FINAL ONLINE SUMMATIVE ASSESSMENT

Bachelor of Public Administration

Bachelor of Business Administration

Bachelor of Commerce in Accounting

Bachelor of Commerce in Retail Management

Bachelor of Commerce in Project Management

PROGRAMME Bachelor of Commerce in Entrepreneurship

Bachelor of Commerce in International Business

Bachelor of Commerce in Marketing Management

Bachelor of Commerce in Financial Management

Bachelor of Commerce in Supply Chain Management

Bachelor of Commerce in Information and Technology Management

MODULE Economics 1B
YEAR One (1)
INTAKE July 2023 Semester 2
DATE 20 May 2024
SECTION A [100 MARKS]
Answer ALL the questions in this section.
Type ONLY the letter that represents the correct answer next to the corresponding number in your
online answer booklet. E.g. 26 B

QUESTION 1 (4 Marks)
Consider a scenario where the government is implementing a policy to increase the minimum wage
nationwide. Which of the following aspects of the policy discussion is NOT a macroeconomic topic?
A. The potential impact on the unemployment rate in South Africa.
B. How Woolworths will adjust their hiring practices in response to the wage increase.
C. The effect of the policy on aggregate demand and inflation in the economy.
D. Analysis of the distributional effects of the increase in minimum wages on different income groups.

QUESTION 2 (4 Marks)
Assume that the central bank has successfully maintained price stability for the past decade, with inflation
rates averaging around 2% annually. Despite fluctuations in global oil prices and occasional supply shocks,
the country has managed to keep its overall price level relatively constant. Based on this scenario, which of
the following statements is most likely to be true regarding the impact of price stability on the economy of this
country?
A. Businesses in this country frequently adjust their prices in response to changes in demand and
supply.
B. Consumers in this country experience unpredictable and significant fluctuations in the prices of
essential goods and services.
C. This country faces persistent periods of high inflation and deflation.
D. The environment in this country fosters investor confidence, encourages long-term planning, and
supports sustainable economic growth.

QUESTION 3 (4 Marks)
If South Africa is currently trading at R18/$, a trade balance deficit of R12 billion could lead to:
A. A change in the value of the currency to R16/$
B. A change in the value of the currency to R20/$
C. A change in the rate of unemployment from 25% to 22%
D. An increase in foreign direct investment
QUESTION 4 (4 Marks)
Use the diagram below to answer the question:

Which of the following statements is TRUE?

A. Arrow 1 represents flow of goods and services and Arrow 2 represents expenditures incurred
B. Arrow 3 represents revenue earned and Arrow 4 represents flow of goods and services
C. Arrow 5 represents the income earned by the factors of production and Arrow 6 represents flow of factors of
production
D. Arrow 7 represents the income earned by factors of production and Arrow 8 represents the flow of factors of
production

Read the following statement and answer questions 5 and 6.

“In Year 1, the Nominal GDP for a given country is $8700 and the Real GDP is $8000. In Year 2, the Nominal GDP for this
country is $9000 and the Real GDP is $8300”.

QUESTION 5 (4 Marks)
The two figures in Year 1 differ because:
A. $8000 accounts for inflation, while $8700 does not.
B. $8000 includes the value of all intermediate goods, while $8700 excludes them.
C. $8700 is adjusted for population growth, while $8000 is not.
D. $8000 may be used for international comparisons, while $8700 billion may be used for domestic
assessments.

QUESTION 6 (4 Marks)
Despite the increase in GDP from Year 1 to Year 2, which of the following statements best exemplifies why
the country should be cautious when using GDP as a measure of economic growth?
A. $8300 does not account for the value of services, only goods.
B. The change in GDP from $8000 to $8300 accurately reflects income distribution within a country.
C. $8300 includes only the formal economy, excluding informal economic activities.
D. GDP is unaffected by changes in government policies.
QUESTION 7 (4 Marks)
In a certain country, policymakers are analysing the factors influencing the demand for money within the
economy. The following interest rates and inflation rates are observed over a period of 2 years:

Year Interest Rate (%) Inflation Rate (%)

Year 1 6 3

Year 2 8 2

However, it is observed that the demand for money remains relatively stable. This could be because:
A. The transaction motive increases as many individuals prefer to hold cash for everyday transactions and
emergencies.
B. The precautionary motive decreases as businesses hoard cash reserves to take advantage of investment
opportunities when interest rates are favourable.
C. The speculative motive increases as consumers increase investments in stocks and real estate due to
expectations of high returns.
D. The portfolio motive increases as the government implements expansionary monetary policies to stimulate
economic growth.

QUESTION 8 (4 Marks)
If a small island community primarily engages in barter trade, exchanging goods and services directly without
using any form of currency, and the government introduces a new currency, facilitating easier exchange
between community members, which function of money will be affected by this scenario?
A. Store of value function
B. Medium of exchange function
C. Unit of account function
D. Standard of deferred payment function

QUESTION 9 (4 Marks)
The South African government recently announced measures to address rising inflation and stabilize the
currency. In response, the South African Reserve Bank (SARB) implemented monetary policies to achieve
these objectives. Which of the following situations best exemplifies one of the functions of the SARB in this
context?
A. SARB reduces interest rates to encourage borrowing and investment, aiming to stimulate economic
growth.
B. SARB decreases the reserve requirements for commercial banks, aiming to reduce the money
supply and control inflation.
C. SARB intervenes in the foreign exchange market to stabilize the value of the South African rand
against other currencies.
D. SARB establishes regulations to ensure the stability and integrity of the banking and financial
system.
Read the following statement and answer questions 10 and 11.
“According to a recent survey, majority of South Africans expressed support for the privatization of Eskom.”

