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Explain how the inflation rate, that is usually reported every month in the media, is obtained.
(a) Expansionary monetary policy;
(b) Contractionary monetary policy;
(c) Expansionary fiscal policy;
(d) Contractionary fiscal policy.
Graphical illustration of the demand‐pull inflation (5)
Provide any three of your own examples/scenario that might cause the demand‐pull
inflation (6)
Recommend the policy tools to use in order to curb each type of inflation mentioned
above (4)
Question 6
What type of unemployment does each of the following represent? Explain your answers.
Q.6.1 Workers at a clothing factory lose their jobs when the firm relocates to another province.
Q.6.2 Workers at a factory making floppy disks lose their jobs when the firm goes under due to competition from USB’s.
Q.6.3 Migrant farm workers’ employment is terminated when the harvest is finished.
Q.6.4 Workers at the car plant are laid off as a result of a slump in motorcar sales.
Q.6.5 Worker decides to resign from his firm to find himself, so he can follow his passion and apply for a different job in a near future.
Explain, with the aid of a graph, the effect on the rand/dollar exchange rate and the equilibrium
quantity of dollars if there is a decrease in imports from the USA to South Africa.
In your answer comment on the effect of this on the current account balance as well as on
domestic prices.
(Note: 5 marks for the graph and 5 marks for the explanation of the graph)
Question 5
Explain, with the aid of a graph, the demand‐pull inflation. In your answer, consider the following:
Graphical illustration of the demand‐pull inflation (5)
Provide any three of your own examples/scenario that might cause the demand‐pull
inflation (6)
Recommend the policy tools to use in order to curb each type of inflation mentioned
above (4)
or using symbols.
Explain, with the aid of symbols, the monetary transmission mechanism when
interest rates increase
(Note: Prices and wages are variable.)
(10)
Q.3.2 Explain, using the AD‐AS model, how the South African Government can use
fiscal policy as a tool to recover from the negative effects of this COVID‐19
pandemic.
Your answer must include the following:
The description of the type of fiscal policy required; (4)
An explanation of how the implementation of this tool will work their way
through the economy to achieve the desired effect; (6)
The AD‐AS graph showing the implications of your recommendations. (5)
Marks will be awarded for your ability to integrate theory with the scenario
provided.
(15)
information to answer the questions that follow:
C = 450 + 0.4Y
I = 350
G = 150
X = 70
Z = 35 + 0.1Y
T = 0.15Y
Yf = 1550
Q.2.1 Calculate the level of autonomous spending in this economy.
Q.2.2 Calculate the size of the multiplier
(Note: Round your answer to two decimal places)
(4)
Q.2.3 Calculate the equilibrium level of income
(Hint: use the multiplier method)
Q.2.4 Calculate the tax revenue to the government of this country when the economy
remains in equilibrium.
(2)
Q.2.5 Calculate what the new equilibrium income should be if the government of this
country decides to cancel all taxes, implying the tax rate would now be 0%.
(6)
Q.2.6 Before the government decreased the tax rate, how much of government
spending was required to bring the economy to full employment?
(4)
Q.1.8 Mr Brown has recently been retrenched. The firm he worked for had to retrench a number of staff due to the downturn in the economy. Mr Brown has not managed to find alternative employment. We can say he is _________________
unemployed.
(a) Structurally;
(b) Cyclically;
(c) Seasonally;
(d) Frictionally.
Q.1.9 If the CPI was 106 in 2013 and 116 in 2014, the inflation rate in 2014 was:
(a) 106%;
(b) 116%;
(c) 9.4%;
(d) 16%
Q.1.10 Strikes across a wide range of industries in South Africa in the first half of 2020
can be illustrated in the AD‐AS model as a:
(a) Leftward shift of the AD curve;
(b) Rightward shift of the AD curve;
(c) Leftward shift of the AS curve;
(d) Rightward shift of the AS curve.
Q.1.5 If the inflation rate is 6% and Susan receives a 6% increase in income, then, over the year, Susan’s:
(a) Real and nominal income both remain unchanged;
(b) Real and nominal income both rise;
(c) Real income rises but nominal income remains unchanged;
(d) Nominal income rises but real income remains unchanged.
Q.1.6 Given the import function, Z = 300 + 2/3Y, which of the following statements is correct?
(a) The marginal propensity to save is 1/3;
(b) The induced component is 300;
(c) 2/3 is the proportion of any income spent on imports;
(d) None of the statements is correct.
Q.1.7 An increase of R5 billion in income in a macroeconomy leads to an increase in R3 billion in consumption spending. From this information, we can determine that the marginal propensity to save in this economy is:
(a) 0.6;
(b) 0.5;
(c) 0.3;
(d) 0.4.
for a nominal GDP of R300. This year it produces 60 units of output at a price of
R8,00 each. What is the percentage change in real GDP since the base year?
(a) 5%;
(b) 10%;
(c) 20%;
(d) 15%.
Q.1.4 Which of the following statements about Fiscal Policy is INCORRECT?
(a) In order to combat inflation, the South African Reserve Bank must apply a
contractionary fiscal policy;
(b) A contractionary fiscal policy can result in higher levels of unemployment;
(c) Expansionary fiscal policy will increase the budget deficit;
(d) The application of fiscal policy will have no effect on aggregate supply in the
AD‐AS model.
