Grade 12 Economics Exam
June 2012
MEMO
Name: ______________________________
A
B
C
D
Teacher: OFH / SH / WHS
1.3.1
M
1.1.1
X
1.3.2
J
1.1.2
X
1.3.3
N
1.1.3
X
1.3.4
I
1.3.5
G
1.1.4
X
1.1.5
X
1.3.6
B
1.1.6
X
1.3.7
D
1.3.8
F
1.1.7
X
1.1.8
X
1.1.9
X
1.1.10
1.1.11
X
X
1.1.12
X
1.2.1
rise
1.2.2
deregulation
1.2.3
depreciation
1.2.4
horizontally
1.2.5
limited
SECTION B: Answer ALLTHREE questions from this section.
QUESTION 2 (LO1: Macroeconomics)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
2.1.
Determine which of the following statements are true or false. Write only True or
False next to the number (2.1.1 – 2.1.4).
2.1.1. Failure by the public sector to provide public goods results in the market providing
them at high prices. TRUE
2.1.2 To convert GDP at factor prices to GDP at basic prices, taxes on products must be
added. FALSE
2.1.3 The trade-off between unemployment and inflation is explained by the Lorenz curve.
FALSE
2.1.4 Restrictive monetary policy entails the lowering of interest rates. FALSE (4 x 2 = 8)
2.2
List THREE reasons why international trade takes place.
ABSOLUTE ADVANTAGE ...............
COMPARATIVE ADVANTAGE.........
RELATIVE ADVANTAGE .................
(3 x 2 = 6)
2.3
Suppose in an economy, the marginal propensity to save (MPS) is 0.4 and
autonomous consumption spending is R30 billion. Showing your working where
relevant:
2.3.1 Derive the consumption function.
(2)
C = c + mpcY or C = 30 + 0.6Y
2.3.2 Determine the size of the multiplier in this economy.
(2)
k = 1/mps = 1/0.4 = 2½
2.3.3 Calculate the value of equilibrium income in this economy.
(4)
C = 30 + 0.6Y
Y=C
Y = 30 + 0.6Y
Y – 0.6Y = 30
Y = 30/0.4 = 75
2.3.4 Calculate the eventual change in aggregate income, if there was an injection of R10
billion into the economy.
(2)
k = (change Y) / (change E) = 2½ x 10 = 25
2.4
Study the information below on the South African balance of payments and answer
the questions that follow.
Grade 12 Economics: June 2012
2
Source: Quarterly Bulletin, SARB, March 2011
2.4.1 Why is ‘net gold exports’ listed as a separate entry?
(2)
SA’s BIGGEST EXPORT
GOLD USE TO PLAY IMPORTANT ROLE IN MONETARY SYSTEMS
2.4.2 Calculate the balance on the “Trade account” for 2010.
(2)
NET MERCHANDISE (566 760 – 598 151) + NET GOLD (59 499) = 28 108
2.4.3 Explain why you think the deficit on the current account fell from 2008 to 2010. (4)
ANYTHING REASONABLE ANSWER FROM TABLE, EG.
DECREASE IN MERCHANDISE IMPORTS (739 852 – 598 151)
DECREASE IN INCOME PAYMENTS (122 129 – 87 022)
2.4.4 The “Change in net gold and other foreign reserves owing to balance of payments
transactions” is a balancing amount. Explain.
ACCEPT ANY REASONABLE ANSWER, EG.
CURRENT ACC. + CAPITAL TRANSFER ACC. + BALANCE ON FINANCIAL
ACC + UNRECORDED TRANSACTIONS = “Change in net gold and other
foreign reserves owing to balance of payments transactions”
(2)
2.6
The public sector is an institution that does not automatically act in the interest of
society and may therefore fail. Three groups of people contribute to such failure.
Discuss.
POLITICIANS + EXPLAIN WHY
BUREAUCRATS (PUBLIC SERVANTS) + EXPLAIN WHY
ENTERPRISES, UNIONS, INDIVIDUALS + “RENT SEEKERS”
(8)
2.7
Discuss how the Income Approach can be used to calculating the Gross Domestic
Product (GDP) at market prices.
COMPENSATION TO EMPLOYEES
+ NET OPERATING SURPLUS
+ CONSUMPTION OF FIXED CAPITAL
= GDP @ FC
+ TAXES ON PRODUCTION
- SUBSIDIES ON PRODUCTION
= GDP @ BP
+ TAXES ON PRODUCTS
- SUBSIDIES ON PRODUCTS
= GDP @ MP
(8)
[50]
Grade 12 Economics: June 2012
3
QUESTION 3 (LO2: Microeconomics)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
3.1.
