UNIVERSITY EXAMINATIONS

May/June 2020

ECS1601
ECONOMICS 1B

100 Marks
Duration: 2 Hours 50 Minutes

EXAMINERS:
FIRST: MR MT MALATJIT
SECOND: MS CJ VAN ZYL

This paper consists of 20 pages.

Instructions:

(1) The paper comprises one section consisting of 60 questions that must all be answered and
submitted online. Each question count for 1 2/3 marks, and thus the paper carries a total of 100
marks.

(2) The answers to the examination MCQ may only be submitted online. Detailed instructions are
provided in Tutorial Letter ECS1601/103/1/2020 and/ or student guide for Full MCQ on
Assessment Info Tool v4.

(3) You will receive a special alternative (portal) link, via email, for uploading the answers. Only
use this link if you’re failing to submit with the steps provided in Tutorial Letter
ECS1601/103/1/2020 and/ or student guide for Full MCQ on Assessment Info Tool v4. The
portal will only be available after one hour of the start of the exam session and each student
has only one opportunity to access it.

(4) If you experience any problems when submitting your answers, please send an email to
bugmaster@unisa.ac.za and provide a Screenshot of Error Message.
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1. Which of the following is/are correct regarding the distinction between macroeconomics and
microeconomics?

a) Salaries paid to Checkers employees [MICRO] is an example of a macroeconomic variable.

b) An import by Auto Spares [MICRO] of a new machine for painting cars is an
example of a microeconomic variable.

[1] only a is correct

[2] both a and b are correct
[3] only b is correct
[4] both a and b are incorrect

2. Which of the following is incorrect regarding factors of production/RESOURCES?

[1] Labour includes the efforts, abilities, and skills of people in the production of goods and
services.
[2] An entrepreneur is a risk taker in search of profits and does something new with existing
resources.
[3] A minibus taxi used by hotel to transport its guest from and to airport is an example of capital.
[4] Money is an important part of production factors, and without money, firms will not be able
to produce goods and services.

3. Which of the following is NOT a scarce production input?

[1] land available for residential housing

[2] factories that produce fabric masks
[3] money to buy tools and pay workers
[4] people available to work or start a business

4. The circular flow of income and spending reveals that an increase in South African exports will…

[1] increase spending on South African imports by more than the spending on exports.
[2] increase income to South African economy and increase income to South African producers
of goods and services.
[3] increase income to foreign firms and increase income to foreign factors of production.
[4] decrease output and income in the rest of the world.
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5. Which of the following statements about stock and flow variables is/are true?

a) Interest earned is a flow variable.

b) The number of people who enter the unemployment pool is a stock variable.

[1] both a and b are correct

[2] only b is correct
[3] a is correct and b is incorrect
[4] both a and b are incorrect

6. Given the following information in the table, which option is correct?

Coins R60 000

Notes R150 000
Demand deposits R300 000
Quasi money R400 000
M3 2 000 000
Long-term deposits ?

[1] Long-term deposits are equal to R1 090 000

[2] M1 is R210 000
[3] Cash is R150 000
[4] M2 is R610 000

7. We can expect that the amount of money that a bank create will decrease when…

[1] more bank clients choose to deposit their funds at the bank.
[2] the bank's clients choose to hold a smaller part of their money in the form of cash.
[3] the bank borrows from the South African Reserve Bank.
[4] the South African Reserve Bank increases the repo rate.
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Use the following figure, which shows the demand for money curves, to answer question 8.

i
L1

L2

8. Suppose there is an increase in the total remuneration earned by the factors of production. How
this will influence the demand for money?

[1] The demand for active balances will increase and shift L2 to the right.
[2] The demand for transaction purposes will increase and shift L1 to the right.
[3] The demand for passive balances will decrease and shift L1 to the left.
[4] Speculative demand for money will decrease and shift L2 to the left.

9. Which of the following statements concerning money is correct?

[1] The value of money is not based on the confidence that both government and monetary
authorities will be able to control the supply to achieve stability and that the purchasing power
does not fall.
[2] Paper money was developed since specialisation between countries led to increases in
trade, causing the use of coin to be inconvenient as this was difficult to handle and not safe
to transport.
[3] Credit cards are money because they function as a medium of exchange.
[4] Electronic money is another form of money as it can be used as a means of payments.

10. Which of the following statements is incorrect regarding the quantity of money?

[1] The quantity of money is determined by the interaction of the demand for money and interest
rate.
[2] If the interest rates are high, the quantity of money demanded will tend to low.
[3] If interest rates are low, the quantity of money demanded will tend to be high.
[4] There is a positive relationship between interest rates and the quantity of money demanded.
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11. Which of the following could be expected when the government applies a contractionary fiscal
policy? ….Contractionary fiscal policy involve increase in taxation and decrease in government
spending

[1] a decrease in the tax rate

[2] a decrease in the interest rate
[3] an increase in government spending
[4] a decrease in the budget deficit…….revenue from taxation increases and gvt spending
decreases resulting in decrease in deficit

12. Which one of the following statements regarding taxation is correct?

[1] Neutrality of tax means that compliance and administration costs are kept as low as possible.
[2] Taxes which induce taxpayers to change their behaviour are not neutral……tax is said to be
neutral if it does not result in ultering the behaviour of tax payers .ie. it should be low as
possible and the tax payer should not feel the burden of taxation.
[3] The aim of taxes is to distort relative prices and change the behaviour of taxpayers.
[4] The tax burden is spread equally amongst taxpayers.

13. Which of the following is incorrect regarding government spending?

[1] Promises by the government during elections could put pressure on government spending.
[2] Government spending largely consists of spending on investment (capital goods).
[3] The government promotes income redistribution through taxation and government transfers.
[4] In a mixed economy the government can intervene by providing funds for public goods and
services (like parks and defence).

Question 14 is based on the table below which shows information about income tax paid by Susan
in the last four years:

Year Salary Tax A Tax B

2019 R500 000 R 75 000 R22 500
2018 R300 000 R48 000 R19 500
2017 R200 000 R34 000 R15 500
2016 R90 000 R16 200 R10 800

14. Which of the following is correct?

[1] Tax A is an example of a regressive tax

[2] Tax B is an example of a progressive tax. Tax rate increases as salary increases:
22500/500000 * 100 = 4.5%; 19500/300000 * 100 = 6.5%; 15500/200000 * 100 =7.75%;
10800/90000 * 100 = 12%
[3] Tax A is an example of a proportional tax.
[4] Tax B is an example of a proportional tax.
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Question 15 is based on the table below which shows the production of maize and bananas for
country 1 and 2:

Maize Bananas
Country 1 400kg 200kg
workings workings
400m/400 =200b/400 200b/200 = 400m/200
M = 0.5b B = 2….. lower opportunity
cost
Country 2 900kg 300kg
workings workings
900m/900 = 300b/900 300b/300 = 900m/300
M = 0.3333…..lower opportunity b = 3m
cost

15. To benefit from trade country 1 should produce Bananas and country 2
should produce Maize .

[1] bananas; maize

[2] maize; bananas
[3] maize; maize
[3] cannot be determined

16. A change of the exchange rate from R14,60 = $1,00 to R20,50 = $1,00 will lead to a decrease in...

[1] the price of imported goods in South Africa.

[2] the price of South African products sold in the United States.
[3] the price of petrol in South Africa.
[4] the number of tourists from the United States visiting South Africa.

17. A sudden increase in the number of tourists from South Africa to United States (US) will lead to…

[1] an appreciation of the dollar and a leftward shift of the supply of Rand curve on the US
foreign exchange market.
[2] a depreciation of the dollar and a leftward shift of the supply of Rand curve on the US foreign
exchange market.
[3] an appreciation of the dollar and a rightward shift of the supply of Rand curve on the US
foreign exchange market.
[4] a depreciation of the dollar and a rightward shift of the supply of Rand curve on the US
foreign exchange market.
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18. What type of event must happen for the exchange rate to change from R8 = $1 to R9= $1 and the
amount of USD traded daily to increase, as illustrated in the following graph?

R/$

S0
Price of USD (exchange rate)

D1

D0

12 14 Q$

Quantity of USD per day (billions)

[1] More South African tourists visit the United States.

[2] After a crime wave, American tourists cancel their plans to visit South Africa.
[3] The gold price increases.
[4] South Africa starts producing cheaper goods than the United States.

