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ECS1601 FI Assessment February 2016

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INSTRUCTIONS

Read all instructions CAREFULLY before answering the questions:

This paper consists of two sections. All questions are compulsory.

Section A consists of 3 questions with sub-sections. Questions 1, 2 and 3 should be

answered on the lines and in the spaces provided. Section A counts 60 marks. The marks

allocated to each question are clearly indicated.

Section B consists of 60 multiple choice questions and should be answered on the sheet that

is provided. Each question counts 11/4 ; therefore section B counts 80 marks.

Please write clearly in your own handwriting. It is your responsibility to ensure that the writing

and images that are scanned are clearly visible.

Once you have completed the test you should please scan all the pages numbered from 1 to

14 and send all the pages from page 1 to page 14 back to us. Make sure that everything that

you have written is clearly visible. Also scan the first page of your Identity document. Send the

test and the image of the identity document to the following e-mail address:

[email protected] before 10 a.m. on Tuesday 23 February 2016.

If you have a problem sending to this e-mail address you can send it to ECS1601-16-

[email protected]. You will receive confirmation that your test has been received by us. If you

do not receive confirmation that we have received it within two hours of sending it, you should

please contact Mrs Malefa Malefane at 012 433 4641 during office hours.

Checklist before you send:

Tick

This paper consists of 32 pages

All pages from 1 to 14 are completed

My student number and identity number are clearly visible

I have completed the declaration on page 2

My identity document is clearly visible

mailto:[email protected]



2 ECS1601 FI Assessment February 2016

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ECS1601 ECONOMICS 1B

FI Assessment 23 February 2016

STUDENT NUMBER

IDENTITY NUMBER /PASSPORT NUMBER

QUESTION FIRST MARKER SECOND MARKER

A1

A2

A3

B

TOTAL

DEPARTMENT OF ECONOMICS FI ASSESSMENT OPPORTUNITY

DECLARATION BY STUDENT

Full names: ………………………………………………………………………

Student no: ………………………………………………………………………

Telephone number: …………………………………………………………….

E-mail: …………………………………………………………………………….

Date of submission: ……………………………………………………………

I declare that the work I am submitting for assessment is my own work and that I received no help from any other person to complete the assessment. I declare that I did not use any other sources except for the prescribed study material and my own notes to complete this assessment.

…………………………………….. (Signature)

ID number: ……………………………………………… Signed on ………………………. (date) at ...........…………………..(place).


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SECTION A

Question1 (20)

1.1 Identify and explain, using examples, how demand management policies may be used to

influence the economy.

(6)


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1.2 Consider the following statement and answer the questions that follow: “In 2007, the U.S.

economy entered into the worst recession since the Great Depression. Real GDP declined by

5.1 percent and the unemployment rate rose from 4.4 to 10.1 percent.”

(a) Explain, using an appropriate diagram, how the problem of declining output and rising

unemployment can be addressed. (4)

(b) Would there be any side-effects resulting from the measures applied in (a)? Explain. (3)

(a)


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(b)

1.3 Using the Phillip’s curve, explain how successful bargaining for a wage increase would affect the

economy. (4)


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1.4 Explain, using the concept of business cycles, why economic activity could be cyclical. (3)


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Question 2 (20)

2.1 Explain why the simple Keynesian multiplier tends to be bigger than the multiplier derived after

the introduction of government sector. (2)


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2.2 Assume that an economy with no government sector has the income, consumption, savings and

investment levels reported in the table below. Use the information in the table to answer the

questions that follow.