Determine which of the following statements are true or false. Write only True or
False next to the number (3.1.1 – 3.1.4).
3.1.1.
3.1.2
3.1.3
3.1.4
False
False
True
True
3.2
List THREE characteristics of an oligopoly.
Type of product – homogenous (pure oligopoly), differentiated
(differentiated oligopoly).
Entry – varies from free to restricted.
Control over prices – considerable, but less than with a monopoly.
Number of businesses – So few that each business must take the actions
of the others into account.
Information – incomplete.
(3 x 2 = 6)
3.3
Study the table below and answer the questions that follow.
3.3.1
3.3.2
3.3.3
3.3.4
(4 x 2 = 8)
Quantity of
containers
Total
revenue
Marginal
revenue
Total cost
Marginal
cost
Average
cost
0
0
-
15
-
0
1
20
20
23
8
23
2
40
20
B
12
17.5
3
60
20
51
16
D
4
A
20
71
20
17.75
5
100
20
95
C
19
6
120
20
123
28
20.5
Calculate the missing figures A – D
A – 80
B – 35
C – 24
D – 17
(4)
What is the price of the product?
R20
(2)
What is the profit maximisation output for this firm?
4 units
(2)
Calculate the profit of the firm at the profit maximisation point.
TΠ = TR - TC = 80 – 71 = R9
(2)
3.4
Study the graph below of a firm in short run equilibrium and answer the questions
that follow:
Grade 12 Economics: June 2012
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3.4.1
Label the curves marked A to C.
A – MC
B – AC
C – AR/ MR/ D
(4)
3.4.2
What type of market structure is illustrated? How do you know?
PERFECT MARKET – AR = MR = D
(4)
3.4.3
What sort of profit is this firm earning?
NORMAL PROFIT – THE AC = AR
(2)
3.5
Describe the rationale of cost-benefit analysis.
(8)
 CBA helps to make better decisions on how scarce resources are
allocated to satisfy wants 
 Involves making decisions based on comparing economic benefits with
economic costs of a project 
 The feasibility of the project is determined by subtracting costs from
benefits 
 If the difference is positive (benefits > costs) then the project will be
undertaken 
 Besides efficient use of resources, CBA also ensures the right
combination of goods is produced 
 It also provides us with deciding alternate solutions to specific problems.

 Thus a project that maximizes benefits compared to costs should be
chosen. 
 There is a need to consider the time value of money because the project
will only occur in the future 
 Therefore future benefits and costs are discounted to present values 
 In the market economy, resources are allocated through interaction of
demand and supply in the market 
 Decisions by people, businesses and governments are important for the
society – involves allocation of scarce resources 
 The right combination of goods and services produced to satisfy needs
and wants 
 Brings objectivity to decision-making – identify relevant benefits and
costs of project and quantify them in money terms to make informed
decisions 
(Any 4 x 2)
Grade 12 Economics: June 2012
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3.6
‘Monopolistic competition and monopoly are virtually the same market form.’ Do
you agree with this statement? Outline your answer fully.
(8)
Learner can agree or disagree referring to some of the following reasons:
Characteristic
Monopolistic
Monopoly
competition
Number of businesses
A very large number
One business
Nature of product
Differentiated
Unique product without
any close substitutes
Entry
Free
Blocked
The
control
of Few
Considerable
businesses over the
price of the product
Information
Incomplete
Complete
Any other relevant answer that pertains to similarities or differences.
(any 4 x 2)
[50]
QUESTION 4 (LO4: Inflation)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
4.1
Determine which of the following statements are true or false. Write only True or
False next to the number (4.1.1 – 4.1.4).
4.1.1
4.1.2
4.1.3
4.1.4
True.
False
True
False.
4.3
Study the following newspaper article and answer the questions that follow:
Inflation opens rate cut window
1 Johannesburg - Inflation delivered yet another surprise on the downside on Wednesday, with the
July rate of change in the consumer price index (CPI) coming in at 3.7% from 4.2% in June,
immediately reigniting speculation that an interest rate cut may be on the cards next month.
2 A factor helping to pull inflation down was the fall in the petrol price, with the transport index
decreasing by 0.4% between June and July. The extent to which the petrol price is helping to
keep inflation low is clear from the annual rate of change in the transport index, which slipped to
only 1.1% from 2.2% in June 2010.
3 Food, a major disinflationary factor in the past, showed some signs of a price revival in July. The
food and non-alcoholic beverages index increased by 0.3% between June and July and the
annual rate of change again surpassed 1%.