19. An appreciation of the South African Rand against the US Dollar will lead to a(n)…

[1] decrease in South Africa's exports to the United States and worsen the South African current
account balance.
[2] decrease in South Africa's imports from the United States and improves the South African
current account balance.
[3] increase in South Africa's exports to the United States and Improve the South African current
account balance.
[4] increase in United States’s imports from South Africa and worsens the South African
financial account.
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20. Which of the following is correct regarding the Balance of Payments (BOP)?

[1] A capital inflow from Zimbabwe to South Africa is recorded in the current account.
[2] A computer software import from China to Namibia, represents a negative item on the BOP
of China.
[3] An investment by a Chinese firm in the steelwork industry in South Africa is recorded as an
inflow of funds in the financial account on the BOP of South Africa.
[4] The BOP records all economic activities that take place within the borders of South Africa.

21. Which of the following items would NOT be included in the calculation of GDP?

[1] purchase of electricity by a household for home use

[2] merchandise exports by local firms
[3] purchase of a used car by Thomas for personal use
[4] purchase of new bicycles by a bicycle rental firm

22. Which one of the following is an example of an intermediate good?

[1] shoes worn by the manager of a shoe store

[2] a loaf of bread that is served to hotel guests
[3] a lawnmower used by Thomas to mow his family’s lawn
[4] apples used for cooking and to make juice for hotel guests

Use the information in the following table, that was obtained from the SARB Quarterly Bulletin for
March 2019, to answer questions 23 and 24:

2018 2019
R millions
GDP @ current prices 5 826 912 6 421 962
GDP @ constant prices 4 923 456 5 235 746

23. What is the percentage increase in real GDP from 2018 to 2019?real can be called costant ….[5
235 746 - 4 923 456]/ 4 923 456 *100 = 6.34%

[1] 10,21%
[2] 6,34

[3] 5,96%
[4] 9,26%
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24. If output remains the same, a change in nominal GDP from 2018 to 2019 represents…

[1] economic growth.

[2] an increase in unemployment.
[3] an increase in production.
[4] an increase in the price level.

25. Which one of the following statements is correct regarding consumption and saving in the
Keynesian model?

[1] If total consumption exceeds total income, this is an indication of dissaving.

[2] If the initial income is zero, then total consumption will be equal to total saving.
[3] Given that income does not decrease, a decrease in consumer spending will result in a
proportional decrease in saving.
[4] If autonomous consumption increases, consumer spending will remain the same, ceteris
paribus.

26. The consumption function is based on the premise that as income increases, consumption
expenditure…there is a positive relationship between C and Y

[1] increases by a smaller amount than income.

[2] increases by a larger amount than income.
[3] increases by the same amount as income.
[4] remains constant unless saving also changes.

27 The equation C = 75 + 0,7Y, where C is consumption and Y is disposable income, tells us that…

[1] households will consume R75 if their disposable income is zero and will consume 0,7 of any
increase in disposable income they receive.
[2] households earn R75 and spend three quarters of their income.
[3] households will save R75 if their disposable income is zero and will consume 0,7 of any
increase in disposable income they receive.
[4] households will consume 0,30 of whatever level of disposable income they receive.
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Use the information below to answer questions 28 to 30:

If 𝐶𝐶̅ = R15 billion, I = R25 billion, c = 0,80, cY = R 980 billion

28. The marginal propensity to save is…MPC[c] + MPS[s] =1

0,80 + MPS = 1
MPS = 1 – 0,8
MPS = 0,2

[1] 1
[2] 0,75
[3] 0,20
[4] 1,20

29. Consumption is…C = a + Cy……C = 15 + 980

C = R995

[1] R995 billion

[2] R799 billion
[3] R211 billion
[4] R1 020 billion

30. Saving is….CY = 980

0,8Y/0,8 = 980/0,8
Y = 1225

S = -C + Sy
S = -15 + 0,2(1225)
S = R230

[1] R245 billion

[2] R15 billion
[3] R230 billion
[4] R260 billion

Use the information below to answer questions 31 to 32:

If 𝐶𝐶̅ = R15 billion, I = R25 billion, G = R20 billion, X = R10 billion, Z = R7 billion, and c = 0,80

31. The multiplier is…Multiplier = 1/1-c

Multiplier = 1/ 1-0.8
Multiplier = 1/0.2
Multiplier = 5
[1] 5
[2] 4
[3] 3,5
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[4] 1,25

32. The equilibrium level of income is…Y = Multiplier x change in exogeneous variables
Y = 5 x (15 + 25 + 20 + 10 -7)
Y = 5 x 63
Y = R315 billion

[1] R385 billion

[2] R50,4 billion
[3] R63 billion
[4] R315 billion
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Use the figure below to answer question 33:

A’

𝐴𝐴ҧ

0 Y

33. The movement from A to A' can result from…

[1] an increase in government spending

[2] a decrease in government spending
[3] an increase in taxes…..it causes swiveling of the curve around a fixed point
[4] a decrease in taxes

34. Suppose autonomous imports exceeds exports. In the Keynesian model, when we add the
negative net exports to C + I + G …

[1] the A curve shifts upwards

[2] the A curve shifts downwards
[3] the A curve does not shift
[4] the multiplier increases

35. Nthabiseng’s monthly disposable income increases from R3 000 to R3 400. As a result, her
monthly savings increase from R400 to R560. This implies that her marginal propensity to
consume is …Change in income = 3400 – 3000
= R400
Change in savings = 560 – 400
= R160
Change in income = change in consumption + Change in savings
400 = change in consumption + 160
400 – 160 = change in consumption
240 = change in consumption
MPC = Change in consumption/ change in income
MPC = 240/400
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MPC = 0,60

[1] 0,40.
[2] 0,20.
[3] 0,60.
[4] 0,80.
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Use the figure below to answer questions 36 to 38:

A
A’

36. The upwards movement from A to A’ can result from…

[1] an increase in interest rate.

[2] a decrease in interest rate…..Decrease in interest rate iduces investor confidence resulting
in increase in total investment. This causes a parallel upward shift of the A curve since
investment is an exogeneous variable
[3] an increase in taxes.
[4] a decrease in taxes.

37. Which type of policy was applied in the above diagram, based on the answer for question 36?

[1] expansionary monetary policy…….there is an inverse relationship between interest rate and
money supply
[2] expansionary fiscal policy
[3] contractionary monetary policy
[4] contractionary fiscal policy

38. Which one of the following South African authorities is responsible for the type of policy chosen
on question 37?

[1] Statistics South Africa (STATS SA)

[2] Republic of South Africa’s National Treasury
[3] The South African Reserve Bank (SARB)
[4] South African Revenue Services (SARS)
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39. Suppose the economy of South Africa is experiencing rapid increase of price level. The
economy is at equilibrium at an income level of R950 billion, which is above the full-employment
level of income (Yf) of R900 billion. The marginal propensity to consume is 0,75. If the
government wishes to close the income gap and slow down the increase in the price level, it
should…K = Change in Y/Change in J
1/1-O.75 = (950-900)/Change in J
4 = 50/Change in J
4 x Change in J = 50
Change in J = 50/4
Change in J = 12,5 Billion

[1] cut its spending by R50 billion.

[2] cut its spending by R200 billion.
[3] raise its spending by R50 billion.
[4] cut its spending by R12,5 billion.

40. Fiscal policy includes…

a) policy on government spending on official travel allowances of politicians.

b) policy on consumption taxes such as those on cigarettes.
c) policy on salaries paid to government employees and politicians.

[1] a and b
[2] b and c
[3] b
[4] a, b and c

41. Within the AD-AS model, what will be the impact of expansionary demand management policy
on the economy?

[1] aggregate supply will decrease and the price level increase
[2] aggregate demand will decrease and the price level increase
[3] total production and employment will increase, while inflation decrease
[4] real output and the price level will increase, while unemployment decrease

42. Incomes policy measures tend to affect…

[1] output and the level of employment in opposite directions.

[2] output and the price level in the same directions.
[3] the level of employment and the price level in the same directions.
[4] the level of unemployment and the price level in the same directions.
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Question 43 is based on the following figures showing the AD-AS model diagrams:

43. The Monetary Policy Committee’s decision to reduce the interest rate to stimulate the aggregate
spending may result in a(n) and movement from point .