INCOME (Rands)

(Y)

CONSUMPTION (Rands)

(C)

SAVINGS (Rands)

(S)

INVESTMENT (Rands)

(I)

0 20 -20 40

100 100 0 40

200 180 20 40

300 260 40 40

400 340 60 40

(a) Calculate the marginal propensity to consume and the marginal propensity to save. (4)

(b) Calculate the equilibrium level of income. (3)


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(c) Suppose investment spending declined by R20:

(i) What would be the new equilibrium income and the new level of consumption? (4)

(ii) What would be the size of the multiplier? (2)

(iii) Why would it be reasonable to assume that an increase in unemployment rate would

be associated with the decline in national income? (2)


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(d) What does the savings level of R-20 indicate? (1)

2.3 Explain how a 0.5% increase in the repo rate could affect the general price level in the economy.

(2)


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Question 3 (20)

3.1 Write a paragraph in which you explain how an improvement in the terms of trade will affect the

overall performance of the economy. Use an example in your discussion. (7)


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3.2 Suppose that there is an increase in the amount of goods that South Africa imports from the

United States. Use a diagram to illustrate and explain how this would affect the equilibrium

exchange rate (R/$) in South Africa. (7)


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3.3 Explain, using an example, why economists prefer to use real values of variables instead of

current values when they assess performance of the economy. (6)


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SECTION B

Multiple choice questions

Indicate your answers (1,2,3,4 or 5) on the answer sheet that is provided. Each question counts

11/4, thus a total of 80.

B1 B31

B2 B32

B3 B33

B4 B34

B5 B35

B6 B36

B7 B37

B8 B38

B9 B39

B10 B40

B11 B41

B12 B42

B13 B43

B14 B44

B15 B45

B16 B46

B17 B47

B18 B48

B19 B49

B20 B50

B21 B51

B22 B52

B23 B53

B24 B54

B25 B55

B26 B56

B27 B57

B28 B58

B29 B59

B30 B60

TOTAL 80


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B1 Which one of the following statements on the factors of production is true?

[1] Money is the most important factor of production, as one cannot afford any of the other

factors of production without it.

[2] All natural resources are renewable and can thus be re-used at different stages of the

production process.

[3] Labour includes gold miners, civil servants, bank tellers and fleet managers.

[4] Entrepreneurship is classified under labour as a factor of production, as entrepreneurs are

usually referred to as “managers” and are part of the organisation’s labour force.

[5] Capital refers to the available financial resources that a business has for investment

purposes.

B2 Which one of the following statements on the remuneration of the factors of production is true?

[1] The remuneration for capital is profit, as the business aims to earn a profit on its financial

investments.

[2] The remuneration for labour is rent, as workers are able to pay their rent with the money

they earn.

[3] The remuneration for entrepreneurship is a salary, as entrepreneurs are also rewarded for

their efforts.

[4] The remuneration for money is interest, as businesses deposit their money into interest-

bearing accounts.

[5] The remuneration for natural resources is rent, as natural resources consist of all gifts of

nature.

B3 In the circular flow of income and spending in South Africa, ________ firms in the factor market

becomes ________ households, while ________ households in the goods market becomes

________ firms. Expenditure by foreigners on South African products constitutes ________ the

circular flow.

[1] income to; spending by; income to; spending by; a leakage from

[2] income to; income to; spending by; spending by; an injection into

[3] spending by; income to; spending by; income to; an injection into

[4] spending by; spending by; income to; income to; a leakage from

[5] production of; spending by; production of; income to; a leakage from


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B4 In the circular flow of income and spending, government …

[1] injects government spending into the factor market and collects taxes from the goods

market.

[2] withdraws taxes from firms and households.

[3] provides public goods and services to the factor market and receives labour from the

goods market.

[4] withdraws government spending by providing it to firms and withdraws taxes from

households.

[5] provides public goods and services to households and withdraws taxes from the goods

market.

B5 In the circular flow of income and spending, financial institutions …

[1] act as an intermediary between those who have surplus funds and those who have deficit

funds.

[2] are not always useful, as households generally spend all their available funds.

[3] create an injection into the flow by collecting savings from participants with surplus units

only; therefore, there is no need to provide funds to deficit units.

[4] generally exist to collect investment spending and transform it into savings.

[5] do not provide the goods market with any services at all.

B6 Which of the following is a leakage from the circular flow of income and spending in South

Africa?

