This partial fill-in paper consists of 17 pages plus instructions for the completion of a mark-reading sheet.
Read the following instructions CAREFULLY before answering the paper.
The paper is divided into two sections: Section A and Section B.
SECTION A
Candidates must answer ALL the questions in this section.
SECTION B
In this section ALL the questions must be answered on the mark-reading sheet which is supplied.
Carefully follow the instructions for the completion of the mark-reading sheet.
Please ensure that you use the correct unique number on the mark-reading sheet: If
you are registered for ECS102-8, use the unique number 494802.
If you are registered for REC102-Y, use the unique number 477274.
As your mark-reading sheet can get lost, you MUST also write down your answers for this section. On the
last page of this paper space is provided for this purpose.
[TURN OVER]
2
ECS1028/REC102Y
May/June 2010
SECTION A [50 MARKS]
Answer ALL the following questions in the blocks provided.
QUESTION 1
[6]
(i)
Mention the three broad ways in which government spending can be financed.
(3)
(ii)
Mention any three market-oriented instruments of a monetary policy.
(3)
[TURN OVER]
3
ECS1028/REC102Y
May/June 2010
QUESTION 2
[15]
(i)
(7)
Illustrate on the following diagrams the impact of a decrease in the interest rate.
[TURN OVER]
4
(ii)
ECS1028/REC102Y
May/June 2010
Illustrate on the following diagram and explain in words the incidence of a specific excise
tax on a good. Mention the three parties who have to share the burden of the tax and
clearly indicate the impact on each party. Remember to label your diagram..
(8)
[TURN OVER]
5
ECS1028/REC102Y
May/June 2010
QUESTION 3
[6]
The following information about a Keynesian model of a closed economy without a government is
given:
(a)
(b)
Autonomous consumption (C) = 10.
At equilibrium, consumption spending = 70 and investment spending = 20.
(i)
Calculate the equilibrium level of income. (Show all your calculations.)
(2)
(ii)
Use the following set of axis to draw a diagram of the model. Clearly indicate the values of
total autonomous expenditure and the equilibrium level of income.
(2)
Calculate the slope of the aggregate spending curve. (Show all your calculations.)
(2)
(iii)
[TURN OVER]
6
ECS1028/REC102Y
May/June 2010
QUESTION 4
[23]
(i)
Briefly explain how money can be created through the granting of credit in the form of overdraft
facilities.
(5)
(ii)
Discuss how an increase in the dollar price of gold will affect the value of the rand on the
South African foreign exchange market.
(4)
[TURN OVER]
7
ECS1028/REC102Y
May/June 2010
(iii)
Define and explain the monetary transmission mechanism.
(iv)
Given a Keynesian model of a closed economy with a government, explain – using any
one of the instruments of fiscal policy – how government would reduce unemployment.
(v)
(6)
Explain the difference between cost-push inflation and demand-pull inflation and mention
one possible cause of each type of inflation.
(4)
(4)
[TURN OVER]
8
ECS1028/REC102Y
May/June 2010
SECTION B [50 MARKS]
Answer ALL the questions in this section on the mark-reading sheet which is supplied. Each question is
worth 1¼ marks. Note: Only ONE statement per question is correct.
1.
Which of the following with regard to the circular flow of goods and services between households and
firms is correct?
[1]
[2]
[3]
[4]
2.
Firms transform factors of production into goods and services which are then sold to
households in the factor market.
Households sell their factors of production to firms in the factor market.
Households are the buyers of factors of production.
Firms are the owners of factors of production.
The following are all leakages from the circular flow of income and spending
[1]
[2]
[3]
[4]
Investment spending, taxes and exports
Investment spending, savings and imports
Consumption spending, exports and government spending
Savings, taxes and imports
3.
is obtained when the net exports are excluded from gross domestic product.
[1]
[2]
[3]
[4]
4.