[1] weaker rand against the major currencies; E0 to E1 in figure 1

[2] increase in the demand for exports; b to c in figure 2
[3] disinvestment from South Africa by foreign investors; b to c in figure 3
[4] decrease in spending by firms; b to c in figure 4

44. In the first quarter of 2020, the economy of South Africa entered a recession. Which of the
following best described what you would advice policymakers to do in order to move the
economy out of a recession without causing an increase in inflation?

[1] to apply supply-side policy that will increase aggregate supply.

[2] to respond with demand management policy that will increase aggregate supply.
[3] to implement contractionary monetary policy and expansionary fiscal policy.
[4] do nothing as any response will push the economy even deeper into recession.
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Question 45 is based on the following diagram:

45. According to the AD-AS model, a shift of AS curve from AS to AS1 is the result of…

[1] a decrease in spending by households.

[2] an increase in the cost of production.
[3] an increase in the general price level in the economy.
[4] a decrease in the cost of production.

Question 46 is based on the following table showing the CPI in South Africa, 2016-2020:

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average

2016 94,4 95,7 96,4 97,2 97,4 97,9 98,7 98,6 98,8 99,3 99,6 100,0 97,8
2017 100,6 101,7 102,3 102,4 102,7 102,9 103,2 103,3 103,8 104,1 104,2 104,7 103,0
2018 105,0 105,8 106,2 107,0 107,2 107,6 108,5 108,4 108,9 109,4 109,6 109,4 107,8
2019 109,2 110,1 111,0 111,7 112,0 112,4 112,8 113,1 113,4 113,4 113,5 113,8 112,2
2020 114,1 115,2 115,6 .. .. .. .. .. .. .. .. .. ..

Source: Statistics South Africa (2020).

46. Based on the information in the table, which of the following is true?

[1] 2020 is the base year

[2] The average annual inflation rate for 2019 was 4,08%
[3] Price levels increased by 2,7% between 2016 and 2017
[4] The average annual inflation rate for 2018 is obtained as follows: 107,8−105,0 𝑥𝑥 100…..assuming
103 was incorrectly written as 105
105,0
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47. Which one of the following is NOT an effect of higher inflation?

[1] Redistribution of wealth from the lender to the borrower.

[2] A decrease of the real value of existing savings.
[3] An increase in the standard of living.
[4] An increase in the cost of living.

48. Which of the following best describes a difference between demand-pull inflation and cost-push
inflation?

[1] Demand-pull inflation occurs when there is a shortage in aggregate demand, while cost-
push inflation is the upward pressure on the general price level due to rising cost of
production.
[2] Cost-push inflation can be caused by increases in the cost of wages and intermediate
goods, while demand-pull can be caused by increase in exports.
[3] Demand-pull inflation is triggered by increases in the cost of production, while cost-push
inflation occurs when the aggregate demand for goods and services increases while
aggregate supply remains unchanged.
[4] There is no difference between demand-pull inflation and cost-push inflation as they are
triggered by the same sources.

49. If inflation accelerates due to the increase in the price of oil (an import), the best policy to combat
such inflation in a country with a high unemployment rate, would be to...

[1] apply the supply-side policy that will increase aggregate supply, which will be illustrated by
a rightward shift of the AS curve.
[2] respond with demand management policy that will increase aggregate demand, which will
be illustrated by a rightward shift of the AD curve.
[3] implement contractionary monetary policy, illustrated by the rightward shift of the AD
curve.
[4] apply incomes policy, illustrated by a leftward shift of the AS curve.

50. To enter the pool of unemployment, a person must be…

[1] any age and looking for a job.

[2] a discouraged work-seeker.
[3] economically active.
[4] working while searching for better a job.
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51. Assume the local currency weakens against the major currencies. This will result in…

a) a decrease in the employment level.

b) an increase in the net export.
c) a fall in the purchasing power of local currency.
d) an increase in the purchasing power of local currency.

[1] a and b
[2] b and c
[3] c
[4] a and d
[5] a, b, c and d

Questions 52 and 53 are based on the following table showing the key labour market indicators in
South Africa:

Number of persons (‘000)

Population 15-64 yrs 38 134
Labour force 22 668
Employed 16 529
Unemployed 6 139
Discouraged work- 2 841
seekers

52. The unemployment rate (using the strict definition) in South Africa is… (rounded to two decimals
after the comma).

[1] 54,33%
[2] 35,20%
[3] 37,14%
[4] 27,08%

53. The unemployment rate (using expanded definition) in South Africa is… (rounded to two
decimals after the comma).

[1] 54,33%
[2] 35,20%
[3] 37,14%
[4] 27,08%
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54. Due to coronavirus pandemic, many education institutions adopted an online teaching method.
This meant that all educators must now be able to do teaching online. Mary, a contract educator,
was laid off by her employer because she does not know how to use online teaching tools. Until
she finds a new job, Mary is…

[1] structurally unemployed.

[2] cyclically unemployed.
[3] seasonally unemployed.
[4] frictionally unemployed.

55. Suppose South Africa is experiencing cyclical unemployment. What will be the appropriate policy
to tackle South Africa’s unemployment problem?

a) improve the quality of education and training to increase the number of skilled labour
b) increase in government spending on basic infrastructure development in rural areas
c) reducing interest rate and taxes to stimulate aggregate demand in the economy

[1] a
[2] b
[3] c
[4] bc
[5] abc

56. Which one of the following statements about the shortcomings of real GDP is correct?

[1] It accounts for the distribution of national income

[2] It accounts for the negative effect resulting from production
[3] It is used to estimate the growth of the underground economy
[4] It does not account for labour of farmers in rural areas who produce for their own use

57. Which one of the following best describes economic growth?

[1] an increase in real GDP per capita over time, where GDP per capita is real output divided
by population
[2] an increase in the value of final goods and services produced within the borders of the
country in a one-year period
[3] a sustained increase in nominal GDP occurring over time
[4] an absolute change of GDP or GDP per capita over time
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Question 58 is based on the following diagram showing the business cycle of Country A's
economy:

58. Suppose Country A experience a fall in consumption spending due to rising unemployment,
which led to a decrease in total income in the economy. This would result in the movement
from in the diagram?

[1] B to C
[2] A to B
[3] A to C
[4] C to B

59. Which one of the following is NOT a demand factor that influences economic growth?

[1] an increase in exports

[2] an increase in factors of production
[3] an increase in investment spending
[4] domestic manufacturing of previously imported goods
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Read the following passage to answer question 60:

Various countries, including South Africa, China and India, have established Special
Economic Zones (SEZs) within their domestic economies. Firms that operate within these
SEZs receive several incentives including tax relief, rent-free land, capital investment and
training. This is done with the expectation to increase exports and to create job opportunities
for local communities.

60. Based on the passage, which one of the following statements regarding supply factors and
demand factors that affect economic growth, is true?

[1] Creation of job opportunities for local communities will be positively influenced by demand
factors.
[2] The fact that companies operating in SEZs do not have to pay rent, is a demand factor that
will affect economic growth.
[3] Exports by firm’s operating in SEZs form part of supply factors.
[4] Tax relief, capital investment and training are not supply factors, nor demand factors.

©
UNISA 2020
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4 Th s page/paper is the property of lhe University and under no circumstances may the candidate retain it or take I out of the examinal›on venue

NB PLEASE COMPLETE THE ATTENDANCE REGISTER ON THE BACK PAGE, TEAR OFF AND LAND TO THE INVIGILATOR
 UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS

ECS1601 ( 482623) October/November 2019

Economics IB
Duration 2 Hours 100 Marks
EXAMINERS
FIRST MR CF BYNEVELDT
SECOND MR C LEOTLELA

Use of a non-programmable pocket calculator is permissible

Closed book examination
Thla examination question paper remains the property of the University of South Africa and may not be
removed from the examinatlon venue

This partial fill-in paper consists of 17 pages plus instructions for the completion of a mark-reading sheet

Read the following instructions CAREFULLY before answering the paper

The paper is divided into two sections Section A and Section B

SECTION A

Candidates must answer ALL the questions in this section

SECTION B

In this section ALL the questions must be answered on the mark-reading sheet which is
supplied. Carefully follow the instructions for the completion of the mark-reading sheet

As your mark-reading sheet can get lost, you MUST also write down your answers for this section on
page 16

Please complete the attendance register on the back page, tear off and hand to the
invigilator.

