3.1 Answer the following questions - NSC Economics - Question 3 - 2023 - Paper 2

Tourism contributes positively to GDP in two significant ways:

1. Direct Contribution: Tourism directly adds to GDP as it generates income through spending on leisure, accommodation, and related goods and services by both residents and non-residents.

2. Indirect Contribution: It indirectly supports GDP by stimulating demand for local suppliers of goods and services. For instance, purchasing from local vendors and hiring staff for restaurants and accommodations enhances overall economic activity.

The inflation rate exceeded the inflation target in July 2022.

One possible reason for the increase in the inflation rate in 2022 is the increase in international oil prices, which subsequently raised transport costs and influenced the prices of goods and services.

Core inflation is a measurement of inflation that excludes certain items that face volatile price movement, specifically food and energy prices. This provides a clearer view of long-term inflation trends and underlying price movements.

The South African Reserve Bank may reduce interest rates when inflation is below 3% to:

1. Stimulate Aggregate Demand: Lower interest rates encourage consumer spending and investments, which can help revitalize the economy.

2. Encourage Borrowing: Reducing rates makes borrowing cheaper, thus fostering economic activity and growth.

Inflation influences economic participants psychologically in several ways:

1. Consumer Confidence: High inflation may erode consumer confidence, leading individuals to save more and spend less, affecting overall demand and economic performance.

2. Behavior of Businesses: Companies may increase prices of goods and services in anticipation of rising costs, which can perpetuate inflationary pressure and reduce consumer purchasing power.