[1] defence expenditure by the South African government, via contracts with local military

suppliers

[2] government purchases of textbooks for state-run schools

[3] the sale of export fruit to the European Union

[4] investment by South African Breweries in a new brewery in South Africa

[5] a decision by a major supermarket chain to sell Danish beer

B7 The labour market is an example of a …

[1] factor market.

[2] goods market.

[3] foreign exchange market.

[4] financial market.

[5] money market.


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B8 Which one of the following statements is false?

[1] Without exchange, specialised producers cannot satisfy their wants from their own

production.

[2] The division of labour takes place in production processes where each stage of the

process is performed by an individual worker or groups of workers.

[3] Workers who specialise in the production process will only do so in parts of the process

where they have an absolute advantage.

[4] The three main economic activities are production, consumption and exchange.

[5] A person should specialise where the opportunity costs are the lowest.

B9 If the Minister of Finance wanted to withdraw funds from the economy using the flows of income,

spending and production, you would advise him to …

[1] increase government spending to firms.

[2] decrease government spending to firms.

[3] increase spending on public goods and services.

[4] increase taxes received from households.

[5] increase consumer spending on goods and services by promoting the goods market.

B10 Money overcomes the problem of a double coincidence of wants inherent in the barter system

through its function as a …

[1] medium of exchange.

[2] unit of account.

[3] standard of deferred payment.

[4] store of value.

[5] financial intermediary.

B11 The most comprehensive measure of money is equal to …

[1] M2 plus all short-term and medium-term deposits of the domestic private sector with

monetary institutions.

[2] M1 plus all short-term and medium-term deposits of the domestic private sector with

monetary institutions.

[3] M2 plus all long-term deposits of the domestic private sector with monetary institutions.

[4] M2 plus all medium-term deposits of the domestic private sector with monetary institutions.

[5] M1 plus all medium-term deposits of the domestic private sector with monetary institutions.


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B12 Based on your answer to question B11, use the table below to find the total comprehensive

measure of money for the year 2013.

Monetary aggregate

R million

End of

Banknotes and

coins in

circulation

Cheque and

transmission

deposits

M1A

Other

demand

deposits

M1

Other short-

term and

medium-

term

deposits

M2

Long-

term

deposits

2013………………… 87 014 549 323 636 337 495 702 1 132 039 919 270 2 051 308 462 557

Source: South African Reserve Bank Quarterly Bulletin, December 2014. Statistical tables.

[1] R87 014 million

[2] R549 323 million

[3] R636 337 million

[4] R2 513 865 million

[5] R1 132 039 million

B13 Which of the following statements is true regarding the financial sector?

[1] In most countries, governments are generally net borrowers and therefore not included

among surplus units.

[2] Financial intermediaries make direct financing possible by acting as a link between surplus

and deficit units.

[3] In South Africa, household savings are low and therefore, commercial banks generally do

not grant loans to big businesses.

[4] Most transactions in the South African financial market involve goods, as South Africa has

an abundance of natural resources.

[5] Entrepreneurs who need funds to start up a business are not classified as deficit units by

the government, and are thus encouraged to raise their own funds.


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B14 Which one of the following statements is incorrect?

[1] The opportunity cost of holding money balances is the interest that could have been

earned if the money had been used to purchase interest-bearing assets instead.

[2] Anyone who wishes to enter into transactions in a monetary economy has to hold money

as a medium of exchange.

[3] The quantity of money demanded for transaction purposes depends on the level of

income.

[4] The demand for money as an asset is also called the speculative demand for money.

[5] The quantity of money demanded for speculative purposes is negatively related to the

interest rate.


[1] As interest rates increase, bond prices decrease.

[2] As interest rates decrease, bond prices increase.

[3] There is a positive relationship between interest rates and bond prices.

[4] If interest rates are high, the quantity of money demanded will tend to be low.

[5] If interest rates are low, the quantity of money demanded will tend to be high.

B16 Which of the following correctly explains the interaction between government, households and

firms in an economy?

[1] Government receives taxes from firms and spends only on households.

[2] Government receives taxes from both households and firms and in return provides both

role-players with public goods.

[3] The government purchases factors from the goods market and goods from the factor

market.