{TURN OVER]
 Sectlon A (50 marka]

Please answer ALL the questions in this semon in the space provided.

Que8tlon 1 (10)

11 Name four sources of spending in the economy (4)

Land

Labour

Capital

Entrepreneurship

12 Define economic growth (2)

Is the real increase in total output and income

13 Distinguish between nationalisation and privatisation and give a practical example of (4)
each in the South African context

Nationalisation refers to the transfer of ownership from the private ownership to public ownership. Put simply,

it occurs when there is a selling of private owned entities to the government, examples of nationalized entities in

SA include; Transnet, Eskom, SAA.

Privatisation - it refers to the transfer of ownership of assets from the public sector to the private sector

{TURN OVER]
i.e. the sale of state owned assets to the private sector, for example SASO, Inscor

{TURN OVER]
 3 ECS1601
10/11 2019

Questlon 2 (13)

21 Illustrate the relationship between

(i) investment spending and the Interest rate. Remember to label your d\agram (2)

{TURN OVER)
 4
10/11 2019

(ii) investment and the level of income in the economy Remember to label your
diagram (2)

2.2 Explain, with the aid of a diagram, how an increase in investment due to a decrease in
the interest rate will affect the equilibrium level of income in the Keynesian model (4)

{TURN OVER)
 5 ECS1601
10/11 2019

Explanation

{TURN OVER]
 10/11 2019

2.3 South Africa experienced an increase in the interest rate between the period 2016
2019. Use an AD-AS model to illustrate and explain the effect of an interest rate
increase on the price level, income and unemployment level in the South African
economy (5)

Explanation

|TURN OVER)
 7
10/11 2019

Question 3

Questions 3 1, 3 2, 3 3 and 3.4 are based on the following information

Change in income (AY) 250 million

Change in consumption (AC) 50 million
Investment spending 40O million
Autonomous consumption 350 million

31 Calculate the marginal propensity to consume. (2)

3.2 Calculate the multiplier. (2)

3.3 Calculate the equilibrium level of income (3)

{TURN OVER]
 8
10/11 2019

34 Derive the saving function (3)

Question 4 (17}

41 Explain how a decrease in the proportional tax rate will affect the following variables in
the Keynesian model

(i) The size of the multiplier

(ii) Consumption
(iii) Aggregate spending
The equilibrium level of income. (8)
(! )

{TURN OVER]
 9 ECS1601
10/11 2019

4.2 Define fiscal policy and explain how it can be used to stimulate the economy. (6)

{TURN OVER]
 10 ECS1601
10/11 2019

43 What will be the appropriate policy measures to solve stagflation* Explain your
answer (3)

{TURN OVER]
 11 ECS1601
10/11.2019

SECTION B [50 marks]

MULTIPLE-CHOICE QUESTIONS

Answer ALL the questions in this section on the supplied mark-reading sheet Each question is worth
two (2) marks. Note Only ONE statement per question is correct As your mark reading sheet may be
lost, you should please write the answers for Section B in the space provided at the end of Section B

1 In the circular flow of goods and services,

[1] factors of production are sold in the factor market by firms to households
[2J good and services are produced by households and sold to firms
[3] factors of production are bought in the factor market by firms from households
[4] labour is sold by households in the goods market

2 Financial institutions in the circular flow of income and spending

[11 act as intermediaries between government and households

[2] levy taxes on households and firms
(3J produce goods to be sold in the goods market
(4J act as intermediaries between those who spend less than they earn and those who spend
more than they earn

3 Which of the following statements is/are correct*

[1) Money is income earned in the production of goods and services
[2J Money is anything generally accepted as a medium of exchange
[3] A credit card is an example of money
[4] An expensive car is another example of money

4 The South Afncan Reserve Bank's primary objective is

[1] to protect the Republic against a military invasion

[21 to protect the value of the Rand in the interest of balanced and sustainable economic growth
|3] to protect the Republic against an influx of imports
[41 to collect taxes on behalf of the government

5 The City of Tshwane municipality is an example of

[1) central government

[2] a public corporation
[3] provincial government
[4] local government

{TURN OVE I
 12 ECS1601
10/11.2019

6 A tax is if the ratio between tax paid and taxable income decreases as taxable income
increases

[1] regressive
[2] progressive
[3] marginal
[4] proportional

Consider the following table which shows the production possibilities of two countries A and B to
answer question 7
Country Cara Aircrafts
A 40 20
B 90 30

7 Which of the following statements is/are corrects

[1J There is no opportunity for mutually beneficial trade between the two countries
[2] Country A has an absolute advantage in the production of the two goods
[3] Country A has a comparative advantage in the production of cars
[4] Country A has a comparative advantage in the production of aircrafts

8 Expectations of political unrest in South Africa's upcoming national election is likely to cause
a/an in the rand/dollar exchange market

[1] appreciation of the rand

[2j depreciation of the rand
[3] rise in the value of the rand
[41 overvaluation of the rand

9 Which of the following is not considered a macroeconomic issue*

[1] The fall of wheat prices during the 2000s

(21 The rise in inflation during the early 1990s
[3] The increase in the unemployment rate
[4] A decline in the trade deficit due to an increase in output

10 Gross Domestic Product (GDP) at constant prices is also known as

[1] nominal GDP

(2] real GDP
[3] basic GDP
[4] expenditure on GDP

{TURN OVER]
 13 ECS1601
10/11.2019

11 Which of the following is an assumption of the simple Keynesian model, without a government
sector*

[1] Prices are variable

[2] The economy consists of households and firms only
[3] The money stock and interest rates are variable
[4] Wages are variable

12 A decrease in the marginal propensity to consume

[1] does not affect the value of the multiplier

[2] will not occur because the marginal propensity to consume is set by government
[3] raises the value of the multiplier
[4J lowers the value of the multiplier
[5] decreases the marginal propensity to save

13 An increase in taxation in the Keynesian model with a government sector

[1] reduces autonomous spending

[2] increases the multiplier
[3] increases the equilibrium level of income
|4J reduces the multiplier

14. Net exports are positive when

[1J A nation’s imports are less than its exports

[2] A nation's imports are more than its exports
[3] A nation's exports are less than its investments
[4] A nation's exports are more than its investments

15 Which of the following is an argument in favour of nationalisations

[1] Privatisation may replace state monopoly with private monopoly

(2j Private firms will have greater access to investment capital
[3] Private firms do not take into account any possible external costs or benefits
(4] Private firms consider the broader view of public interest such as the provision of postal
services

16 In the Keynesian model including the government and foreign sectors, imports are dependent on

[I] exchange rates

[2J interest rates
[3] investment
[41 domestic income

{TURN OVER]
 14 ECS1601
10/11.2019

Consider the following table to answer question 17

Year CPI
2016 100
2017 115
2018 125

17 Consumer prices

(1] rose by 15% from 2017 to 2018

(2] fell by 9% from 2017 to 2018
[3] fell by 15% from 2017 to 2018
[4] rose by 15% from 2016 to 2017

18 Which of the following is not an effect of inflation.

[1] It redistributes from the government to the private sector

(2] It discourages the traditional forms of savings such as fixed deposits
[3] It benefits debtors at the expense of creditors
[4] It affects poor households the most

19 Bracket creep results when tax rates are based on

[1] nominal disposable income
[2] real income
(3] per capita income
[4] nominal income

20 Which of the foIIowing might be expected to Increase employment opportunities

[1] Increase in the relative price of labour (wages and salaries)

[2] Higher taxes for small businesses
[3] More labour intensive production methods are used
[4] Reduction in government spending

21 The traditional Phillips curves shows that

[1] a higher unemployment rate is associated with higher inflation and vice versa
[2) a higher unemployment rate is associated with higher interest rates and vice versa
[3] a higher inflation rate is associated with lower unemployment and vice versa
[4] a lower inflation rate is associated with lower unemployment and vice versa

[TURN OVER]
 15 ECS1601
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22 Which type of unemployment did Nthabiseng experience when she got retrenched from her job
at the bank due to the financial crisis of the year 2008

[1] Cyclical unemployment

[2) Fractional unemployment
[3] Seasonal unemployment
[4] Structural unemployment

23 Which of the following is not a problem associated with GDP as a measure of total production in
the economy

[1] Unrecorded activities

[2] Negative externalities
[3] Non-market production
[4] Final goods and services

24 In a business cycle a trough is followed by a

[1i peak
[2] contraction
[3] expansion
[4] depression

25 Which of the following is not a demand factor that influences economic growths

(1j An increase in exports

[2] Availability of natural resources
[3] An increase in government spending
[4] Domestic manufacturing of previously imported goods

{TURN OVER]
 16 ECS1601
10/11 2019

As your mark-reading sheet might get lost, you must also write down your answers for
section B in the space provided below.

