Grade 11 Economics Exam
June 2012 – Memo
A
D
1.3.1
K
1.1.1
X
1.3.2
E
1.1.2
X
1.3.3
M
1.3.4
G
1.3.5
L
1.1.3
B
C
X
1.1.4
X
1.1.5
X
1.3.6
D
1.1.6
X
1.3.7
B
1.3.8
C
1.1.7
1.1.8
X
X
1.1.9
X
1.1.10
X
1.1.11
1.1.12
X
X
1.2.1
IS
1.2.2
GDP
1.2.3
EQUITIES
1.2.4
EXPORT
1.2.5
SELLS
Grade 11 Economics June 2012
QUESTION 2: MEASURING THE PERFORMANCE OF THE SA ECONOMY.
2.1.1
2.1.2
2.1.3
2.1.4
False
False
False
True
(4 x 2 = 8)
2.2
Gini coefficient
Lorenz Curve
Quintile ratio
(3 x 2 = 6)
2.3.1
2.3.2
2.3.3
2.3.4
Income
Profit of companies (rent and interest)
Taxes paid at the time of a transaction (Excise taxes, VAT etc)
Add factor receipts from abroad and subtract factor payments abroad
Or add net factor payments abroad.
(2)
(3)
(3)
(2)
2.4.1 Balance of Payments is an account of all economic transactions between the
residents of a country and the residents of the rest of the world in a particular
period.
(2)
2.4.2 Net portfolio investments
(2)
2.4.3 Capital Transfer account or the change in gold and forex reserves.
(2)
2.4.4 Current account deficit grew in period – ie outflows of funds (mainly imports) were
bigger than inflows. This generally indicates that SA was growing strongly in that
period.
(4)
2.5
Any four of:
Economic growth + explanantion
Full employment + explanation
Price stability + explanation
External stability + explanation
Social equity + explanation
1 mark for identification, 3 marks for explanation
(16)
[50]
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Grade 11 Economics June 2012
QUESTION 3 (OPTIONAL): INFLATION.
3.1.1
3.1.2
3.1.3
3.1.4
True
False
True
False.
(4 x 2 = 8)
3.2
Distributional
Economic
Social
(3 x 2 = 6)
3.3.1 Consumer price index is an index of a representative basket of consumer goods
and services.
(2)
3.3.2 2000
(2)
3.3.3 (122.5 – 112.1) / 112.1 x 100 = 9.3%
(3)
3.3.4 Yes. CPI fell from January 2003 to February 2003.
(3)
3.4.1 3% 6%
(2)
3.4.2 Yes or No plus justification. SARB achieved it for 5/10 years. Average in the range.
(4)
3.4.3 Economic growth, increasing oil prices, other acceptable answers.
(4)
3.5
Cost-push inflation results from a supply shock and AS shifts to the left (AS 0 – AS1).
Prices rise (P0 – P1) and output falls (Y0 – Y1) – i.e. stagflation results. If demand
sided policies are used to counter the inflation, AD is shifted left from AD 0 to AD1,
but at the expense of more losses in output and rising unemployment (P 0 and Y2). If
falling output is countered with demand sided policies, AD0 shifts to AD2, but at the
expense of more rising prices P1 to P2.
(8)
3.6
This is based on the “Equation of Exchange” identified by Irving Fisher:
An identity:
MV = PQ
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Grade 11 Economics June 2012
where:
M = quantity of money
V = velocity of circulation
P = average (general) price level
Q = physical quantity of goods and services produced (GDP).
The velocity of circulation (V) is an indication of the number of times the average
rand changes hands in the form of cash or demand deposits.
Monetarists convert the equation of exchange into a theory (The Quantity Theory of
Money) by making certain assumptions:
V is stable
M is determined by the monetary authorities and is not affected by P or Q.
If M changes, PQ has to change by the same proportion or percentage.
Thus the Monetarists believe that changes in M affect output PQ (Y) DIRECTLY.
Monetarists believe that changes in M will impact on P only (and not Q) in the long
run since Q is determined by the quality and quantity of the factors of production. 
M will have inflationary effects only in the long run. In the short run however, M
may impact on both P and Q.