4 This is still exceedingly low, and it's clear that food disinflation has been one of the major reasons
why inflation has fallen so sharply in the recent past. Excluding food, inflation would be 4.2%.
Source: Greta Steyn. Fin24.com Aug 25 2010
4.3.1 Define “consumer price index”.
Consumer price index is an index of a representative basket of consumer
goods and services.
(2)
Grade 12 Economics: June 2012
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4.3.2 In your own words, explain the sentence “the July rate of change in the consumer
price index (CPI) coming in at 3.7% from 4.2% in June” (paragraph 1).
(4)
The annual inflation rate has fallen from 4.2% in June to 3.7% in July. Prices
continue to rise but at a slower rate.
4.3.3 Explain why the petrol price and food prices (paragraphs 3-5) would be major
drivers in the fall in the inflation rate.
(4)
Constitute a large component of consumers’ expenditure and therefore are
heavily weighted in the CPI
4.4
Study the graph below which shows the inflation rate in South Africa 2001 – 2010
and answer the questions that follow:
14.00
12.00
Inflation (%)
10.00
8.00
6.00
4.00
2.00
0.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
4.4.1 What is the SARB’s target inflation range?
3% 6%
(2)
4.4.2 Do you think the SARB has been successful in achieving this over the last ten
years? Justify your answer.
Yes or No plus justification. SARB achieved it for 5/10 years. Average in the
range.
(4)
4.4.3 What do you think caused the increase in the inflation rate in the years 2004 to
2008?
Economic growth, increasing oil prices, other acceptable answers.
(4)
4.5
Identify and briefly discuss FOUR negative consequences of inflation
(8)
Distributional effects: inflation affects the distribution of income and wealth
among the various participants in the economy
inflation benefits debtors at the expense of creditors. Inflation can also cause
a reduction in the real value of savings - especially if real interest rates are
negative. This means the rate of interest does not fully compensate for the
increase in the general price level. In contrast, borrowers see the real value of
their debt diminish.
redistributes income from the elderly to the young. Consumers and
businesses on fixed incomes will lose out. Many pensioners are on fixed
pensions so inflation reduces the real value of their income year on year.
Grade 12 Economics: June 2012
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redistributes income from the private sector to the government (via bracket
creep – the so-called Fiscal dividend).
Economic effects: inflation may result in lower economic growth and higher
unemployment than would otherwise occur because:
entrepreneurs / decision makers attempt to anticipate inflation rather than
concentrating on output decisions. Inflation can also cause a disruption of
business planning – uncertainty about the future makes planning difficult and
this may have an adverse effect on the level of planned capital investment.
Budgeting becomes a problem as firms become unsure about what will
happen to their costs. If inflation is high and volatile, firms may demand a
higher nominal rate of return on planned investment projects before they will
go ahead with the capital spending. These hurdle rates may cause projects to
be cancelled or postponed until economic conditions improve. A low rate of
new capital investment clearly damages long-run economic growth and
productivity
inflation reduces South Africa’s competitiveness. If South Africa has higher
inflation than the rest of the world it will lose price competitiveness in
international markets. This assumes a given exchange rate. Ultimately, this
will lead to a fall in the rate of economic growth and the level of employment.
If the exchange rate depreciates, this may help to restore some of the lost
competitiveness.
it leads to higher nominal interest rates that should have a deflationary effect
on GDP.
it distorts the operation of the price mechanism and can result in an
inefficient allocation of resources. When inflation is volatile, consumers and
firms are unlikely to have sufficient information on relative price levels to
make informed choices about which products to supply and purchase.
it leads to an increase in search times to discover more about prices. Inflation
increases the opportunity cost of holding money, so people make more visits
to their banks and building societies (known as “shoe leather costs”).
it results in extra costs to firms of changing price information (known as
menu costs). This can be important for companies who rely on bulky
catalogues to send price information to customers.
it can lead to higher wage demands as workers try to maintain their real
standard of living (the wage-price spiral). Higher wages over and above any
gains in labour productivity causes an increase in unit labour costs. To
maintain their profit margins they increase prices. The process could start all
over again and inflation may get out of control. Higher inflation causes an
upward spike in inflationary expectations that are then incorporated into
wage bargaining. It can take some time for these expectations to be
controlled.
4.6
Briefly discuss TWO monetary policy instruments available to the SARB that can be
used to curb inflation.
Grade 12 Economics: June 2012
8
Accomodation policy
Open market operations
Moral suasion
Direct measures
(1 mark identification, 3 marks explanation)
[50]
(8)
TOTAL SECTION B: [150]
PTO...