1 14

15

3 16

4 17

5 18

6 19

7 20

21

9 22

10 23

11 24

12 25

13

{TURN OVER]
 17 ECS1601
10/11 2Q19

ROUGH WORK WILL NOT BE MARKED

UNISA 2019
 UNI5A).--„.
ECS1601
MAY / JUNE 2019

ECONOMICS IB
STUDENT HUMBER

IDENTITY NUMBER

Subject

Number of paper

Date of examination

Examination cemre

1 A candidate who ithout authorisa‹•an ‹Yes into the exam\nat\on venue any book, document or object which could assjst him in \he examination,
and does not hand over such material to the invigiiator before the offlcla commencement of the examination, will be guilty of infnnging The
Universrty’a examination regulat one and will be liable to punishment as detemined by Council
2 Rough won may be dane only on the examInat on question paper and must be labelled as such
No notes may be made on any part of the body. such as the hands or on any garment
This page/papei is the property ot the Un>ersity and under no circumstances may the candidate retain z o take it out of the examiner on
venue
NB PHASE COMPARE THE ATTENDANCE REGISTER OF THE BACK PAGE, TEA9 OFF AND HAND TO THE INVIGTLATOB
 UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS

UNISAI

ECS1601 ( ‹s7705) May/June 2019

Economics IB
Duration 2 Hours 100 Marks
EXAMINERS :
FIRST MR CF BYNEVELDT
SECOND MRS CJ VAN ZYL

Use of a non-programmable pouket calculator ie permissible.

Cloaed book examination
Thia examination question paper remains the property of the University of South Africa and may not be
removed from the examination venue.

This partial fill-in paper consists of 15 pages plus instructions for the completion of a mark-reading sheet

Read the following instructions CAREFULLY before answering the paper

The paper is divided into two sections’ Section A and Section B

SECTION A

Candidates must answer ALL the questions in this section

SECTION B

In this section ALL the questions must be answered on the mark-reading aheet whlch Is
supplied. Carefully follow the instructions for the comple0on of the mark-reading sheet
As your mark-reading sheet can get lost, you MUST also write down your answers for this section On
the last page of thi6 paper space is provided for this purpose.

Reaae complete the attendance reglater on the back page, tear of and hand to the lnvlgilator.

{TURN OVERI
 ECS1601
05/06 2019

SECTION A [50 QUARKS]

Answer ALL the following ques0ons in the space prodded

QUESTION 1 Isj

(i) Name the five economic participants in the circular flow of income and spending (5)

(ii) Name the three criteria for a good tax (3)

{TURN OVERI
 3
05/06 2019

QUESTION 3 [14]

(a) Use the space below to show how the equilibrium in the Keynesian modal changes if the
net exports in the economy increases. Remember to label your diagram. (3)

(b) Illustrate on the space below, how a decrease in the interest rate will affect the demand
for money as an asset (3)

{TURN OVER)
 4
05/06 2019

(c) Assume a Keynesian model with a government sector and no foreign sector Use the following
data to answer the questions that follow.

Autonomous consumption spending R250 million

Government spending R200 million
Investment spending R150 million
Marginal propensity to consume 0.5

(i) Calculate the multiplier. (3)

(ii) Calculate the equilibrium level of income. (3)

(iii) Briefly discuss the two reasons why people hold money (2)

{TURN OVER]
 05/06 2019

QUESTION 3 [11]

Suppose that the Republic of Banana produces only bananas and coconuts, and the base year is 2015.
Given the following information on the quantities and prices:

Quantities
Bananas 1000 1100
Coconuts 500 525

Bananas 2 3
Coconuts 10 8

(a) Calculate
(i) Nominal Gross Domestic Product (GDP) in 2015 (2)

(ii) Nominal GDP in 2016 (2)

{TURN OVER)
{TURN OVER)
 ECS1601
05/06 2019

(iii) Real GDP in 2016 using the base-year prices. (2)

(iv) What is gross domes0c expenditure (GDE) and how does it differ from expenditure
on GDP* (2)

(b) Demonstrate, using the AD-AS model, how inflation can be reduced in the economy
using demand management measures (3)

{TURN OVER]
 7 ECS1601
05/06 201B

QUESTION 4 [17}

(a) Suppose that there is an increase in the global demand for platinum and South Africa is
that biggest producer of platinum. Assume that at the same time, the South African
Reserve Bank increases the interest rate. What happens in the foreign exchange market
in South Africa to the following.
Supply of US dollars (1)

The value of South African rand (R) (1)

The value of the Unites Satee dollar ($) (1)

(b) Distiguish between demand-pull inflation and cost-push inflation and indicate one
source of each. (4)

(c Explain the short-run Phillip’s curve, and discuss the policy implications of existence of
such a curve (5)

{TURN OVER]
 05/0g 2018

(5)

QURNOVEQ
 9 ECS1601
05/06.2019

SECTION B [50 MARKS]

Answer ALL the questions in this section on the supplied mark-reading sheet. Each question is worth 2
marks Note: Only ONE statement per question is correct

1. The circular flow of goods and services shows the relationship between

[1] income and money

[2] goods and services
[+I wages and salaries
(4] firms and households.

2 Which of the following is regarded as a stock variable in the economy?

[1] Income
{2] Capital
[3] Spending
[4] Production

3 Which of the following best describes natural resources

[1] They are unlimited in supply

[2] They consists of all the gifts of nature.
[3] They consist of machines, buildings and tools.
[4] They are all renewable.

4 Money is created by banks through

[1] granting loans.

[2] printing notes.
[3] accepting deposits.
[4] charging interest on loans.

5. A decrease in the market interest rates will result in

[1] a rightward shift of the money demand curve.

[2] a leftward shift of the money demand curve
[3] a downward movement along the money demand curve
[4] an upward movement along the money demand curve

6. If banks experience liquidity shortages, they can borrow from the Reserve Bank through

[1] public debt management

[2] bank supervision.
[3] exchange control regulation
[4] repurchase transactions
{TURN OVER]
 10 ECS160f
05/06.2019

7 If the government wishes to stimulate economic activity by using fiscal policy.it should

[1] decrease the interest rate.

[2] decrease taxation.
(3] decrease government spending.
(4) increase the exchange rate

If the South African Reserve Bank wants to decrease the growth in the money supply in order to
curb inflation, it may

[1] increase income tax rates

[2] increase the repo rate.
[3] buy Treasury bills in the open market.
[4] buy government bonds.

Question 9 and 10 below are based on the information in the following table, where the numbers
represent the number of units of each good produced.

Namibia Zambia
Copper pipas
Diamond watches 4 2

9. Namibia has an absolute advantage in the produc0on of while Zambia has a comparasve
advantage in the produc0on of

[1] copper pipes; diamond watches.

[2] diamond watches; copper pipes.
[3J none of the two goods; both goods.
[4] both goods, copper pipe

10 Namibia should specialize in the production of

[1] copper pipes and diamond watches

[2] diamond watches
[3] copper pipes.
[4] none of the Mo goods.

11. A deficit on a country’s current account means that

[1] the value of a country’s assets is more than the value of its liabilities
[2] the value of a country’s liabilities is more than the value of its assets
[3] the value of a country’s exports is less than the value of its imports
[4] the value of a country’s imports ‹s less than the value of its exports.

{TURN OVE I
 11
05/06 2019

12 A depreciation in the value of the rand on the foreign exchange market is most likely to lead to

[1] have no perceptible impact on the South African economy.

f2] a rise in the foreign price of South African exports.
[3] a rise in the demand for imported goods into South Africa.
[4] a higher demand for South African exports

13 The terms of trade indicate the ratio of

[1] imports to exports.

[2j exports to imports.
[3] rand to dollar.
[4) export prices to imports prices.

14. In the Keynesian model, the consumption function is a formal representation of

[1] the relationship between induced consumption and the interest rate
[2] the positive relationship between income and autonomous consumption.
[3] the relationship between total consumption and income.
[4) the inverse relationship between consumption and taxes.

