QUESTION 1 (20 MARKS)

World food prices were already climbing, and the war made things worse, preventing some 20 million tons of Ukrainian grain from getting to the Middle East, North Africa and parts of Asia. Russian hostilities in Ukraine are preventing grain from leaving the “breadbasket of the world” and making food more expensive across the globe, threatening to worsen shortages, hunger and political instability in developing countries. Together, Russia and Ukraine export nearly a third of the world’s wheat and barley, more than 70% of its sunflower oil and are big suppliers of corn. Russia is the top global fertilizer producer.
Weeks of negotiations on safe corridors to get grain out of Ukraine’s Black Sea ports have made little progress, with urgency rising as the summer harvest season arrives. “This needs to happen in the next couple of months (or) it’s going to be horrific,” said Anna Nagurney, who studies crisis management at the University of Massachusetts Amherst and is on the board of the Kyiv School of Economics. She says 400 million people worldwide rely on Ukrainian food supplies. The U.N. Food and Agriculture Organization projects up to 181 million people in 41 countries could face food crisis or worse levels of hunger this year.
Using an AD-AS framework, explain how the Russian-Ukrainian war has affected the aggregate output, prices and income in most countries that rely on wheat from Ukraine. (20)
Question 2 (30 MARKS)

Read the IMF policy responses to covid-19 in South Africa extract below and answer questions that follow.
South Africa reported its first confirmed COVID-19 case on March 5, 2020. The government declared a national state of disaster, which at present extends to July 15 2021, and adopted containment measures, including social distancing, travel bans on visitors from high-risk countries and quarantine for nationals returning from those countries, screening at ports of entry, school closures, screening visits to homes, and introduction of mobile technology to

track and trace contacts of those infected. A nationwide lockdown was put in place from midnight March 26 2020, with only critical workers, transport services, banking, essential food and medicine production, and retail operating. On April 27 2020, a delegation of 217 infectious disease experts arrived upon the request of the government to support its health response to COVID-19.
The government assisted companies and workers facing distress through the Unemployment Insurance Fund (UIF) and special programs from the Industrial Development Corporation. UIF benefits, which had been extended until January 2021, were further extended until April 2021. Additional funds were made available for the health response to COVID-19, workers with an income below a certain threshold received a small tax subsidy for four months, and the most vulnerable families received temporarily higher social grant amounts until end- October 2020. A new temporary COVID-19 grant, created to cover unemployed workers that do not receive grants or UIF benefits, was extended through April 2021. The number of food parcels for distribution was increased and additional funds were allocated in the 2021 budget for public works programs. Funds were made available to assist SMEs under stress, mainly in the tourism and hospitality sectors, and small-scale farmers operating in the poultry, livestock, and vegetables sectors including a new 1.2 billion Rand Tourism Equity Fund announced in late January 2021. An official loan guarantee scheme was introduced to provide bank loans, guaranteed by the government, to eligible businesses to assist them during the pandemic with operational expenses. The scheme has been extended until July 11 2021 to allow loans already in process to be drawn and facilitate an orderly wind down. Allocations were made to a solidarity fund to help combat the spread of the virus, with assistance of private contributions, and support municipal provision of emergency water supply, increased sanitation in public transport, and food and shelter for the homeless. The revenue administration accelerated reimbursements and tax credits, allowing SMEs to defer certain tax liabilities, and issued a list of essential goods for a full rebate of customs duty and import VAT exemption. A 4-month skills development levy tax holiday was also implemented.

Applying your knowledge about fiscal policy and its instruments, discuss, in detail, the role of the South African government in relation to its response to the COVID-19 pandemic as highlighted in the case study above. (30)
NB: No marks will be awarded for simply reproducing information from the case study. Question 3 (40 MARKS)
South Africa faces two persistent concerns. The first of these relates to skills shortages, and
the second refers to the challenge of high levels of unemployment. The unemployment rate in South Africa is amongst the highest in the world and has remained consistently high throughout the post-apartheid period. Currently, the overall unemployment rate is estimated at 34.9 percent, while 33.5 percent (3.5 million) of young people aged 15–24 years are currently not in employment, education or training (NEET). Although South Africa’s high level of unemployment is not unique, it is compounded by skills shortages that result in a structural mismatch between labour demand and supply. This structural mismatch occurs because many of the skills shortages occur in the high-end skills market, while the majority of the employed and the unemployed have low-level skills.
Write a short essay on unemployment detailing the main types of unemployment as well as its impact on the citizens and the economy as a whole. Recommend policies that can be used to combat South Africa’s unemployment crisis. (40)

Answers to Above Questions on Economics

Answer 1: The impact of the Russian Ukrainian war is evident across the world economy, and its impact is significant on the economies that rely on Ukraine for their wheat requirements. The effect of this war can be understood with the help of aggregate demand- aggregate supply framework as follows:

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