Professional Documents
Culture Documents
2016
MODULE NAME:
MODULE CODE:
ECONOMICS 1B
PMAC6112
ECONOMICS 1B
PMAC6112d
ECONOMICS 1B
PMAC6112e
ECONOMICS 1B
PMAC6112f
ECONOMICS 1B
PMAC6112p
ECONOMICS 1B
PMAC6112w
ECONOMICS B (MACRO)
ECMS6212
ECONOMICS B (MACRO)
ECMS6212d
ASSESSMENT TYPE:
120 MARKS
TOTAL HOURS:
INSTRUCTIONS:
1.
Please adhere to all instructions in the assessment booklet.
2.
Independent work is required.
3.
Five minutes per hour of the assessment to a maximum of 15 minutes is dedicated to
reading time before the start of the assessment. You may make notes on your question
paper, but not in your answer sheet. Calculators may not be used during reading time.
4.
You may not leave the assessment venue during reading time, or during the first hour or
during the last 15 minutes of the assessment.
5.
Ensure that your name is on all pieces of paper or books that you will be submitting. Submit
all the pages of this assessments question paper as well as your answer script.
6.
Answer all the questions on the answer sheets or in answer booklets provided. The phrase
END OF PAPER will appear after the final set question of this assessment.
7.
Remember to work at a steady pace so that you are able to complete the assessment within
the allocated time. Use the mark allocation as a guideline as to how much time to spend on
each section.
Additional instructions:
1.
This is a CLOSED BOOK assessment.
2.
Calculators are allowed.
3.
For multiple choice questions, give only one response per question. The marker will ignore
any question with more than one answer, unless otherwise stated. You should, therefore, be
sure of your answer before committing it to paper.
4.
Answer all questions.
5.
Show all calculations, where applicable (marks may be awarded for this).
2016
(Marks: 40)
Question 1
(Marks: 40)
Multiple-choice questions: Select one (1) correct answer for each of the following. In your answer
booklet, write down only the number of the question and next to it, the letter of the correct
answer.
Q.1.1
Q.1.2
(b)
(c)
(d)
(2)
When taxes are increased, disposable income ________ and hence, consumption
(2)
_________.
Q.1.3
(a)
Increases; increases.
(b)
Increases; decreases.
(c)
Decreases; decreases.
(d)
(2)
The amount that the various participants in the economy plan to hold in the
form of money balances;
(b)
The interest that is earned when the money is used to purchase bonds;
(c)
The amount of money that the various participants in the economy want to
hold in the form of money balances;
(d)
The money balances that are held by various participants in the economy.
Q.1.4
(b)
(c)
2016
(2)
time.
(d)
Q.1.5
The government provides households and firms with ___________ goods and
(2)
services, and to finance these goods and services, households and firms pay to
_____________ the government.
Q.1.6
Q.1.7
Q.1.8
(a)
Private, taxes.
(b)
Public, taxes.
(c)
(d)
Which one of the following will reduce the size of the multiplier?
(a)
(b)
(c)
(d)
(b)
(c)
(d)
The extent to which imports increase for a given increase in income depends on
(a)
Net exports.
(b)
(c)
Income.
(d)
Prices.
(2)
(2)
(2)
Q.1.9
2016
The decision lag is ___________ for fiscal policy and _________ for monetary
(2)
policy.
Q.1.10
(a)
Long; short.
(b)
Short; long.
(c)
(d)
(2)
Q.1.11
Q.1.12
Q.1.13
(a)
(b)
(c)
(d)
Openness of an economy is
(2)
(a)
(b)
(c)
(d)
(b)
(c)
(d)
If the CPI was 108 in 2009 and 115 in 2010, the inflation rate in 2010 was
(a)
115%
(b)
108%
(c)
7%
(d)
6.48%
(2)
(2)
Q.1.14
Q.1.15
Q.1.16
2016
(b)
(c)
(d)
(2)
People who do not have jobs and are not looking for work are considered
(a)
Unemployed.
(b)
(c)
Underemployed.
(d)
Overemployed.
(2)
Anna voluntarily quits her job as a school teacher to earn a BCom degree full-time.