15. If the marginal propensity to save is 3/4, then the marginal propensity to consume is ..

[1] 1
(2] 0,75

[4] 0,25

16 The slope of the investment function demonstrates the fact that ...

[1] Investment increases as the Interest tata increases.

[2] Investment is positively related to the interest rate.
[3] investment decreases as Income decreases
[4] Investment Is a negative function of interest rates.

17 In the AD-AS model, the aggregate demand curve shows

[1] the relationship between the general price level and the level of total expenditure.
[2] the relationship between the quantity demanded and the quantity supplied.
[3] the relationship between the quantity demanded and price of a good or service.
[4J that positive ralason6hip between the price level and real GDP.

{TURN OVER]
 12 ECS1601
05/06 2019

18 In the AD-AS model, the aggregate supply curve is upward sloping because

[1] as the price level increases, total production decreases

[2] as the price level decreases, total production decreases
[3] it illustrates the total real expenditure at each price level
[4] as the price of a good increase, quantity supplied increases

Question 19 is based on the diagram below

19 A shit of AS curve from AS to AS› is the result of

[1] a decrease in consumption spending

[2] an increase in productivity
[3] an increase in price level
[4j a decrease in labour productivity.

20 Expansionary demand management policy measures tend to

[1] increase the real GDP, but reduce inflation

[2] increase both the real GDP and inflation
(3] increase both inflation and the level of unemployment
[4] increase the production cost, which will decrease total production

[TURN OVER]
 13 ECS1601
05/06 2019
21. During the 2008-2009 financial crisis, South Africa experienced higher job losses in the
mining industry due to insufficient demand for mining commodities This contributed to an
increase in

[1] structural unemployment

[21 cyclical unemployment.
[3] seasonal unemployment
(41 financial unemployment

22 The unemployment rate in South Africa is likely to decrease if there is

[1] a net decrease in immigration.

(2] a decrease in the labour intensity of production.
[3] an increase in foreign competition
[4] an oversupply of semi-skilled labour

23. If the number of people classified as unemployed in 2017 is 175.000 and the number of those
employed in the same year is 325.000, the unemployment rate is
[1] 85%
[2] 54%
[3] 35%
[4] 46%

24. Economists define economic growth as a(n).

(11 increase in nominal GDP over time.

[2] increase in currant GDP per capita
[3] increase in real GDP per capita.
[4] increase in real GDP over time

25 The upward phase of a business cycle is known as a

[1] peak.
[2] downswing
[3] boom.
[41 rescession

{TURN OVER}
 14
05/06 2019

Aa your mark-reading aheet can get lost, you muat also wrfte down your answers for Section
B In the apace provided below.

1 14

2 15

3 16

4 17

18

6 19

7 20
21

9 22

10 23

11 R4

12 25

13

{TURN OYER)
 15 ECS1601
05/06 2019

ROUGH WORK WILL NOT BE MARKED

 UN1SA!
ECS1601
OCTOBER/NOVEMB ER 2018

ECONOMICS IB
STUDENT NUMBER

IDENTITY NUMBER

Subject

Number of paper

Date of examination

Examination centre
.- -w.

WARNING

A candidate who without authorisation takes into the examination ven ue any book, document or object whlch could assist him in the examination,
and does not hand over such material to the nv gilator before the offic aI commencement of the examination, will be guilty ol infringing the
University’s examination regulations and will be liable to punishment as determined by Council

2 Rough work may be done only on the examination question paper and must be labelled as such

3 No notes may be made on any part o\ the body such as the hands, or on any garment

4 This page/paper is the property of the University and under no c rcumsiances may the candidate retain it or take il out of the examination
venue

NB P LEASE COMPLETE THE ATTENDANCE REGISTER ON THE BACK PAGE, TEAR OFF ANO HANO TO THE NVIGILATO R
 UNIVERSITEITSEKSAMENS
UNIVERSITY EXAMINATIONS

UNISAI..›..

ECS1601 ( 470879) October/November 2018

Economics IB
Duration 2 Hours 100 Marks

EXAU/NERS
FIRST uRs MR MALEFANE
SECOND MR MT MALATJIE

Use of a non-programmable pocket calculator ‹s permissible

Closed book examination

This examination question paper remains the property of the University of South Africa and may not be
removed from the examination venue

This partial fill-in paper consists of 16 pages plus instructions for the completion of a mark-reading
sheet

Please read the following CAREFULLY before answering the paper

The paper s div ded into Mo sections Section A and Section B

SECTION A

Candidates must answer ALL the questions in this section

SECTION B

In this section ALL the questions must be answered on the mark-reading sheet which is
supplied Carefully follow the instructions for completion ot the mark-reading sheet

As your mark-reading sheet can get lost, you must also write down your answers for this question On
the last page of this paper space is provided for this purpose

Please complete the attendance register on the back page, tear off and hand to the invigilator

[TURN OVER)
 2 ECS1601
10/11 2018

SECTION A [s0 marks]

QUESTION 1 (9)

11 Name the ma›n instruments of fiscal policy (3)

1 2 Name four main functions of the South African Reserve Bank (4)

1 3 Define the balance of payments (2)

(TURN OVER]
 ECS1601
10/11 2018

QUESTION 2 (11)

21 (a) Draw a Lorenz curve depicting a skewed income distribution

(b) Explain the calculation of the Gini coefficient (2)

|TURN OVER]
 4 ECS1601
10/11 2018

2 2 (a) Draw a consumption function and clearly indicate the value of autonomous spending and
the slope on the diagram

C = 100 + 0,75Y (4)

(b) Draw the aggregate spending function and clearly indlcate the values of autonomous
expenditure

C = 100 + 0,75Y (3)

I = 200

{TURN OVER)
 5 ECS1601
10/11 2018

OUESTION 3 (8›

Use the following information about an independent island, to answer questions 3 1 to 3 3 Show ALL
your calculations

Autonomous consumption 150

Consumption function 150 + 0,75Y
Full-employment output 1 900
Investment expenditure 300

3 1 Derive the saving function (2)

3 2 Calculate the multiplier (2)

3 3 Calculate the equilibnum level of income (4)

|TURN OVER]
 6 ECS1601
10/11 2018

QUESTION 4 (22)

41 Distinguish between accommodation policy and open-market policy (4)

42 Explain the relationship between the three central macroeconomic flows (3)

43 Explain the relationship between consumption and saving Use the simple Keynesian model (2)

{TURN OVER]
 7 ECS1601
10/11 2018

44 Explain, with reference to the AD/AS model, how a decrease in interest rates affect the price
level and income level in the economy (5)

45 Name and describe four types of unemployment (8)

[TURN OVERJ
 ECS1601
10/11 2018

{TURN OVERJ
 9 ECS1601
10/11.2018

MULTIPLE-CHOICE QUESTIONS

SECTION B [50 marks]

Answer ALL the questions in this section on the supplied mark-reading sheet Each question is worth
2 marks Note Only ONE statement per question is correct

1 The factor market describes a market in which

[1] buyers of goods and services meet to trade

[2] tactors of production are offered for sale by tirms
[3] goods and services are offered for sale by households
[4] factors of production are made available for firms

2 Which of the following is a final good or services

[1] Diesel fuel bought for a delivery truck

[2] Fertiliser purchased by a farm supplier
{3] A haircul paid for by a student
4J Motor vehicle windows purchased by a motor assembly plant

3 Suppose South Africa does not export nor import, but there is a government sector Therefore,
South Africa's total spending formula can be wMtten as

[1] A=C+I+G
(2] A-C+I+G+X-Z
[3] A=C+I+G+X+Z
[4] A=C+I

4 Gross domestic product (GDP) may be defined as

[1] the monetary value of all goods and services (final, intermediate and non-market)
produced in a given year
[2] total resource income less taxes, savings and spending on exports
[3] the economic value of all economic resources used in the production of a year's output
[4] the market value of all final goods and services produced in a country in a specific year

{TURN OVERJ
 10 ECS1601
10/1.1.2018

5 The three ways of calculating GDP are

[1] production, prices and income methods

[2] income, product and service methods
[3] expenditure, spending and production methods
[4] income, expenditure and production methods

6 If nominal GDP rises

[1] real GDP may either rise, fall or stay the same
[2] we can be certain that the price level has risen
[3] real GDP must fall
[4] real GDP must also rise

