UNIVERSITY OF LIMPOPO
FACULTY OF MANAGEMENT AND LAW
SCHOOL OF ECONOMICS AND MANAGEMENT
DEPARTMENT OF ECONOMICS
ASSIGNMENT
MODULE:
OCT, 2021
CFEB002
(INTRODUCTION TO ECONOMICS)
DUE DATE: 25 OCTOBER 2021
MARKS: 100
INTERNAL EXAMINER:
MR A MOKGOLA
INTERNAL MODERATOR:
MR T MATLASEDI
THIS PAPER CONSISTS OF …12…PAGES INCLUDING COVER PAGE
INSTRUCTIONS:
• All questions are compulsory and MUST be attempted.
• Make sure you save and submit your answers before your exit
• Only one attempt is allowed
• This an individual assessment
MULTIPLE CHOICE QUESTIONS
1. Capital widening refers to:
[100]
(2)
A. a situation where capital replaces labour in the production process.
B. a situation where the capital to labour ratio in the economy increases.
C. a situation where additional purchases of capital are made in order to match a growing labour
force.
D. a situation where labour replaces capital in the production process.
E. an increase in the current account deficit as more capital is imported.
2. Which one of the following statements is incorrect?
(2)
Economic growth:
A. may be measured as the annual rate of increase in real GDP.
B. may be measured as the annual rate of increase in GDP at constant prices.
C. may be measured as the annual rate of increase in GDP at current prices.
D. should preferably be measured on a per capita basis.
3. Which one of the following is not a problem associated with GDP?
(2)
A. GDP pertains only to production inside the country.
B. The estimation of the value of production that is not sold in a market.
C. Many activities are not recorded.
D. GDP data are inevitably revised as more and better information become available.
E. GDP is not a good measure of economic welfare.
4. Which one of the following is not an element of the business cycle?
(2)
A. Peak
B. Trough
C. Upswing
D. Downswing
E. Long-term trend
5. Which one of the following is not an element of the business cycle?
A. Expansion
B. Boom
C. Real welfare
D. Contraction
2|Page
(2)
E. Recession
6. Which one of the following statements is incorrect?
(2)
A. The business cycle is of academic interest only.
B. Economists use business cycle indicators to analyse the economy.
C. Economists use leading indicators to predict what is going to happen in the economy.
D. The number of new motorcars sold is one of the leading indicators used by South African
economists to predict where the economy is heading.
E. The dates of the turning points of the South African business cycle are estimated by economists
at the South African Reserve Bank.
7. Which one of the following is not a supply factor in economic growth?
(2)
A. Money
B. Natural resources
C. Labour
D. Capital
E. Entrepreneurship
8. Which one of the following is not a demand factor in economic growth?
(2)
A. Consumption spending
B. Investment spending
C. Exports
D. Technology
E. Import substitution
9. Which one of the following statements is incorrect?
(2)
A. The exploitation of natural resources played an important role in the development of the South
African economy.
B. The quality of the South African labour force leaves a great deal to be desired.
C. South Africa is a capital-rich country, which exports large quantities of capital goods to the rest
of the world.
D. Exports of minerals and metals have played a key role in the growth of the South African
economy.
E. Import substitution played a significant role in the initial development of the South African
manufacturing sector.
10. Which one of the following statements is incorrect?
A. In South Africa money is created exclusively by the South African Reserve Bank.
3|Page
(2)
B. The stock of money consists largely of bank deposits and banks create these deposits by making
loans.
C. Money creation by banks is constrained by the demand for bank loans.
D. The South African Reserve Bank uses changes in interest rates in an attempt to regulate the
rate at which new money is created.
E. The stock (quantity) of money in the economy is essentially determined by the interaction of the
interest rate and the demand for money. There is no independent supply of money.
11. Which one of the following statements regarding monetary policy is correct?
(2)
A. Monetary policy in South Africa is implemented by the South African Reserve Bank (SARB).
B. The key instrument of monetary policy is the repurchase rate (repo rate).
C. The SARB pursues a formal inflation target, set by the Minister of Finance, in conjunction with
the SARB.