(8)
[50]
4
Grade 11 Economics June 2012
QUESTION 4 (OPTIONAL): THE MONETARY SECTOR
4.1.1
4.1.2
4.1.3
4.1.4
False.
False.
False.
False
(4 x 2 = 8)
4.2
Portable
Divisible
Scare
Generally accepted
Durable
(3 x 2 = 6)
4.3.1 LL Demand for money (liquidity preference)
M1M1 money supply
(4)
4.3.2 Open market operations
(2)
4.3.3 OMO involves buying or selling government bonds. SARB would buy bonds, putting
money into the economy shifting M1 to M2 thereby lowering interest rates. (Price of
bonds would rise lowering the rate of return on them too)
(4)
4.4.1 Cash and demand deposits.
(3)
4.4.2 (946906 – 605679) / 605679 x 100 = 56.3%.
(3)
4.4.3 The expansion of a country's money supply that results from banks being able to
lend. The size of the multiplier effect depends on the percentage of deposits that
banks are required to hold as reserves.
(4)
4.5
Money as a medium of exchange.
Money serves as a lubricant or intermediary to smooth the process of exchange and
to make it more efficient. (Exchange without money - barter – requires the double
coincidence of wants).
Thus, we can say that the most basic function of money is to serve as a medium of
exchange and is the only function that is unique to money and can be used to
define money:
Money is anything that is generally accepted as payment for goods and
services or that is accepted in settlement of debt.
Money as a unit of account.
A unit of account is an agreed measure for stating prices of goods and services. In
a money economy the prices of all goods and services are expressed in monetary
terms. Money thus functions as a unit of account.
Money as a store of value
In any society there is a need to hold wealth in some form or another. The most
common form for holding wealth is money since it can always be exchanged for
other goods and services at a later date. Wealth can be held in other forms –
property, stocks, art, etc. Money is the most easily used – the most liquid - form of
wealth.
5
Grade 11 Economics June 2012
4.6
Controller of note issue
The SARB has the sole right to issue banknotes and coins.
Bankers’ bank.
The SARB holds the minimum cash reserves that banks are required to hold. These
form part of the monetary base which banks can use to create demand deposits.
By controlling these reserves, the SARB can, to a certain extent, control the
quantity of money. These reserves are also used to clear the banks’ mutual
obligations i.e. the SARB acts as a clearing bank.
SARB also acts a lender of last resort. It will meet any cash balance shortage
experienced in the money market. Since 1998, the SARB has used a repurchase
tender system where banks offer various securities (such as Treasury bills, Land
Bank bills etc) for sale to the SARB with the promise that they will repurchase them
at a later date (usually 1 week) at a discounted rate. This rate charged by the SARB
is known as the “repo” rate and is the key interest rate in the economy.
Banker for the government.
The SARB is the main banker for the government (although the government does
have accounts with private banks). It also grants credit, issues Treasury bills,
advises government on monetary and financial matters and is responsible for the
administration of all exchange control regulations.
Custodian of gold and other foreign exchange reserves.
The SARB keeps all of the countries gold and foreign exchange reserves. Gold
reserves are valued at market related prices. The level of these reserves serve as a
barometer as to the state of the economy and the prospects of future growth.
Formulation and implementation of monetary policy.
The SARB is responsible for the formulation and implementation of monetary policy.
The SARB’s primary objective is the protection of the domestic and external value
of the rand.
(8)
[50]
SECTION B TOTAL: [100]
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Grade 11 Economics June 2012
SECTION C (COMPULSORY)
Start this question on a NEW and SEPARATE PAGE.
INSTRUCTIONS
Essay responses should include an introduction, body and conclusion. Five marks will be
awarded for the introduction and conclusion. In addition, 5 marks will be allocated for the
interpretation of the topic and language usage. A maximum of 40 marks will be awarded
for the body.
QUESTION 5: THE MONETARY SECTOR AND INFLATION
The South African Reserve Bank regards its primary goal in the South African economic
system as "the achievement and maintenance of price stability".
Discuss the monetary policy options available to the SARB to fight inflation and how these
policies impact the economy.
[50]
SECTION C TOTAL: [50]
GRAND TOTAL: [200]
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