Grade 12 Economics: June 2012
9
SECTION C
Answer TWO questions from this section.
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: (LO1: Macroeconomics)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
Fiscal policy is the government's policy in respect of the nature, level and composition of
government spending, taxation and borrowing. Through fiscal policy government aims to
achieve particular economic goals.
Discuss the features, composition and effects of fiscal policy (including a clearly labelled
Laffer curve).
[50]
QUESTION 6: (LO2: Microeconomics)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
Market failure means that the best available or optimal production outcome has not been
achieved. Alternatively, we can say it is a failure of markets to achieve optimum resource
allocation.
Discuss the causes of market failures and how this can be corrected through government
policy.
MODEL ANSWER AVAILABLE ON INTRANET (GR12 WEB PAGE)
[50]
Causes of market failures:
- Externalities (private cost vs private benefit; social cost vs social benefit)
- Public goods (features: non-rivalry, non-excludability, social benefits outstrip
private benefit, infinite consumption, non-rejectability)
- Merit and demerit goods
- Imperfect competition
- Lack of information (consumers, workers, entrepreneurs)
- Immobility of factors of production
- Imperfect distribution of income and wealth
Government policy:
- Has allocative, distributive and stabilization function.
- Preventing the misallocation of resources (incomplete markets, externalities,
non-competitive markets)
- Improving income distribution (traditional methods, redress methods,
minimum wages, minimum prices, subsidies on goods)
Grade 12 Economics: June 2012
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-
Enhancing macroeconomic stability (demand-side vs supply-side)
QUESTION 7: INFLATION
Start this question on a NEW and SEPARATE SHEET OF PAPER.
in‧fla‧tion [in-fley-shuh n] –noun Economics: a persistent, substantial rise in the general
level of prices.
Write an essay that explains the different theories about inflation in an economy.
[50]
Intro and conclusion
Demand-pull inflation
Demand-pull inflation occurs when AD increases while AS remains the same
(excess demand “pulls up” prices of goods and services). (see diagram above)
Demand-pull inflation is caused by any increase in the various components of AD
C: due to e.g. lower interest rates
I: due to e.g. improved business confidence
G: due to e.g. unemployment programs
X: due to e.g. improved world economic conditions.
Demand-pull inflation can have positive impact on output as long as the economy is
not at full employment. It can be countered by restrictive monetary and/or fiscal
policies (i, G, t).
Cost-push inflation.
Cost-push inflation is triggered by increases in the cost of production (which “pushup” prices).
Five main sources:
increases in wages and salaries
increases in the cost of imported capital and intermediate goods
increases in profit margins
decreased productivity
natural disasters.
All resulting in a situation of stagflation (see diagram above).
To avoid cost-push inflation, an incomes policy needs to be pursued. Restrictive
monetary and fiscal policies would result in output losses (see earlier notes).
N.B. Both demand-pull and cost-push inflation can act as triggers for inflation.
However, they cannot explain the on-going process that is inflation. The distinction
between demand-pull and cost-push inflation eventually becomes blurred.
Grade 12 Economics: June 2012
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The quantity theory of money.
This is based on the “Equation of Exchange” identified by Irving Fisher:
An identity:
where:
MV = PQ
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 (see above)
M is determined by the monetary authorities and is not affected by P or Q.
MV = PQ

Direction of causality
If M changes, PQ has to change by the same proportion or percentage e.g.:
If V = 4 and M increases from R 200 to R 300 (a 50% increase), PQ must increase
from R 800 to R 1200 (a 50% increase).
Thus the Monetarists believe that changes in M affect output PQ (Y) DIRECTLY.
Symbolically:
M  Y
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.
TOTAL SECTION C: [100]
GRAND TOTAL: [300]
Grade 12 Economics: June 2012
12
Grade 12 Economics Exam
June 2012
ANSWER SHEET.
Name: ______________________________
A
B
C
D
Teacher: OFH / SH / WHS
1.3.1
M
1.1.1
X
1.3.2
J
1.1.2
X
1.3.3
N
1.1.3
X
1.3.4
I
1.3.5
G
1.1.4
X
1.1.5
X
1.3.6
B
1.1.6
X
1.3.7
D
1.3.8
F
1.1.7
X
1.1.8
X
1.1.9
X
1.1.10
1.1.11
X
X
1.1.12
X
1.2.1
rise
1.2.2
deregulation
1.2.3
depreciation
1.2.4
horizontally
1.2.5
limited
Grade 12 Economics: June 2012
13