D. All the above.
E. None of the above.
12. When the inflation rate is expected to fall below the target rate by a significant margin, the SARB
will tend to:
(2)
A. reduce the cost of credit to the banks.
B. decrease the repurchase rate (repo rate).
C. purchase government bonds on the open market.
D. use moral suasion to persuade banks to provide more loans to their clients.
E. All of the above options are correct.
13. The Prime rate is:
(2)
A. the rate at which the SARB advances loans to the government.
B. the best interest rate an investor can obtain on a long-term deposit.
C. the rate at which banks provide loans to their best customers.
D. the rate at which the SARB provides loans to other banks.
E. the rate at which the quantity of money demanded is equal to the quantity of money supplied .
14. Which of the following best describes the M1 measure of the money stock?
A. It is the M3 money measure minus the M2 money measure.
B. M1 includes cash and medium term deposits.
C. M1 is cash plus demand deposits.
D. M1 is cash minus demand deposits.
E. M1 is the most comprehensive measure of money stock available.
4|Page
(2)
15. Which of the following is true of the money market?
(2)
A. The speculative demand for money is a function of the interest rate.
B. The liquidity preference curve slopes upward.
C. The transactions demand for money is a function of the interest rate.
D. The precautionary demand for money is a function of the interest rate.
E. Higher rates of interest lead to a higher demand for liquidity.
16. Which of the following will cause the demand curve for money to shift to the right?
(2)
A. An increase in real GDP.
B. A decrease in the repo rate.
C. An increase in the quantity of money available.
D. A decrease in the quantity of money available.
E. A decrease in real GDP.
17. Which of the following statements is correct?
(2)
A. The economy is in equilibrium at full employment.
B. Fiscal policy can be freely used to achieve full employment without risking a rise in the price
level.
C. The use of fiscal policy to achieve full employment will bring about a rise in the price level.
D. Monetary policy can be freely used to achieve full employment without risking a rise in the price
level.
E. Monetary policy cannot be used to achieve full employment since it will affect only the price level
in the short run.
18. In terms of the AD-AS approach, if South Africa’s cheap coal reserves were to run out and had to
be replaced as an energy source by expensive imported oil:
(2)
A. total output would drop because the AD curve would move to the left.
B. total output would rise because the AS curve would move to the right.
C. the price level would rise because the AD curve would move to the right and the AS curve would
move to the left.
D. the price level could not be predicted because the AD and AS curves would both move to the
left.
5|Page
E. total output would drop because the AS curve would move to the left but the AD curve would be
unaffected.
19. Which one of the following will give rise to a rightward shift of the AD curve?
(2)
A. Households decide to increase their saving rate.
B. There is a sharp and sustained increase in share prices on the JSE.
C. Personal tax rates are increased.
D. The SARB increases the repo rate.
E. Real government spending is lowered.
20. Which one of the following will give rise to an increase in aggregate demand, illustrated by a
rightward shift of the AD curve?
(2)
A. A deterioration in business confidence as a result of increased political violence.
B. A decrease in the repo rate.
C. An increase in the company tax rate.
D. A decrease in the international prices of the commodities that we export (eg gold, platinum,
coal).
E. A sharp appreciation of the rand against the major currencies.
21. Which one of the following statements about the AS curve is incorrect?
(2)
A. In the short run the AS curve tends to have a positive slope.
B. In the long run the AS curve tends to be vertical.
C. The AS curve is primarily governed by the costs of production.
D. The AS curve is influenced by the prices and productivity of the various factors of production.
E. Because imports do not form part of GDP, import prices have no effect on the AS curve.
22. Which one of the following will give rise to a decrease in aggregate supply, illustrated by a leftward
shift of the AS curve?
(2)
A. A decrease in the price of imported oil.
B. A decrease in wages.
C. A decrease in interest rates.
D. A decrease in productivity.
E. A decrease in consumption spending by households.
23. In the AD-AS model a simultaneous increase in government spending and increase in the price of
oil will lead to:
(2)
A. a simultaneous increase in the price level and in the level of production and income.
B. an increase in the price level and an indeterminate change in the level of production and
income.
6|Page
C. a decrease in the price level and an indeterminate change in the level of production and
income.
D. an increase in the level of production and income and an indeterminate change in the price
level.