The following are correct approaches to the measurement of income inequality, except
[1]
[2]
[3]
[4]
5.
the reward earned in the production process.
what we use to measure inflation.
the value of all notes and coins in circulation at any given time.
the most liquid form in which wealth can be kept.
If you move some of your funds in your savings account into your current (cheque) account
[1]
[2]
[3]
[4]
7.
Gini coefficient
inequality ratio
Lorenz curve
quantile ratio
Money is
[1]
[2]
[3]
[4]
6.
Gross national product
Gross domestic expenditure
Net national product
Nominal GDP
M2
M1
M1
M1
falls and M1 rises.
falls and M2 rises.
and M2 are unchanged.
rises and M2 remains unchanged.
A commercial bank has excess reserves to lend but is unable to find anyone to borrow the money.
This will
the size of the credit multiplier.
[1]
[2]
[3]
reduce
increase
have no effect on
[TURN OVER]
9
8.
If national income increases, then in the money market
[1]
[2]
[3]
[4]
9.
the quantity of money demanded for speculative balances increases.
demand for active balances increases.
demand for passive balances increases.
the quantity of money demanded for speculative balances decreases.
An appropriate measure of government’s involvement in economic activity is
[1]
[2]
[3]
[4]
10.
ECS1028/REC102Y
May/June 2010
the
the
the
the
volume of government subsidies.
total government spending.
share of government spending in total spending in the economy.
growth of government spending.
Use the following information to determine the government's budget deficit.
Consumption spending
R3,5 million
Net taxes
R2,7 million
Household saving
R2,5 million
Investment spending
R2,2 million
Government spending
R3,0 million
The government's deficit is
[1]
[2]
[3]
[4]
11.
A tax is
[1]
[2]
[3]
[4]
12.
-R0, 2 million
-R0,5 million
R0,3 million
R0,5 million
regressive when all taxpayers pay the same amount of tax.
regressive when all taxpayers pay the same rate.
proportional when all taxpayers pay the same amount of tax.
proportional when it is levied on goods and services at the same standard rate.
The implementation lag for monetary policy is generally
[1]
[2]
[3]
much shorter than it is for fiscal policy.
much longer than it is for fiscal policy.
the same as it is for fiscal policy.
[TURN OVER]
10
13.
ECS1028/REC102Y
May/June 2010
Consider the following production possibilities for Countries A and B.
Country A
[1]
[2]
[3]
[4]
14.
Warships
Houses
80
0
40
0
60
20
30
15
40
40
20
30
20
60
10
45
0
80
0
60
Country A should produce both warships and houses.
There is no basis for trade between these two countries.
Country A should produce houses and Country B should produce warships.
Country A should produce warships and Country B should produce houses.
an increase in South African demand for foreign goods.
an increase in the value of the South African rand relative to foreign currencies.
a decrease in the South African budget deficit.
a decrease in South African interest rates compared to other countries.
a decrease
a decrease
a decrease
a decrease
in
in
in
in
the
the
the
the
South African exports to the USA.
gold price in South Africa.
number of South African tourists to the USA.
number of American tourists to South Africa.
The appreciation of the rand and the sudden increase in foreign exchange reserves at the central
bank means that the demand for the rand
and the central bank could try to cushion this
by
rands in the foreign exchange market.
[1]
[2]
[3]
[4]
17.
Houses
A decrease in the demand for USA dollar in the South African foreign exchange market would result if
there is
[1]
[2]
[3]
[4]
16.
Warships
Assume the South African trade balance is negative. The deficit will decrease with
[1]
[2]
[3]
[4]
15.
Country B
rose
rose
fell
fell
selling
buying
selling
buying
Assume the domestic price of good X is R12 and the world price is R10. In the short run, if there
are no trade restrictions on good X, net exports
[1]
[2]
[3]
[4]
and GDP in the domestic economy will increase.
and GDP in the domestic economy will decrease.
will increase and GDP in the domestic economy will decrease.
will decrease and GDP in the domestic economy will increase.
[TURN OVER]
11
18.
