far worse than previously thought. Declining public service and the announcement of South Africa’s tailspin into recession can be blamed on government’s lack of honesty‚ accountability and state capture.

Looting of public or state owned enterprise has led to critical economic challenges in South Africa lately. Inflation and unemployment have dominated the country’s economy as a result of state capture.

• According to you own understanding , define state capture [5]
• How has state capture affected the poor in South Africa? Your answer should be economically based. [Hint: Equitable distribution of income]                                                         [10]
• South African economic growth has not been performing well due to this state capture. How has state capture obstructed the country’s economic growth and development? Discuss critically [20]
• Corruption and political instability are also parts of state capture. How have they impacted on international investment? [10]

Question 2

The Phillips curve relates the rate of inflation with the rate of unemployment. The Phillips curve argues that unemployment and inflation are inversely related.

2.1 During which period is inflation and unemployment inversely related?                             [2]

2.2 Graphically demonstrate this inverse relationship between inflation and unemployment. Make use of at least two current practical situations from South Africa.                                     [20]

2.3 Use aggregate demand and aggregate supply to explain the inverse relationship between inflation and unemployment.                      [8]