E. a decrease in the level of production and income and an indeterminate change in the price
level.
24. Which one of the following statements is incorrect?
(2)
A. The aggregate AD-AS model seeks to explain the general price level and the aggregate
production of goods and services.
B. The aggregate demand curve shows the aggregate quantities that are demanded at different
price levels.
C. If aggregate supply falls, there will be an upward pressure on prices, ceteris paribus.
D. In terms of the AD-AS model, if aggregate demand falls, with no change in aggregate supply,
unemployment will tend to decrease.
E. An increase in investment spending will result in a rightward shift of the AD curve.
25. Which one of the following statements is correct?
(2)
A. The aggregate demand curve (AD curve) can be shifted by monetary as well as fiscal policy
measures.
B. A restrictive fiscal policy will result in a rightward shift of the aggregate demand curve.
C. A general increase in wages in the economy will, ceteris paribus, shift the aggregate supply
curve downward (to the right).
D. A supply shock results in a simultaneous increase in prices and production in the economy.
E. None of the above statements is correct.
26. Using AD-AS analysis, it follows that an expansionary monetary policy will result in:
A. an increase in equilibrium income and the price level in the short run.
B. a decrease in equilibrium income and the price level in the short run.
C. an increase in equilibrium income and no change in the equilibrium price level.
D. a decrease in equilibrium income and an increase in the equilibrium price level.
E. an increase in equilibrium income and a decrease in the equilibrium price level.
7|Page
(2)
27. Which one of the following is not assumed in the AD-AS model?
(2)
A. Prices are variable.
B. Wages are variable.
C. Aggregate supply can change independently of aggregate demand.
D. The quantity of money is fixed.
E. Interest rates are variable.
28. Which one of the following is not a possible explanation for the slope of the AD curve?
(2)
A. The oil price effect.
B. The interest rate effect.
C. The real balance effect.
D. The wealth effect.
E. The international trade effect
29. Which one of the following statements is incorrect?
(2)
An expansionary monetary policy:
A. can be illustrated by an upward movement of the AS curve.
B. can be illustrated by an upward movement of the AD curve.
C. will tend to increase the price level in the short run.
D. will tend to increase the level of income and production the short run.
E. will leave the AS curve unchanged in the short run.
30. Which one of the following is an example of an expansionary fiscal policy?
(2)
A. A decrease in interest rates.
B. An increase in interest rates.
C. Building of schools by government.
D. A decrease in government spending.
E. An increase in taxes.
31. Which one of the following statements is incorrect?
An upward (leftward) shift of the AS curve:
A. is often referred to as an adverse supply stock.
B. is often used to illustrate stagflation.
C. may be caused by an increase in wages.
D. may be caused by an increase in productivity.
E. may be caused by an increase in the price of imported oil.
8|Page
(2)
32. The ________ demand for money arises out of the need to hold money as a store of value. This
demand for money is a function of ________.
(2)
A. precautionary; interest rates
B. transactions; national income
C. speculative; interest rates
D. precautionary; national income
E. transactions; interest rates
33. If the consumer price index at the end of 2019 was 112 and at the end of 2020 was 115, then the
rate of inflation for 2020 is:
(2)
A. 2.5%.
B. 2.7%.
C. 16,66%.
D. 1,5%.
E. –16,66%.
34. If inflation was 10% in a particular year and you received a 5% increase income during the same
year, then over the year your:
(2)
A. real and nominal income both fell.
B. real and nominal income both rose.
C. real income fell, but nominal income rose.
D. real income rose, but nominal income fell.
E. nominal income rose, but real income was unchanged.
35. If the real interest rate is negative, then:
(2)
A. the inflation rate is larger than the nominal interest rate.
B. the inflation rate is smaller than the real interest rate.
C. the inflation rate is smaller than the nominal interest rate.
D. lenders will gain.
E. the real value of a loan will increase.
36. A depreciation of the rand may have inflationary consequences in South Africa because it:
A. increases the costs of exports.
B. discourages savings.
C. decreases the international competitiveness of South African producers.
D. increases the costs of imported goods.
9|Page
(2)
E. discourages exports.
37. Which of the following statements is incorrect?
(2)
A. Cost-push inflation is associated with rising prices and declining unemployment.
B. Attempts to decrease cost-push inflation by restrictive monetary or fiscal policy are likely to
produce even greater unemployment.
