Tutorial 5 Econ 102 2023

TUTORIAL 5: PART 2 SESSIONS 5-7

SHORT QUESTIONS

III'd
1. How do depository institutions create liquidity, pool risks and lower the cost of search
detest
borrowing? moneyborrow
taking indeposits u
2. With an aid of a diagram, explain the change innot
everyone doesn't
1
Real
the nominal interest rate in the money
market if real GDP increases.whenGDPincreasesthere's shortage
a of
fromba
sellingatbindscause
3. Suppose the table below provides some data for South Africa in the first decade following
pinterest.to
GDP the democratic elections of 1994.

2004
Quantity of money R1.3 billion MU Yp
Real GDP (in 2000 R7.4 billion 13 4,5 7.4 P
prices)
Price level (2000: X P 0,09
CPI=100)
Velocity of circulation 4.50
how
a) Calculate
longdcelittakeabill tocirculate anentireeconomy
the value of X.
is Sb) Are the data consistent with the quantity theory of money? Explain your answer.
4. Explain what happens if there is a shortage or a surplus of South African Rand in the
foreign exchange market?

MULTIPLE CHOICE QUESTIONS

1. The role of depository institutions in the economy is to:
a) aid entrepreneurs by finding potentially profitable investment opportunities.
b) control the money supply so that inflation does not result.
c) provide loans to borrowers and accept deposits from depositors.
d) conduct examinations of banks and savings and loans to make certain they will not
fail.
e) provide loans to depositors and accept deposits from borrowers.

2. Which of these is NOT a depository institution?

a) Capitec Bank.
b) Old Mutual Insurance Company.
c) Sanlam Mutual Savings and Loan.
d) The Johannesburg Stock Exchange.
youcaneitherbuystodcorsellstock
e) All of these are depository institutions.

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lowering Colt
 ofborrowing
Interestrate
Tutorial 5 Econ 102 2023
stimulatethe
3. Which one of the following statements is NOT correct? economy
a) The SARB acts as the lender of last resort.
b) The SARB regulates insurance companies and pension funds. who
c) The SARB regulates the country’s depository institutions and controls the quantity of
money.
d) The primary goal of the SARB is to achieve and maintain price stability.
e) The repurchasing rate is the SARB’s monetary policy instrument.

4. As the level of interest rates in the economy fall, the demand for money will (ceteris
paribus):

a) increase or decrease depending on other factors.

b) increase.
c) remain unchanged.
d) decrease proportionally with interest rates
e) Not enough information therefore the effect is unknown.

Use the figure below to answer question 5.

5. If the interest rate is 8 per cent, the quantity of money people demand is________ the
quantity supplied and the interest rate will________.
a) less than; fall.
b) more than; fall.
c) less than; rise.
d) more than; rise.
e) equal to; not change.

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 Tutorial 5 Econ 102 2023

6. A commercial bank’s reserves are:

a) the SA government bonds that it owns.
b) the provision of funds to businesses and individuals.
c) the savings and time deposits that it holds.
d) the loans it has made.
e) the currency in its vault plus the balance on its reserve account at the Reserve Bank.

7. For any trade with South Africa, if the interest rate on Namibian Dollar assets increases,
ceteris paribus, the:
a) quantity of Namibian Dollars demanded will increase. People needN to
b) quantity of Rands demanded will remain unchanged. Purchaseassets
c) quantity of Rands demanded will increase.
d) demand for Rands will decrease.
e) Both A and D are correct.

Demand supply
8. If a shortage of Rands arises in the foreign exchange market, the:
46 a) demand for Rands decreases to restore equilibrium.
b) supply of Rands decreases to restore equilibrium
c) South African exchange rate will appreciate.
d) South African exchange rate will depreciate
e) supply of Rands increases to restore equilibrium

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