7 The phase of the business cycle in which real domestic output declines is called

[1] the peak

[2] a recovery
[3] a recession
[4] the trough

8 A recession is a period in which

[1] cost-push inflation is present

[2] nominal domestic output falls
[3] demand-pull inflation is present
[4] real domestic output falls

9 A price index is

[1] a comparison of the current price of a market basket from a fixed point of reference
[2J a comparison of real GDP in one period to real GDP in another period
[3j the cost of a market basket of goods and services in a base period divided by the cost of
the same market basket in another period
(4] a ratio of real GDP to nominal GDP

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 1.1 ECS1601
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10 Recently a labour union argued that the standard of living of its members was falling A critic of
the union argued that this could not possibly be true, because the union had been acquiring
significant increases in the nominal incomes of its members through collective bargaining Is the
critic corrects

[I] Yes, because when you have large nominal earnings your standard of living automatically
increases
[2] No, because real income may fall if price increases are proportionately more than the
increase in nominal earnings
[3] No, because real income may fall if price increases are proportionately less than the
increases in nominal earnings
[4] Yes, because real income may fall if price increases are proportionately less than the
increases in nominal earnings

11 Eckstein has lost her tob in a Cape Town textile plant because of import competition She
intends to take a short course in electronics and move to Johannesburg where she anticipates
new jobs will be available We can say that Eckstein experiences unemployment

[1] seasonal
[2] cyclical
|3] structural
[4] frictional

12 The presence of discouraged workers

[1] increases the size of the labour force, but does not affect the unemployment rate
[2] reduces the size of the labour force, but does not affect the unemployment rate
[3] may cause the ofiicial unemployment rate to understate unemployment figures
[4] may cause the ofiicial unemployment rate to overstate unemployment figures

13 Net exports are negative when

[1] a nation's imports exceed its exports

[2) the economy's stock of capital goods is declining
(3] depreciation exceeds domestic investment
[4J a nation’s exports exceed its investment

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14 Other things equal, recessions in the economies of South Africa’s trading partners will

[1] have no perceptible impact on the South African economy

[2] cause inflation in the South African economy
[3] depress real output and employment in the South African economy
[4] stimulate real output and employment in the South Atrican economy

15 The consumption function shows

[1] that the marginal propensity to consume increases in proportion to GDP

[2] that households consume more when interest rates are low
[3] that consumption primarily depends upon the level of business investment
[4] the amounts households plan or intend to consume at various possible levels of aggregate
income

16 A decrease in the marginal propensity to consume

[1] does not affect the value of the multiplier

[2] will not occur because the marginal propensity to consume is set by government
[3] raises the value of the multiplier
[4] lowers the value of the multiplier

17 If the consumption schedule coincided with the 45-degree line

[1] the multiplier would be 2

[2] consumption would equal income at all income levels
[3] the marginal propensity to save would be 1
{4] the marginal propensity to consume would be zero

18 Suppose the SARB increases repo rate in an attempt to decrease inflation As a result, the

{1] creation of money will slow down as demand for loans declines
[2] quantity of money supply will increase by percentage increase of repo rate
[3] cost of borrowing charged by banks will decrease
[4] price of interest-bearing securities or bonds in South Africa will increase

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 13 ECS1601
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19 M3 can be defined as

[1] the indicator of development in the financial sector

[2] money plus quasi-money plus all long-term deposits of the domestic private sector with
monetary institutions
[3] coins, banknotes and long-term demand deposits of the domestic private sector with
monetary institutions
[4] M1 plus M2 plus all long-term deposit of the domestic private sector with monetary
institutions

20 If the South African Reserve Bank wants to reduce money supply growth, it should

[1] increase the repo rate and sell securities

[2] increase the repo rate and buy government bonds
[3] decrease the repo rate and sell securities
[4] decrease the repo rate and buy government bonds

21 In the simple Keynesian model, the following is true about investment

[1] As income increases, investment also increases

[2] Investment is positively related to the interest rate
[3] Investment is autonomous and is illustrated by a horizontal line
[4] There is a negative relationship between investment and income

22 The effect of a change in the price level on consumer’s purchasing power is called

[1j the interest rate effect

[2] the international trade eftect
[3] the net export effect
[4] the wealth effect

23 Other things equal, a reduction in personal and business taxes can be expected to

[1] increase aggregate demand and decrease total real production

{2] increase both aggregate demand and total real production
[3J decrease both aggfegate demand and ag9‹e ga te supply
(4] decrease aggregate demand and increase aggregate supply

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24 Which one of the following would increase per unit production cost and therefore shift the
aggregate supply curve to the left*

[1] A reduction in business taxes

[2] An increase in worker productivity and production advances
[3] The deregulation of industry
[4j An increase in the price of imported resources

25 The appropriate demand management policy during a recession is

[1] a decrease in government spending

{2J a decrease in tax rates
[3] a contractionary monetary policy
[4] an increase in interest rates

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 15 ECS1601
10/11 2018

As your mark-reading sheet can get lost, you must also write down your answers for Section B
in the space provided below

1 14

15

3 16

4 17

5 18

6 19

7 20

8 21

9 22

10 23

11 24

12 25

13

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 16 ECS1601
10/11 2018

ROUGH WORK
UNIVERSITY OF SOUTH AFRICA SA • UNIVERSITEIT Y4IY SUID-AFRIKA
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I £or official use by the invigilator Do not fi11 in any information here
 FINAL

ECS1601
MAY/JUNE 2018

ECONOMICS IB
STUDENT NUM BER

IDENTITY NUMBER

Marks
Question No Examiners
2 3
FOR USE BY EXAMINATION fNVIGlLATOR

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 UNIVERSIT EITSEKSAMENS
UNIVERSITY EXAMINATIONS

UNISA!=-..-

ECS1601 ( 490779) May/June 2018

Economics IB
100 Marks
Duraton 2 Hours
EXAMINERS '
FIRST MRS MR L1ALEFANE
SECOND MR MR MARAIS

Uae of a non-programmable pocket calculator Ts permiasible

Closed book examination

This exam\nat\on question paper remains the property of the University of South Afrtca and may not be
removed from the examination venue

This partial fill-in paper consists of 16 pages plus instructions for the completion of a mark-reading sheet

Read the following instructions CAREFULLY befofe answering the paper

The paper is divided into two sections Section A and Section B

SECTION A

Candidates must answer ALL the questions in this section

SECTION B

In this section ALL the questions must be answered on the mark-reading sheet which ‹s
supplied Carefully follow the instructions for the completion of the mark-reading sheet

As your mark-reading sheet can get lost, you MUST also write down your answers for this section On
the last page of this paper space is provided for this purpose

Please complete the attendance register on the back page, tear oW and hand to the invigilator

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 2 -CSA 601
05/06 2018

SECTION A [50 MARKS]

Answer ALL the following questions in the blocks provided

QUESTION 1

(i) Define the Gross Domestic Product (GDP) (3)

(ii) Name the four factors of production (4)

OUESTION 2 [15J

(i) Use the tollowing diagram to show how the equilibrium in the money market changes if the level of
income in the economy increases Remember to label your diagram (3)

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 3 ECS1601
05/06 2018

yyhat will happen

(/,) Illustrate on the following diagram of the South African toreign exchange market
export
to the exchange rate between the rand and the US dollar if South Africa implements
promotion measures Remember to label your diagram (3)

(iii) Suppose the Minister of Finance has asked you to advise him on the formulation of a tax policy
Write a paragraph that w‹Il explain what your major considerations will be when you design this
tax policy (9)

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 4 ECS1601
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QUESTION 3 [1*1

Given the following information

INCOME (Rands) CONSUMPTION SAVINGS INVESTMENT

(Rands) §Rands) (Rands)
0 10 -10 20
50 50 0 20
100 90 10 20
150 130 20 20
200 170 30 20

(a) Calculate (Show all your calculations)

(i) the marginal propensity fo consume (2)

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 5 ECS1601
05/06 2018

(ii) the marginal propensity to save (2)

the multiplier

(›v) the equilibrium level of income (2)

(b) Demonstrate, using the Keynesian model, how unemployment can be reduced in the economy

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 ECS1601
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[17)
QUESTION 4