C. Cost-push inflation may result from firms increasing their profit margins.
D. Cost-push inflation may follow from a depreciation of the domestic currency against the
currencies of the country’s major trading partners.
38. Which one of the following statements is true?
(2)
A. The consumer price index (CPI) measures the cost of all consumer goods and services.
B. A 10% rate of inflation means that inflation is 10% per month.
C. The inflation rate is calculated from a set of CPI figures.
D. Inflation refers to an increase in certain important prices in the economy.
39. Inflation tends to:
(2)
A. discourage speculative practices.
B. encourage saving.
C. create balance of payments problems.
D. redistribute income from the government to the private sector.
E. benefit creditors at the expense of debtors.
40. Which one of the following is not a possible cause of demand-pull inflation?
(2)
A. An increase in government spending.
B. An increase in the oil price.
C. An increase in consumption spending.
D. An increase in investment spending.
E. An increase in export earnings.
41. Which one of the following is not a possible cause of cost-push inflation?
(2)
A. An increase in wages.
B. An increase in profit margins.
C. A decrease in interest rates.
D. A decrease in productivity.
E. An increase in the cost of imported capital and intermediate goods.
42. Which one of the following will not be appropriate in an attempt to combat demand-pull inflation?(2)
A. An increase in interest rates.
10 | P a g e
B. An increase in taxes.
C. A decrease in government spending.
D. Stricter control of consumer credit.
E. Measures to increase the productivity of labour.
43. Which one of the following is not an essential feature of inflation targeting?
(2)
A. The public announcement of quantitative inflation targets.
B. The recognition that the primary aim of the central bank is to ensure rapid economic growth.
C. A broad based approach to the analysis of inflation.
D. A high degree of transparency
E. A high degree of accountability.
44. If a country’s rate of unemployment increases, then we can conclude that:
(2)
A. the country is experiencing jobless growth.
B. no new jobs are being created.
C. GDP growth must be falling.
D. the proportion of people of working age who want employment and who cannot find
employment is increasing.
E. all of the above are true.
45. Reasons on the demand-side of the labour market for increasing unemployment in South Africa
could include:
i.
an increase in population growth.
ii.
an increase in the capital intensity of production.
(2)
iii. an increase in immigration.
iv. a decrease in the production of goods and services.
v.
an increase in the cost of employing labour.
A. i, iii and v
B. i, ii and iv
C. ii, iv and v
D. ii and iv
E. i and iii
46. Which of the following would not be expected to generate employment?
A. Easier access to credit for small business.
11 | P a g e
(2)
B. Public works programmes.
C. An increase in imports.
D. An increase in the labour intensity of production.
E. A decrease in the relative price of labour.
47. A rightward shift of the Phillips curve:
(2)
A. indicates that the trade-off between inflation and unemployment has become less severe.
B. is associated with deflation.
C. might be the result of a decrease in the price of imported capital goods.
D. indicates an expansion in economic output.
E. indicates that every level of inflation is associated with more unemployment than before.
48. Which one of the following policy measures is appropriate to solve the problem of cyclical
unemployment?
(2)
A. Improvement in the quality of labour.
B. A decrease in the labour supply.
C. An increase in investment spending.
D. An increase in the labour intensity of production.
49. Which one of the following statements is incorrect?
(2)
A. The costs of unemployment are much less than the costs of inflation.
B. Unemployment entails costs to individual as well as to society.
C. Even the best system of unemployment benefits cannot eliminate the costs of unemployment
to an unemployed person.
D. Prolonged unemployment may result in a loss of skills.
E. Unemployment tends to have serious social and political effects.
50. Which one of the following should not form part of a strategy to combat unemployment in South
Africa?
(2)
A. Steps to limit the supply of labour.
B. Steps to stimulate the demand for labour.
C. Steps to increase the labour intensity of production.
D. Steps to increase the capital intensity of production.
E. Steps to promote small businesses and the informal sector.
………………………...……………….………...…….…...The End……………...………………….…...…………………………
12 | P a g e