[4] The government produces goods which are sold in the factor market to both firms and

households.

B17 At the end of February 2015, the Minister of Finance announced in the budget speech that

income tax rate would increase by 1 percent. This planned policy is an example of __________ .

[1] expansionary monetary policy

[2] contractionary monetary policy

[3] expansionary fiscal policy

[4] contractionary fiscal policy


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B18 Fiscal policy refers to movements in....... aimed at influencing………..

[1] government spending; the interest rate level

[2] taxes and government spending; the rate of inflation

[3] government spending and taxes; aggregate output

[4] the interest rate level and government borrowing; the deficit of the government

B19 In the event of a recession, what will be the appropriate fiscal policy action and how does this

affect the budget deficit/surplus?

[1] Decrease government expenditure; larger budget surplus

[2] Increase government expenditure; larger budget surplus

[3] Increase government expenditure; larger budget deficit

[4] Decrease government expenditure; larger budget deficit

B20 Which one of the following statements regarding government failure is correct?

[1] Government may fail due to the actions of bureaucrats who put the interest of the general

public first.

[2] Government might fail due to actions of vote-seeking politicians.

[3] The idea that a government is not subject to competition prevents government from failing.

[4] Rent-seeking behaviour implies that the interests of interest groups come only after the

interests of society at large.

B21 A primary factor driving international trade is _____.

[1] the need for political allies

[2] factor endowment or natural resource differences

[3] taste and preferences

[4] geographical proximity of trading partners

Answer questions B22 and B23 below based on the information in the following table, where the

numbers represent the number of units of each good produced.

South Africa Botswana

Grapes 3 6

Textiles 4 2


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B22 South Africa has an absolute advantage in the production of __________ while Botswana has

an absolute advantage in the production of _________.

[1] grapes, textiles.

[2] textiles, grapes.

[3] South Africa does not have an absolute advantage in the production of grapes or textiles.

[4] Botswana does not have an absolute advantage in the production of grapes or textiles.

B23 South Africa has a comparative advantage in the production of _____.

[1] grapes

[2] textiles

[3] grapes and textiles

[4] neither grapes nor textiles

B24 According to the theory of comparative advantage, a necessary condition for a country to export

a good is that _______.

[1] the country can produce it using less labour than its trading partners

[2] the wage rate in producing the good is lower in the country compared to its trading

partners

[3] the country has an absolute advantage in producing the good compared to its trading

partners

[4] the cost of producing the good relative to other goods, is lower compared to that of the

country’s trading partners

Use the table below showing the exchange rates between various currencies and the South African

rand to answer question B25.

Currency 2014 exchange rate (per South

African rand)

2015 exchange rate (per South

African rand)

Botswana pula 0,99 1,11

Namibian dollar 3,56 4,23

Ghanaian cedi 3 5


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B25 Between 2014 and 2015, the rand __________against the pula and ________ against the

Ghanaian cedi and __________ against the Namibian dollar.

[1] depreciated, depreciated and depreciated

[2] appreciated, appreciated and appreciated

[3] depreciated, appreciated and appreciated

[4] appreciated, depreciated and appreciated

Use the figure below of a hypothetical foreign exchange market to answer question B26.

B26 The shift in the demand curve from D2 to D3 can be attributed to _______.

[1] an increase in South African tourists to the US

[2] an expectation of a decrease in value of the US dollar

[3] a decrease in the purchase of American assets by South African investors

[4] a decrease in the purchase of South African assets by American investors

and per dollar

D1

D2

D3

uantity of dollars per day


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B27 Assume that the rand-dollar exchange rate is above the equilibrium exchange rate. One would

expect that there will be a ___________ of dollars and the exchange rate will __________ to the

equilibrium level.

[1] surplus, fall

[2] surplus, rise

[3] shortage, fall

[4] shortage, rise

B28 Last year in the Zamunda Kingdom, 50 million people worked, and 10 million people were

looking for employment but did not find anything. A further 8 million people were not looking for

work and did not get paid. 35 million people are under the age of 16 years. According to the

strict definition, the unemployment rate in Zamunda last year was ___________ .