(2)
With her degree, she is now searching for a position in Management. Anna
presently is
Q.1.17
Q.1.18
(a)
Cyclically unemployed.
(b)
Structurally unemployed.
(c)
Frictionally unemployed.
(d)
(b)
(c)
(d)
Nominal GDP.
(b)
(c)
Real GDP.
(d)
Unemployment rate.
(2)
(2)
Q.1.19
2016
Q.1.20
(a)
(b)
(c)
(d)
(2)
According to supply-side theorists, the aggregate supply curve will shift to the
(2)
right when
(a)
(b)
(c)
(d)
Section B
(Marks: 50)
Question 1
(Marks: 10)
Q.1.1
Define inflation.
(2)
Q.1.2
(2)
Q.1.3
Name any three (3) differences between the consumer price index (CPI) and
(6)
2016
Question 2
(Marks: 20)
Q.2.1
Name and discuss any four (4) fundamental causes or sources of long-run economic (8)
growth.
Q.2.2
Define structural unemployment and name any four (4) policies that can be used to
(6)
reduce unemployment.
Q.2.3
(6)
Question 3
Q.3.1
(Marks: 20)
= 108 + 0.5Y
Investment spending:
= 400
Government spending:
= 200
= 300
= 200
=20%
Q.3.2
Q.3.1.1
(2)
Q.3.1.2
(5)
Assume that the economy of Pluto only produces coke, chips and beer. The following
table consists of the market prices and quantity of these products produced for the
years 2005 and 2010.
Product
Prices
Quantity
Price
Quantity
(2005)
(2005)
(2010)
(2010)
Base Year
Coke
R 2.50
10 000
R 3.00
units
Chips
R 9.00
4 000 units
11 000
units
R 10.0
5 000 units
Beer
Q.3.3
2016
R 1.40
5 000 units
R 2.00
6 000 units
Q.3.2.1
(6)
Q.3.2.2
(3)
It is widely accepted that there are other channels, besides the interest rate
(4)
channel, through which monetary policy can influence the price level and real
output. One of the channels is the exchange rate channel.
2016
Section C
(Marks: 30)
Question 1
(Marks: 30)
Q.1.1
Suppose that the South African government decreases the income tax rate.
Q.1.1.1
(2)
expansionary or contractionary.
Q.1.1.2
Using the AD/AS model, illustrate and explain the impact of this policy
(8)
Q.1.2
Explain, with the use of the Phillips curve, the relationship between inflation rate
(6)
Q.1.3
List any two (2) basic assumptions of the simple Keynesian model and their
(4)
implications.
Q.1.4
Explain, with the use of a diagram, what would happen to the rand/ dollar
(7)
Q.1.5
(3)
If the rand were to appreciate against the dollar, export prices (in dollars) would
Q.1.5.1 increase/decrease, while import prices (in rand) would Q.1.5.2
increase/decrease. This would cause the current account in SA to Q.1.5.3
improve/worsen.
END OF PAPER
2016
Section A
(Marks: 40)
Memorandum: Question 1
(Marks:40)
M.1.1
(2)
(d)
M.1.2
(2)
(c)
M.1.3
(2)
(a)
M.1.4
(2)
(c)
M.1.5
(2)
(b)
M.1.6
(2)
(d)
M.1.7
(2)
(b)
2016
(2)
(b)
M.1.9
(2)
(a)
(2)
(a)
(2)
(a)
(2)
(c)
(2)
(d)
(2)
(d)
(2)
(b)
2016
(2)
(c)
(2)
(a)
(2)
(c)
(2)
(d)
(2)
(c)
2016
Memorandum: Section B
(Marks:50)
Memorandum: Question 1
(Marks:10)
M.1.1
(2)
M.1.2
(2)
Demand deposits are not created when a person is issued with a credit card (1),
the card is simply a convenient means of making purchases by obtaining a shortterm loan from the bank or other financial institution which has issued the
card (1).
