Question 1 (Marks: 20)
Multiple-choice questions: Select one correct answer for each of the following. In your answer booklet, write down only the number of the question and, next to it, the number of the correct answer.
Q.1.1 Which of the following statements is correct? (2)
(a) Imports represent an injection into the circular flow while exports represent a withdrawal from the circular flow.
(b) A closed economy is one in which anyone is free to participate.
(c) Firms purchase in the factor market and sell in the goods market while households purchase in the goods market and sell in the factor market.
(d) Consumption is a stock variable.
Q.1.2 Spending on capital goods is called capital formation or _______________, and this is primarily undertaken by _________________ in the economy. (2)
(a) Investment; households;
(b) Capital accumulation; households;
(c) Investment; firms;
(d) Capital accumulation; firms and households.
Q.1.3 In the event of high levels of inflation, the government can: (2)
(a) Implement a restrictive fiscal policy by raising interest rates;
(b) Implement a restrictive fiscal policy by decreasing interest rates;
(c) Implement a restrictive fiscal policy by raising tax rates and decreasing government expenditure;
(d) Implement a restrictive fiscal policy by decreasing tax rates and increasing interest rates.
Q.1.4 Which of the following represent injections into the circular flow of income and spending? (2)
(a) Investment and exports;
(b) Government spending and taxation;
(c) Government spending and imports;
(d) Investment and imports.
Q.1.5 Which of the following represent stock variables? (2)
(a) Wealth, saving and unemployment;
(b) Gold reserves held by the South African Reserve Bank and investment;
(c) Income, profit and investment;
(d) Wealth, assets and liabilities.
Q.1.6 If total output (production) remains the same and all prices double, then real Gross Domestic Product (GDP): (2)
(a) Is constant and nominal GDP doubles;
(b) And nominal GDP are both constant;
(c) Is constant and nominal GDP is reduced by half;
(d) Doubles and nominal GDP is constant.
Q.1.7 An appreciation of the rand against the dollar: (2)
(a) Will worsen the current account balance but domestic prices will fall;
(b) Will improve the current account balance but domestic prices will rise;
(c) Will improve the current account balance but domestic prices will fall;
(d) Will worsen the current account balance but domestic prices will rise.
Q.1.8 The __________ is a quantitative measure of the degree of inequality in the distribution of income. (2)
(a) Lorenz curve;
(b) Consumer price index;
(c) Gini co-efficient;
(d) Business cycle.
Q.1.9 From a firm’s perspective, the lower the interest rate: (2)
(a) The higher the expected return on investment;
(b) The higher the expected profits;
(c) The lower the expected profits;
(d) The lower the expected return on investment.
Q.1.10 In the Keynesian macroeconomic model, the equation for the savings function is given as: S = -420 + 1/4Y. Based on this information, which of the following statements is correct? (2)
(a) The marginal propensity to consume is ¼;
(b) The level of autonomous savings is 420;
(c) At an income level of R1 000, the value of savings is 250.
(d) At an income level of R1 000, the level of savings is -170.
Question 2 (Marks: 30)
Q.2.1 The theory of the demand for money is based on John Keynes’ Liquidity Preference Theory.
Give your own detailed explanation of liquidity preference theory and how the demand for money curve is determined. Illustrate your answer graphically.
Note: You should include in your answer a detailed explanation of each
component of the demand for money as well as the determinants of these
Q.2.2 Your prescribed text explains that the money stock (M) can be determined endogenously or exogenously (i.e. there are two different approaches to determining the value of M).
Explain which approach is used in the South African macroeconomy. (5)
Question 3 (Marks: 15)
Conduct your own research on the 2018/ 2019 budget and fiscal policy in South Africa. Provide your own detailed analysis of the fiscal policy.
Structure your answer as follows:
The balance between income received by government and the level of government expenditure (2);
Changes made to the tax structure, reasons for the changes and whether the changes are ideal in a South African context (5);
Specific areas of focus for government spending and reasons for this (5);
Forecast in terms of economic outlook (3).
Question 4 (Marks: 15)
The information below relates to a closed economy without a government. Use the information to answer the questions that follow:
Autonomous consumption = R285 million;
Autonomous investment = R300 million;
Marginal propensity to consume = 0.4.
Q.4.1 Calculate the level of autonomous spending. (3)
Q.4.2 Calculate the size of the multiplier. (3)
Q.4.3 Calculate the equilibrium level of income. (2)
Q.4.4 Suppose that the equilibrium level of income is 1 000 and it is below the fullemployment level of income of 1 200.
Calculate the change in investment spending required to reach full employment. (3)
Q.4.5 Discuss the relationship between total income and total spending in the macroeconomy according to Say’s law. (4)
Question 5 (Marks: 10)
One of the major objectives of any macroeconomy is economic growth as measured by a country’s GDP. In fact, GDP is one of the most important indicators of the performance of an economy and is the central concept in the national accounts.
Investigate South Africa’s real economic growth rate in 2018 and answer the following questions.
Q.5.1 Explain briefly what the national accounts are. (2)
Q.5.2 Argue whether the real rate of growth in South Africa is acceptable. (3)
Q.5.3 Briefly explain whether you consider real GDP a better measure of economic growth than nominal GDP. (2)
Q.5.4 Research and provide suggestions for how economic growth can be improved in South Africa. (3)
Question 6 (Marks: 10)
A successful government campaign aimed at advertising South Africa as an excellent holiday destination for European travellers leads to an influx of tourists from Britain.
Graphically illustrate and explain the impact of this increase in tourists on the Rand/ British Pound exchange rate.