EECF1624

UNIVERSITY OF THE FREE STATE

DEPARTMENT OF ECONOMICS
MINI TEST 4
DATE: 21 SEPTEMBER 2015
LECTURER: Ms. C. CAMPHER/
Mr. C. MUDZINGIRI (Qwa Qwa)
DURATION: 1 HOUR

MARKS: 25

QUESTION 1

[9 Marks]

1.1 Assume South Africas inflation rate is at 2.8%. Identify three instruments that the SA
government can use to bring the inflation rate up to the target range of 3-6%.
[3]
reduce the reserve requirement/ daling in reserwe vereiste
buying govt bonds/ koop staatseffekte
decrease repo rate/ daling in repokoers
increase Credit ceilings
any three
1.2 Illustrate, by making use of a graph, the impact of any one action you gave in 1.1 on
1.2.1 real sector of the economy.
[3]
TE = Y
TE

AD1
TE1

CPI

TE
AD2
Y
GDP

1.2.2

monetary sector of the economy

MsMs
i

[3]

Ms
Ms1

Md

Q of Money

1 mark for correct labelling

QUESTION 2

[6 Marks]

2.1 Suppose the interest rate is above equilibrium in the monetary sector of the South African
economy. Graphically illustrate the effect on the money supply and money demand.

MoneyMs
balances

Surplus of Ms

Md
Q of M
Money balances

2.2 What is the impact on the price of bonds?

People buy bonds/ Mense koop staatseffekte/
staatseffekte neem toe
QUESTION 3

[4]
price of bonds increase/ prys van
[2]
[5 Marks]

3.1 Bank A receives a deposit of R18 000 from person W. From this deposit, Bank A lends
maximum permissible amount to person X of R14 400. Person X went on to make a deposit
of R14 400 with his bank B. Bank B lends its maximum permissible of R11 520 to person Z.
Person Z went to make a deposit of R11 520 with his bank C. Bank C lends R 8000 to person
N.
3.1.1 What is the percentage excess reserve for Bank C?
[3]
Required reserve requirement = 20%
R 11520-(0.2x11 520) = R 9216
Excess reserve = R 9216-R8000 =R1216
Percentage excess reserve = 10, 56%
3.1.2

If lending continued indefinitely after the initial deposit of R18 000 in 3.1. What is the
total money created?
[2]

Credit Multiplier = 1/0.2 = 5

Money creation=5X18000= R90 000

QUESTION 4

[5 Marks]

4.1 The Table below shows information for UV Commercial Bank on two distinct years.
% cash reserve
requirement ratio

Deposit

25

40 000

300 000

Total
reserves

4.1 Calculate the values for A,B and C

30 000

Excess
reserves

Total credit created

0

6 000

C
[3]

A=4x40000=160 000
B=24000/300 000X100= 8 %
C=300 000x10= 3 000 000
4.2
Reserve requirement/ reserwevereiste
Repo rate/ repokoers
Buy/ selling of bonds (Open market operations)/ koop/verkoop van staatseffekte (opemark
transaksies)
Credit ceilings/ kredietplafonne
Any two