[1] 16,7%

[2] 20%

[3] 55,5%

[4] 80%

Use the table below showing a representative basket of goods used to calculate the CPI to answer the

question that follows.

QUANTITY OF GOOD A=50 QUANTITY OF GOOD B=50 QUANTITY OF GOOD C=50

2013 prices R2 R2 R2

2014 prices R6 R10 R20

B29 The consumer price index (CPI) for 2014 is ______ .

[1] 20

[2] 300

[3] 600

[4] 1800


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B30 In 2013, Mr Joubert bought a used 2012 Kia Rio from his colleague for his wife. In addition, he

bought a new 2013 South African produced Ford Ranger for himself and sold the 2008 Ford

Figo he was using to his brother-in-law. Which of these purchases will be included in the GDP in

2013?

[1] purchase of the Kia Rio

[2] purchase of the Ford Ranger

[3] sale of the Ford Figo

[4] all of the sales and purchases above

B31 Which one of the following statements is true?

[1] A = Y implies that spending is equal to production and income but disequilibrium exists.

[2] A > Y implies that the level of production and income will increase.

[3] A < Y implies that the level of production and income will increase.

[4] A > Y implies that the level of production and income will decrease.

B32 Given an autonomous spending of R100 and a marginal propensity to save of 0,35, what is the

consumption function?

[1] 100 + 0,35Y

[2] 100 + 0,65Y

[3] -100 + 0,35Y

[4] -100 + 0,65Y

B33 Which of the following statements is/are true in the Keynesian model?

(a) An investment decision involves the cost of capital goods, the interest rate and expected

revenue.

(b) Investment is inversely related to the interest rate.

(c) Investment is also related to expectations and the level of national income.

[1] All the statements are correct.

[2] Only a and b are correct.

[3] Only a and c are correct.

[4] Only b and c are correct

[5] None of the statements is correct.


[TURN OVER]

Questions B34 and B35 are based on the following information:

The saving function is S = -1000 + 0,25Y and autonomous investment spending = 100.

B34 What is the aggregate spending equation?

[1] A = 1 000 + 0,25Y

[2] A = 1 000 + 0,75Y

[3] A = 1 100 + 0,25Y

[4] A = 1 100 + 0,75Y

B35 What is the equilibrium level of income?

[1] Y = 1 000/0,25

[2] Y = 1 000/0,75

[3] Y = 1 100/0,25

[4] Y = 1 100/0,75

Question B36 is based on the diagram below:


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B36 Which of the following factors will be illustrated by the upwards shift of the aggregate spending

curve?

[1] If all households increase their marginal propensity to consume and this is the paradox of

thrift.

[2] If all households reduce their saving at every income and this is the paradox of thrift.

[3] If an individual household reduces its saving rate and this is regarded as the paradox of

thrift.

[4] If all households increase their marginal propensity to save and this the paradox of thrift.

B37 Given the following functions: C = 1 000 + 0,4Y, �̅� = 400 and 𝐼 ̅= 100, suppose there is a change

in government expenditure from R400 to R500 but the proportional income tax rate remains

40%. What will the equilibrium level of income Y be? (Hint: If you use the multiplier to calculate

the equilibrium income level, round it off to two digits after the decimal. Round the final answer

off to the closest full rand.)

[1] 2 112

[2] 2 000

[3] 1 848

[4] 1 452

B38 Suppose the government implements an expansionary fiscal policy to finance e-toll gantries.

Required ∆Y = R1 000, the marginal propensity to consume is 50% and the proportional tax rate

is 40%. What is the size of the multiplier? Round off your answer to two digits after the decimal.

[1] 1,00

[2] 1,32

[3] 1,43

[4] 2,50

B39 How much will government expenditure have to change to reach the required change in

equilibrium income given the information in question B.38?

[1] R699

[2] R800

[3] R1 000

[4] R1 200


[TURN OVER]

B40 Suppose sanctions are imposed on a small open economy which leads to a decrease in

autonomous imports. What will happen to the aggregate expenditure curve if exports remain

unchanged?