ECS1028/REC102Y
May/June 2010
When aggregate planned expenditure is less than real GDP, there is an unintended
inventories, firms
production, and real GDP begins to
_.
[1]
[2]
[3]
[4]
decrease
increase
increase
decrease
increase
decrease
decrease
increase
in
increase
decrease
increase
decrease
Question 19 is based on the diagram below.
19.
The shift in the investment function from I0 to I1 is the result of
[1]
[2]
[3]
[4]
an increase in the repo rate.
a decline in the prime rate.
an improvement in profit expectations.
an increase in savings by households.
Question 20 is based on the following table.
20.
Income (R million)
Consumption spending (R million)
1 000
800
1 100
875
1 200
950
1 300
1 025
Autonomous consumption is
[1]
[2]
[3]
[4]
R50
R75
R225
R800
[TURN OVER]
12
21.
Induced consumption
[1]
[2]
[3]
[4]
22.
ECS1028/REC102Y
May/June 2010
falls during recessions and expansions.
rises during recessions and falls during expansions.
falls during recessions and rises during expansions.
rises during recessions and expansions.
In the simple Keynesian model of a closed economy without a government, if an increase in
investment expenditure of 200 results in a final increase in income of 1000, it follows that the
marginal propensity to consume must be
[1]
[2]
[3]
[4]
0,2
0,8
2,5
5
Questions 23 and 24 are based on the following information:
C = 300 + 9/10Yd
I = 200
G = 150
t = 1/6
23.
The marginal propensity to save is
[1]
[2]
[3]
[4]
24.
1/10
1/4
3/4
10/9
Equilibrium level of income is
[1]
[2]
[3]
[4]
650
1 300
2 600
6 500
[TURN OVER]
13
ECS1028/REC102Y
May/June 2010
Question 25 is based on the diagram below.
25.
A change in the pattern of saving in the economy caused a change in the consumption function from C
to C1. What are the effects of this change on the marginal propensity to consume and the
multiplier?
[1]
[2]
[3]
[4]
26.
Marginal propensity to consume
increases
decreases
increases
decreases
Multiplier
decreases
increases
increases
decreases
A decrease in leakages from the Keynesian model with a government leads to
multiplier.
[1]
[2]
[3]
in the
a decrease
no change
an increase
[TURN OVER]
14
ECS1028/REC102Y
May/June 2010
Question 27 is based on the diagram below.
27.
At income level Y1 the economy is
[1]
[2]
[3]
[4]
28.
Assume national output is at the full-employment level of output and the government budget is
balanced. A reduction in investment spending would lead to
[1]
[3]
[4]
29.
a decline in output and a government budget deficit. [2]
a decline in output and a government budget surplus.
an increase in output and a government budget deficit.
an increase in output and a government budget surplus.
When comparing an increase in government spending on goods and services to an increase in
private investment spending,
[1]
[2]
[3]
[4]
30.
at full employment, but not in equilibrium.
in equilibrium, but not necessarily at full employment.
at full employment, but not necessarily in equilibrium.
neither in equilibrium nor at full employment.
government spending will cause a shift in the aggregate demand curve, while private
investment spending will cause a shift of the aggregate supply curve.
they will both cause a shift of the aggregate demand curve.
government spending is inflationary, while private investment spending is not.
government spending must equal taxes, while private investment spending must equal
saving.
If autonomous expenditure changes, the multiplier determines the size of
[1]
[2]
[3]
[4]
the
the
the
the
shift of the aggregate supply curve.
shift of the production possibilities curve.
shift of the aggregate demand curve.
movement along the aggregate demand curve.
[TURN OVER]
15
31.
Assume the economy experiences both a supply shock and a decrease in investment spending. This
would cause the level of income
[1]
[2]
[3]
[4]
32.
nominal income.
real income.
per capita income.
nominal disposable income.
