Covid-19 had Caused Drastic Increases in Government Spending - Economics Assignment Help

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Essay Topic

Covid-19 had caused drastic increases in government spending and government debt across the globe in an effort to stimulate aggregate demand the economies as a whole. Recently there is a growing interest in the new theory called the Modern Monetary Theory (MMT). The theory explains that rising budget deficits are good economies as long as increased government spending does not lead to inflation. Furthermore, this theory promotes rising government debt as means of supporting government spending. As noted by Stephanie Kelton in her book “The Deficit Myth”, governments can fund this spending and servicing of debt through printing money. As such, all the spending could, in principle, be financed via the creation of cash rather than taxes. Taxes may serve other purposes such as providing public services. In relation to the above, use the multiplier model (or other models such as the IS-LM and AS-AD models) and critically analyse the effectiveness of MMT in South Africa. Furthermore, give your own policy recommendations of how the South African economy can grow post the COVID-19 pandemic. With reference to the above, you are required to write an essay which answers the following questions:

a) Provide a brief review of the theoretical literature and empirical literature (where applicable) on MMT. (30%)

b) Explain the impact of MMT on the South African economy. (40%)

c) Collect data on South Africa’s over the period 2000-2020 for the following variables:

• Revenue as a share of GDP (Gross Domestic Product)

• External debt stock as a share of GNI (Gross National Income)

• Gross savings as a share of GDP

• Gross national expenditure as a share of GDP

• GDP growth Present this data on a Table. Then plot external debt, gross savings and GDP growth on a graph and discuss their evolution over time. Furthermore, briefly discuss the current state of the economy based on these variables. (20%) d) Provide a policy recommendation for South Africa. (10%)

Note: Data is available from the World Bank Development Indicators Dataset. http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators# SCHOOL OF ECONOMICS:

ECO2004S COURSE ESSAY GUIDELINE 2021 Suggested Readings 1. Chohan, U. W. (2020). Modern Monetary Theory (MMT): A General Introduction. 2. Edwards, S. (2019). Modern monetary theory: Cautionary tales from Latin America. Cato Journal, 39(3), 529-562. 3. Juniper, J., Sharpe, T. P., & Watts, M. J. (2014). Modern monetary theory: contributions and critics. Journal of Post Keynesian Economics, 37(2), 281-307. 4. Kotilainen, K. (2021). A Cosmopolitan Reading of Modern Monetary Theory. Global Society, 1-24. 5. Palley, T. I. (2015). Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory. Review of Political Economy, 27(1), 1-23.

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