QUESTION 10 (4 Marks)
Which of the following may be a reason for this sentiment?
A. To increase government control and accountability
B. To reduce private sector competition
C. To enhance efficiency and reduced corruption
D. To preserve national sovereignty and resources

QUESTION 11 (4 Marks)
What could be a potential downside of the privatization of Eskom?
A. Increased government control over electricity pricing
B. Improved efficiency in electricity production and distribution
C. Reduced access to affordable electricity for low-income households
D. Enhanced competition leading to lower prices for consumers

QUESTION 12 (4 Marks)
In response to rising unemployment rates during an economic downturn, a government considers
implementing various intervention instruments. Which of the following would be most effective in stimulating
job creation and economic activity?
A. Increasing interest rates
B. Implementing targeted subsidies for small businesses
C. Reducing public spending
D. Privatizing state-owned enterprises to reduce government involvement in the economy.

QUESTION 13 (4 Marks)
If a country is experiencing a shortage of affordable housing, which approach would be most aligned with the
principles of the free market school of thought?
A. Implementing government subsidies for low-income housing
B. Establishing rent control regulations to limit rental prices
C. Nationalizing the housing industry to ensure equal access to housing
D. Allowing market forces to determine housing prices and quantities
QUESTION 14 (4 Marks)
When a country's central bank lowers interest rates to stimulate economic growth during a recession, but
investment and consumer spending remain stagnant, the economy might be experiencing a phenomenon
known as ________:
A. Hyperinflation
B. Stagflation
C. Liquidity trap
D. Fiscal austerity

QUESTION 15 (4 Marks)
In the recessionary phase, the economy is most likely to experience ______:
A. A shift of the Aggregate Demand (AD) curve to the left.
B. A shift of the consumption curve to the right.
C. An upward shift of the investment expenditure curve.
D. A shift of the Aggregate Demand (AD) curve to the right.

QUESTION 16 (4 Marks)
In a hypothetical economy, a government implements a policy to increase household incomes through tax
cuts. How would this policy affect the consumption function?
A. The consumption function would shift downward due to decreased consumer confidence.
B. The consumption function would shift upward due to increased disposable income.
C. The consumption function would shift to the right due to decreased consumer savings.
D. The consumption function would shift to the left due to reduced government spending.

Refer to the diagram below and answer the question that follows:

QUESTION 17 (4 Marks)
The shift of the consumption function from C1 to C2 indicates:
A. An increase in autonomous consumption.
B. A decrease in autonomous consumption.
C. An increase in the MPC.
D. A decrease in the MPC.
Read the following statement and answer questions 18 and 19.
Assume a country experiences persistent increases in the prices of goods and services over an extended period.

QUESTION 18 (4 Marks)
Which of the following would be the most likely consequence of this situation?
A. Reduced purchasing power for consumers
B. Increased savings rates among households
C. Expansion of business investment in the economy
D. Decline in unemployment rates due to higher wages

QUESTION 19 (4 Marks)
Where on the business cycle is the country expected to be?
A. Recessionary phase
B. Expansionary phase
C. Peak phase
D. Trough phase

QUESTION 20 (4 Marks)
During demand-pull inflation, the Aggregate Demand (AD) curve shifts _____ leading to _____.
A. Leftward; an increase in output and employment
B. Rightward; a decrease in prices and wages
C. Rightward; an increase in prices
D. Leftward; a decrease in consumer spending and investment

QUESTION 21 (4 Marks)
Technological advancements have led to the automation of many manufacturing processes, resulting in job
losses for factory workers. Which type of unemployment does this situation illustrate?
A. Frictional unemployment
B. Cyclical unemployment
C. Seasonal unemployment
D. Structural unemployment
QUESTION 22 (4 Marks)
In a manufacturing plant, additional workers are hired to increase production output. However, as more
workers are added beyond a certain point, the increase in output per additional worker declines. What
economic concept does this scenario best illustrate?
A. Economies of scale
B. Comparative advantage
C. Diminishing returns to labour
D. Price elasticity of demand

QUESTION 23 (4 Marks)
Which of the following is an example of a pro-growth argument?
A. Implementing strict environmental regulations to protect natural resources
B. Advocating for higher taxes on corporations to redistribute wealth
C. Enforcing price controls to prevent inflationary pressures
D. Investing in infrastructure projects to stimulate economic development

QUESTION 24 (4 Marks)
Country X can produce 10 cars or 20 computers per unit of labour, while Country Y can produce 8 cars or 16
computers per unit of labour. How does the concept of absolute advantage best apply to these countries?
A. Country X should focus on producing computers, as it has an absolute advantage in car production.
B. Country Y should specialize in producing cars, as it has an absolute advantage in car production.
C. Both countries should produce cars and computers in equal proportions to maximize efficiency.
D. Both countries should adopt protectionist policies to maintain domestic production levels.

QUESTION 25 (4 Marks)
In a globalized economy, Country A's currency experiences a significant depreciation against Country B's
currency. How might this impact the economies of both countries?
A. Country A may experience increased demand for imports, leading to a trade deficit, while Country B
may see a boost in export competitiveness and a trade surplus.
B. Country A may witness a rise in export competitiveness and a trade surplus, while Country B may
face reduced export demand and a trade deficit.
C. Both countries may encounter decreased consumer spending and investment, leading to economic
contraction and recessionary conditions.
D. Country A may implement capital controls to stabilize its currency, while Country B may pursue
aggressive monetary policy to stimulate economic growth.

END OF PAPER