R100
R200
-R200
R300
An increase in the inflation rate can be the result of
[1]
[2]
[4]
37.
increase in output and the price level.
decrease in output and the price level.
increase in unemployment and an increase in the price level.
economy which is growing at a rate equal to its historical average growth rate.
If the consumer price index (CPI) increases from 100 to 200 and the nominal wage increases
from R100 to R400, the change in the real wage is
[1]
[2]
[3]
[4]
36.
increased
did not change
did not change
increased
Bracket creep would be eliminated when tax rates are based on
[1]
[2]
[3]
[4]
35.
increased
decreased
increased
did not change
Stagflation is best characterised by a(n)
[1]
[2]
[3]
[4]
34.
and the price level to increase.
to increase and have an indeterminate affect on the price level.
to decrease and the price level to increase.
to decrease and have an indeterminate affect on the price level.
A country experiences an increase in the price level and a decrease in real GDP. Such an outcome
might have occurred because aggregate supply
and aggregate demand
_.
[1]
[2]
[3]
[4]
33.
ECS1028/REC102Y
May/June 2010
an appreciation of the currency.
a decrease in unemployment. [3]
an increase in the interest rate.
a decrease in productivity.
What effect would a lower savings rate have on a recession?
[1]
[2]
[3]
It will not affect the recession.
It will make the recession less severe.
It will make the recession more severe.
[TURN OVER]
16
38.
In a country with a population of 50 million people, there are 20 million children under the age of 15
years, 16 million employed, 9 million pensioners, 4 million unemployed and 1 million full-time
students. The unemployment rate in this county equals
[1]
[2]
[3]
[4]
39.
8%
10%
20%
30%
With regard to a given government spending and tax rate, the government budget deficit will grow
during
and decline during
.
[1]
[2]
[3]
[4]
40.
ECS1028/REC102Y
May/June 2010
booms
recessions
booms
recessions
booms
recessions
recessions
booms
The term nominal GDP implies that
[1]
[2]
[3]
[4]
constant prices were used to calculate GDP.
base year prices were used to calculate GDP.
current prices were used to calculate GDP.
domestic prices were used to calculate GDP.
**** * ****
.
[TURN OVER]
17
ECS1028/REC102Y
May/June 2010
As your mark-reading sheet can get lost, you must also write down your answers for
Section B in the space provided below.
1
21
2
22
3
23
4
24
5
25
6
26
7
27
8
28
9
29
10
30
11
31
12
32
13
33
14
34
15
35
16
36
17
37
18
38
19
39
20
40
©
UNISA 2010
MAY 2010 EXAMINATION PAPER WITH REFERENCES TO STUDY MATERIAL
SECTION A [50 MARKS]
QUESTION 1
[6]
(i)
Mention the three broad ways in which government spending can be financed.
(3)
Study guide page 38
Checklist
I am able to explain how government spending can be financed
Study guide page 32
Short question
(a) Mention the three broad ways in which government spending can be financed. (3)
October 2008 – Question 1 (iii)
(ii)
Mention any three market-oriented instruments of a monetary policy.
Study guide page 23
Checklist
I am able to list the market-oriented monetary policy instruments
Study guide page 20.
Short questions
(b) List three market-oriented instruments of monetary policy in South Africa. (3)
(3)
QUESTION 2
[15]
(i)
(7)
Illustrate on the following diagrams the impact of a decrease in the interest rate.
Study guide page 122
Checklist
I am able to show on a diagram the transmission mechanism – Figure 20-6
Study guide page 118
Short questions
(c) *Using the AD-AS model, explain with the aid of diagrams how an increase in the interest rate
will affect the level of prices, production and income in the economy. (a and c below).
October 2008 – Questsion 2 (iii)
May 2006 – Question 5 (ii)
(ii)
Illustrate on the following diagram and explain in words the incidence of a specific excise tax on a
good. Mention the three parties who have to share the burden of the tax and clearly indicate the
impact on each party. Remember to label your diagram..