M.1.3
(6)
services) (1)
excluded (1)
included (1)
Memorandum: Question 2
2016
(Marks:20)
(8)
M.2.2
2016
(6)
M.2.3
(6)
Neutrality means that the taxes should not influence taxpayers behaviour (1).
Put differently, taxes should not affect relative prices and thereby distort
economic behaviour (1).
2016
Equity means that the taxes should be fair (1). There are two notions of equity:
horizontal equity and vertical equity (1). Horizontal equity means that people in
the same position should be taxed equally (1). Vertical equity means that people
in different positions should be taxed differently. For example, rich people
should pay more than poor people (1).
Administrative simplicity means that the taxes should be simple to calculate and
administer (1). The purpose is to keep both the collection costs and the
compliance costs as low as possible (1).
Memorandum: Question 3
(Marks:20)
M.3.1.1
(2)
M.3.1.2
(5)
= 1/[1-c(1-t) + m] (1)
OR
= 1/ [1-0.5(1-0.2) + 0] (1)
= 1/ [1-0.5(0.8)] (1)
=1/ [1-0.4] (1)
=1/0.6 (1)
=1.67 (1)
(1)
Y=x
OR
Y = 1.67 x (808) (1)
Y = 1346.67 (1)
2016
M.3.2.1
(6)
M.3.2.2
(3)
M.3.3
(4)
Memorandum: Section C
(Marks:30)
Memorandum: Question 1
(Marks:30)
M.1.1.1
(2)
2016
M.1.1.2
(8)
Award 5 marks for the graph and 3 marks for the explanation. Award 1 mark
for the correct axes, original AD and AS curves and original equilibrium point.
Award 1 mark for illustrating the rightward shift of the curve. Award 1 mark for
illustrating an increase in production. Award 1 mark for illustrating an increase
in price. Award 1 mark for illustration the new equilibrium.
A decrease in the income tax rate, will increase the consumers disposable
income (1). This will increase the quantity of goods and services demanded in
the economy i.e. aggregate demand increases (1). This will result in a
rightward/outward shift of the AD curve (1).
M.1.2
2016
(6)
Award 3 marks for the graph and 3 marks for the explanation
Award 1 mark for correctly labelling inflation rate on the vertical axis.
Award 1 mark for correctly labelling unemployment rate on the horizontal axis.
Award 1 mark for the downward-sloping Phillips curve.
The Phillips Curve suggests that inflation and unemployment can be traded off
against each other (1). If the nation wishes to achieve a reduction in the level of
unemployment (say, from 3% to 2%), it will need to accept a rise in the general
price level (1). If the nation wishes to achieve a reduction in the general price
level (say, from 4% to 2%), it will need to accept a rise in the level of
unemployment (1).
M.1.3
2016
(4)
The economy consists of households and firms only (1): Total spending
consists of consumption spending and investment spending (1).
There is no government (1): The model cannot be used to analyse
government spending or taxes (1).
There is no foreign sector (1): The model cannot be used to analyse
exports, imports, exchange rates, trade policy and exchange rate policy
(1).
Prices are given (determined outside the model) (1): The model cannot be
used to study inflation (1).
Wages are given (determined outside the model) (1): The model cannot be
used to study the workings of the labour market (1).
The money stock and interest rates are given (determined outside the
model) (1): The model cannot be used to study the financial markets or
monetary policy (1).
Spending (demand) is the driving force that determines the level of
economic activity (1): Production (supply) adjusts passively to changes in
spending (demand) (1).
M.1.4
2016
(7)
Award a maximum of 7 marks (3 for the diagram, 4 for the explanation). Explain,
with the use of a diagram, what would happen to the rand/dollar exchange rate,
if more South African firms decided to invest offshore in US companies. Award 1
mark for the initial equilibrium correctly labelled curves and axis. Award 1 mark
for the correct shift of the curve. Award 1 mark for the new equilibrium exchange
rate and quantity.
2016
M.1.5
(3)
If the rand were to appreciate against the dollar, export prices (in dollars) would
M.1.5.1 increase (1), while import prices (in rand) would M.1.5.2 decrease (1).
This would cause the current account in SA to M.1.5.3 worsen (1).
END OF MEMORANDUM