(i) Suppose that there is an increase in the amount of goods Ihat South Africa imports from the United
States Explain how this would affect the equilibrium exchange rate (R/$) in South Africa
(3)

(ii) Distinguish between active balances and passive balances and mention the main determinant of
the quantity demanded of each (4)

(iii) Use the AD-AS model to explain how an increase in fhe tax rate will affect the economy (5)

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 7 ECS1601
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(iv) Explain why policy makers cannot solve the stagflation dilemma using only demand management
policies (5)

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 8 ECS1601
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SECTION B [50 MARKS]

Answer ALL the questions in this section on the supplied mark-reading sheet Each question is worth
1 - marks Note Only ONE statement per question is correct

1 When economists say that money is a store of value they imply that

[1] money has a greater value than other assets

[2] the value of money is not aflected by inflation
[3J money can be used to measure the value of other commodities
[4j money is a way of saving purchasing power to be used when needed

2 The two basic markets shown in the simple circular flow model are

[1] capital goods and consumer goods

[2] free and controlled markets
[3] factor market of and goods market
{4] households and businesses

3 Which of the following is a final good or service*

[1] Diesel fuel bought for a delivery truck

(2] Fertiliser purchased by a farm supplier
[3] A haircut paid for by a student
[4] Motor vehicle windows purchased by a motor assembly plant

4 The quantity of money available will increase when

[1] a person deposits his or her money with a bank

[2] banks keep their reserves with the Reserve Bank
|3] banks make loans that result in additlonal deposits
[4] the government keeps its funds with the Resefve Bank

5 A rightward shift in the demand for money curve will lead to

[1J a lower interest rate and the same quantity of money

[2] a higher interest rate and the same quantity of money
[3J a higher quantity of money at lower interest rates
[4] a higher quantity of money at the same interest rate

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 9 ECS1601
05/06.2018

6 A price index is

(1] a comparison of the current price of a market basket from a fixed point of reference
[2] a comparison of real GDP in one period to real GDP in another period
[3] the cost of a market basket of goods and services in a base period divided by the cost of the
same market basket in another period
[4] a ratio of real GDP to nominal GDP

7 takes a smaller proportion ot income from the high-income groups than from the
low- income groups

[1] Company tax

[2] Value-added tax
(3] Personal income tax
[4J Capital gains tax

8 Net exports are negative when

}l] a nation’s imports exceed its exports

[2J the economy's stock of capital goods is decllning
depreciation exceeds domestic investment
[4] a nation’s exports exceed its investment

9 According to Adam Smith, international trade mainly arises because of

[1j differences in foreign currencies

[2] differences in factor endowment
[3] trade barriers
[4] trade agreements

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 10 ECS1601
05/06.2018

10 Consider the following production possibilities for Countries A and B

Country A Country B

Warshlps Houses Warships Houses

80 80 40 60

(1] Country A should produce both warships and houses

[2] There is no basis for trade between these two countries
[3] Country A should produce houses and Country B should produce warships
(4j Country A should produce warships and Country B should produce houses

11 Assume the domestic price of good X is R12 and the world price is R10 In the short run, if there
are no trade restrictions on good X, net exports

[1J and GDP in the domestic economy will increase

[2] and GDP in the domestic economy will decrease
(3] will increase and GDP in the domestic economy will decrease
(4] will decrease and GDP in the domestic economy will increase

12 Other things equal, recessions in the economies of South Africa’s trading partners will

[IJ have no perceptible impact on the South African economy

[2] cause inflation in the South African economy
[3] depress real output and employment in the South African economy
[4] stimulate real output and employment in the South African economy

13 Using the analysis of the foreign exchange market, if the rand/dollar exchange rate is below
equilibrium, this indicates that

[1] there is an excess supply of dollars in the United States economy

[2] the dollar has appreciated against the rand
[3] there is an excess demand for dollars in South Africa economy

[4J the rand has depreciated against the US dollar

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 ECS1601
11
05/06.2018

14 4 In the AD-AS model, a decrease in the interest rate is likely

to cause

t1] a decrease in consumer spend\• 9

t2] an increase in investment spending
(3] an increase in government spending
[4 a decrease in exports of the economy

15 The objective of price stability means

[1] there should not be price Increases in the economy

[2] keeping inflation as low as possible
t3l prices should always stay constant
[4] prices should be determined by forces of demand and supply

16 An appropriate fiscal policy for a recession is

[1J a decrease in government spending

[2J a decrease in tax rates
(3] appreciation of the South African rand
{4J an increase in interest rates

17 In the national accounts, the difference between gross domestic product and gross national
income is equal to

[1] imports
(2] net primary \ncome payments
[3] income earned by foreigners
[4] net exports

18 The traditional Phillips curve shows

{1] the inverse relationship between the rate of inflation and the unemployment rate
[2] the inverse relationship between the nominal and the real wage
[3] the direct relationship between unemployment and demand-pull inflation
[4j the trade-off between the short run and the long run

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 12 ECS1601
05/06.2018

19 In an economic model, an endogenous variable is

(1] a stand-in for more complicated variables

[2] determined by the model itself
[3J determined outside the model
[4] a variable that has no eftect on the workings of the model

20 Jon’s disposable income increases from R2 000 to R2 500 As a result his saving increases from
R300 to R450 This implies that his marginal propensity to consume is

[1] 0,30
[2] 0,70
[3] 0,80
[4] 0,67

21 Assume share prices on the Johannesburg Securities Exchange drops dramatically and families
find that their wealth has declined Which of the following is consistent with this decline in family
wealth*

[1] The marginal propensity to consume in South Africa will decrease

[2] The marginal propensity to consume in South Africa will increase
[3] Autonomous consumption in South Africa will Increase
(4] Autonomous consumption in South Africa will decrease

22 The marginal propensity to impon

(1] increases as income increases

[2] decreases as income increases
(3] remains constant as income increases

Use the following information to answer questions 23 and 24

c -— too + o,8yd
/ = 250
S — 170
I — Z — 540 — 0, 2Sr
£ = 0, I Y
Equilibrtum leve I o f income —— 2000

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 ECS1601
)3 05/06.2018

23 The budget surplus at the equillbfium level of income is

[1] 30
[2] 70
[3j 400
[4] There is not enough information to calculate the value of the budget surplus

24 Net exports at the equilibnum level of income is

t1] 20
[2] 40
13] -100
[4] There is not enough information to calculate the value of net exports

25 The investment demand curve shifts rightward if

[1J the expected pro1jt rate increases

{2} the real interest rate falls
[3] savings increase
[4] the economy moves onto a ecession

26 A simultaneous decrease in aggregate supply and aggregate demand will always

[1j increase the production level

[2] reduce the production level
[3] increase the price level
[4] leave the price level unchanged

27 Demand management policy measures tend to affect

[1] output and the level of employment in opposite directions

[2J output and the price level in opposite directions
[3] the level of employment and the price level in opposite directions
(4] the price level and the level of unemployment in opposite directions

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 14 ECS1601
05106 20J8

28 Suppose lhe SARB increase the interest rate while oil prices are rising What would be the
expected effect on the equilibrium level of real GDP and the price leveI+

Price level Real GDP

[1] uncertain decreases
[2] uncertain uncertain
(3J decreases t decreases
|4] increases increases

29 If the consumer price index (CPI) increases from 100 to 200 and the nominal wage increases from
R100 to R400, the change in the real wage is

[1] R100
[2) R200
[3] -R200
(4] R300

30 Which of the following is not a supply factor in economic groMh+

(1] An expansion in purchasing power

[2] An increase in the economy’s stock of capital goods
[3] More natural resources
[4] Technological progress

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 15 ECSt601
05/06 2018

1 16

2 17

3 18

4 19

5 20

6 21

22

8 23

9 24

10 25

11 26

12 27

13 28

14 29

15 30

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 16
ECS1601
05/06 20J 8

ROUGH WORK

UNISA 201B
 UNIVERSITY OF SOUTH AFRICA I SA i .... *••,• IJNIVERSITEIT VAN SUID-AFRIKA
EXAMINATION MARK READING SHEET EKSAMEN- MERKLEESBLAD

For use by examination invigilator

CHFC K THAT 0 NLY ONE AMSWO R PC H QU ESTTO R HAS 8 GEN MA R NZD 7 MAA K 55 K OR OAT AZT E EN ALTO- R NAME SF PHA V GAAP G EMS P K IS
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