(8)
Study guide page 38
Checklist
I am able to show and explain the following with the aid of a diagram: the impact of an excise tax – Figure
16-3
Study guide page 35
Short questions
(b)
*Use a diagram to explain the incidence of a specific excise tax on a good. Mention the
three parties who have to share the burden of the tax and clearly indicate the impact on each
party. (10)
October 2007 – Question 4 (diagram)
May 2005 – Question 3
May 2006 – Question 2
May 2009 – Question 2 (ii)
QUESTION 3
[6]
The following information about a Keynesian model of a closed economy without a government is given:
(i)
(a)
Autonomous consumption (C) = 10.
(b)
At equilibrium, consumption spending = 70 and investment spending = 20.
Calculate the equilibrium level of income. (Show all your calculations.)
(2)
Study guide page 86
Checklist
I am able to calculate:
private consumption expenditure
the level of autonomous spending
the marginal propensity to consume
the multiplier
the equilibrium level of income
Study guide page 73
Short questions
(a) Let autonomous consumption (C) = 10. At equilibrium, consumption spending = 70 and
investment spending = 20. Calculate:
(i) the slope of the aggregate spending curve
(ii) the marginal propensity to consume
(iii) the multiplier
(Hint: Draw a diagram with the basic facts at your disposal.) (10)
(ii) Use the following set of axis to draw a diagram of the model. Clearly indicate the values of total
autonomous expenditure and the equilibrium level of income.
(2)
(iii)
Calculate the slope of the aggregate spending curve. (Show all your calculations.)
QUESTION 4
(i)
(2)
[23]
Briefly explain how money can be created through the granting of credit in the form of overdraft
facilities.
(5)
Study guide page 24
Checklist
I am able to explain the basic function of a financial intermediary
Study guide page 17.
Short questions
(a) *Briefly explain how money can be created through the granting of credit (in the form of
overdraft facilities). (5)
(ii)
Discuss how an increase in the dollar price of gold will affect the value of the rand on the South
African foreign exchange market.
(4)
Study guide page 50
Checklist
I am able to explain the impact of changes in the demand or supply of dollar on the South
African forex market – Table 17-4
Tutorial letter 101 page 26
2.9 An increase in the supply of dollars in the South African foreign exchange market can be
caused by
[2] an increase in the gold price.
October 2007 – Question 6
(iii)
Define and explain the monetary transmission mechanism.
Study guide page 122
Checklist
I am able to define and explain the monetary transmission mechanism
Study guide page 94
Short questions
(a) Define a monetary transmission mechanism. (2)
(c) *Using the AD-AS model, explain with the aid of diagrams how an increase in the interest
rate
will affect the level of prices, production and income in the economy.
(d) *Summarise your explanation in (c) using symbols. (5)
October 2007 – Question 11
Oct 2009 – Question 4 (iii)
October 2006 – Question 9
October 2005 – Question 8
May 2007 – Question 16
May 2008 – Questioon 4 (ii)
(6)
(iv) Given a Keynesian model of a closed economy with a government, explain – using any one of the
instruments of fiscal policy – how government would reduce unemployment.
(4)
Study guide page 113
Checklist
I am able to explain the impact of a change in government spending or a change in the tax rate on the
equilibrium level of income
Study guide page 94
Short questions
(a) *Define fiscal policy and explain how the equilibrium level of income can be raised through
fiscal policy in a Keynesian model. (8)
October 2007 – Question 9 (tax must decrease)
October 2006 – Question 8
May 2009 – Question 4 (vi)
(v)
Explain the difference between cost-push inflation and demand-pull inflation and mention one
possible cause of each type of inflation.
(4)
Study guide page 132
Checklist
I am able to explain the difference between demand-pull and cost-push inflation
Study guide page 129
Short questions
(a) *Use aggregate demand (AD) and aggregate supply (AS) curves to illustrate the difference
between cost-push inflation and demand-pull inflation and mention possible causes of each
type of inflation. (10) (without the diagrams)