UNIVERSITY OF THE FREE STATE
MAIN, QWAQWA & SOUTH CAMPUS
EECF1624 /EFEC2624
DEPARTMENT OF ECONOMICS
CONTACT NUMBER: 051 401 9196
TEST: Semester Test
8 September 2017
ASSESSOR(S):
MODERATOR:
Mrs. C. Campher; Mrs. C. Duvenhage; Mrs. L J.v. Rensburg;
Mr. A. Magwiro
Dr. J Coetzee
TIME: 1 hour
MARKS: 50
INSTRUCTIONS:
• Read each question carefully and please write legibly.
• Show all calculations and label all graphs clearly.
• Round off the final answer to two decimal places where necessary.
• DO NOT WRITE OR DRAW GRAPHS IN PENCIL!
QUESTION 1
Marks]
[10X2 = 20
1.1 With reference to the economic circular flow diagram, which one of the following is true
in the product market?
A. Households sell goods and services to firms.
B. Households sell resources to firms.
C. Firms sell resources to households.
D. Firms sell goods and services to households.
E. Households buy resources from firms.
1.2 Assume a factory added R5 000 worth of output this year. Incidentally, the waste from this
factory caused R1000 worth of loss to the neighbouring waterways. As the result, gross
domestic product will:
A. Increase by R4000
B. Increase by R5000
C. Increase by R1000
D. Decrease by R4000
E. Increase by R1000
1
1.3 The table below shows a section of the national accounts for a small country in 2016. Based
on this information the values for Gross Domestic Product is _________ and for National
Income is __________ is:
Consumption Expenditure
10 500
Government Expenditure
3 000
Depreciation
500
Exports
1 200
Imports
1 000
Investment
2 200
A.
B.
C.
D.
E.
R15 900; R16 400
R15 900; R15 400
R17 900; R17 400
R17 900; R16 500
R16 400; R16 900
1.4 In a country with a population of 100 million people, there are 40 million children under
the age of 15 years, 32 million employed, 18 million pensioners, 8 million unemployed and
2 million people who are physically unable to work. The official unemployment rate in this
country equals:
A. 8%
B. 10%
C. 13.3%
D. 20%
E. 25%
1.5 At the end of 2015 the Consumer Price Index was 90 and at the end of 2016 it was 110.
Calculate the inflation rate for 2016.
A. 20%
B. 22.2%
C. 8.18%
D. 81.8%
E. 10%
1.6 Which one of the following statements is incorrect? In the AD-AS model:
A. There is an inverse relationship between the general price level and the volume of goods
and services demanded.
B. There is a positive relationship between the general price level and the volume of goods
and services supplied.
C. The volume of goods and services demanded decreases as the general price level
decreases.
D. The volume of goods and services supplied increases as the general price level increase.
E. The AD curve has the same shape as any normal demand curve.
2
1.7 Assume S = -100 + 0.75Y; I = 200; G = 250; the current account has a surplus of R50,
whilst the capital account has a shortage of R200. Calculate the equilibrium level of income.
A. 600
B. 800
C. 2400
D. 1600
E. 450
1.8 The graph below illustrates the consumption expenditure (C) in the Keynesian Model.
450
Consumption
C
800
2 000
Income (Y)
In the graph above, if income is R5 000, then consumption expenditure equals ........ and saving
equals .........
A. R5 000, R0
B. R3 000, R2000
C. R3 000, R1 200
D. R3 800, R1 800
E. R3 800; R1 200
3
1. 9. Refer to the above diagram. Suppose the marginal propensity to consume is 0.75. If the
value of FE is 600, determine the values of AB and GF respectively.
A. 450; 600
B. 400; 200
C. 800; 750
D. 800; 200
E. 450; 300
1.10. Which one of the following will give rise to a rightward shift of the AD curve?
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.
QUESTION 2
[10
Marks]
2.1 Make use of AD/AS analysis to graphically illustrate, the effect of the following incidents
on both GDP and the price level of an economy:
2.1.1 A recent survey indicates that investment spending has declined during the first two
quarters of 2017. Assume that the rate of unemployment is very high in this case. (3)
2.1.2 An earthquake hits the country of Japan, thereby pushing up the prices of inputs of most
South African industries. Assume that unemployment exists but is busy declining and that
both prices and wages are flexible.
(3)
4
2.2 Make use of a relevant graph, to illustrate an inflationary gap in an economy. Ensure that
your graph is clearly and fully labelled.
(4)
QUESTION 3
[13
Marks]
3.1 Assume the following information for the economy of Bloemies, and answer the questions
that follow:
MPC = 0.75 and tax rate (t) = 10%
3.1.1 What is the value of the slope of the savings function for Bloemies?
(2)
3.1.2 If autonomous consumption in Bloemies is 330, make use of a graph to illustrate the
Consumption function for this economy.
(3)
3.1.3 Illustrate – on the graph drawn in question 3.1.2 above – how an increase in the tax
rate from 10% to 30% will change the graph.
(2)
3.2 Given:
S = -930 + 0.20Y
I = 760
G = 430
X = 850
M = 320
m = 0.05Y
t = 0.1Y
3.2.1
Write down the Total Expenditure (TE) function, calculate the equilibrium income and
illustrate the equilibrium graphically.
(6)
QUESTION 4
[7 Marks]
4.1 The table below presents some recent macro data for a hypothetical economy.
Nominal GDP
Real GDP per capita
CPI
1990
R41 451
R28 448
134.2
2000
R62 228
R34 774
174.6
4.1.1 Calculate the inflation rate for this economy for the period 1990-2000.
(2)
4.1.2 Calculate the average annual growth rate in the real GDP in this economy over the period
1990-2000. Show your calculations.
(5)
5
END
6