[1] It will stay the same.

[2] It will shift upwards.

[3] It will shift downwards.

[4] The slope becomes flatter.

B41 Suppose the sanctions mentioned in question B.40 also decreased the marginal propensity to

import, how will the size of the multiplier be affected?

[1] It will stay the same.

[2] It will increase.

[3] It will decrease.

B42 Which one of the following is not true with regard to an increase in proportional tax in the

Keynesian model?

[1] It reduces the multiplier.

[2] It reduces the equilibrium income level, ceteris paribus.

[3] It leaves autonomous spending unchanged.

[4] It has the same effect as a decrease in government spending.

Questions B43 to B45 are based on the following diagram and the information provided below:


[TURN OVER]

Government spending = R500

Exports = R300

Autonomous consumption = R200

Autonomous imports = 0

Investment expenditure = R100

Marginal propensity to consume = 0,6

Marginal propensity to import = 0,1

Proportional tax rate = 0,25

B43 Autonomous expenditure (Ᾱ) is equal to

[1] R200.

[2] R300.

[3] R500.

[4] R800.

[5] R1 100.

B44 What is the equilibrium level of income Y* in the given model?

(Hint: If you use the multiplier to calculate the equilibrium income level, round it off to three digits

after the decimal. Round the final answer off to the closest full rand.)

[1] R1 598

[2] R1 692

[3] R1 757

[4] R1 800

[5] R2 000

B45 Is the government running a budget deficit or surplus and by how much (round it off to the

closest full rand)?

[1] a deficit of R77

[2] a surplus of R77


[4] a surplus of R126



[TURN OVER]

B46 A contractionary fiscal policy combined with an increase in the oil price will cause ...

[1] a downward shift of the AS curve and a leftward shift of the AD curve.

[2] an upward shift of the AS curve and a rightward shift of the AD curve.

[3] a downward shift of the AS curve and a rightward shift of the AD curve.

[4] an upward shift of the AS curve and leftward shift of the AD curve.

B47 If income is below the full-employment level, what would be the result of a contractionary

monetary policy?

[1] an increase in total production and an increase in the price level

[2] a decrease in total production and an increase in the price level

[3] a decrease in total production and a decrease in the price level

[4] an increase in total production and a decrease in the price level

B48 Which one of the following statements is correct?

[1] The Keynesian model can be used to study the impact of changes in monetary policy.

[2] The AD-AS model can be used to study the impact of changes in the general level of

wages on production, income, employment and inflation.

[3] Interest rates are given in the AD-AS model.

[4] The interaction of aggregate supply and aggregate demand determines the level of

economic activity in the Keynesian model.

B49 Which of the following statements is/are correct?

A leftward shift of the AD curve could be caused by ...

(a) an increase in government spending and a decrease in taxes.

(b) an increase in net exports.

(c) a deterioration in weather conditions.

(d) an increase in the interest rate.

[1] a, b and c

[2] only a and b

[3] only a and c

[4] only b and c

[5] only d


[TURN OVER]

B50 Which of the following chain of events correctly represents the monetary transmission

mechanism, assuming fixed prices?

[1] ↑i → ↓I → ↓A → ↓Y

[2] ↓i → ↓I → ↓A → ↓Y

[3] ↑i → ↓I → ↑A → ↓Y

[4] ↓i → ↑I → ↑A → ↓Y


(a) When it is assumed that prices and wages are not fixed, the multiplier increases in size.

(b) Investment spending can change due to a change in the interest rate, but other factors

may also cause a shift of the investment curve, resulting in a change in investment without

a prior change in the interest rate level.

(c) A decrease in the interest rate will lead to an increase in production and income as well as

a decrease in prices in the AD-AS model.

[1] a, b and c

[2] only a and b

[3] only b and c

[4] only a

[5] only b


[1] Monetary and fiscal policies are collectively known as supply management policies.

[2] The lags associated with monetary and fiscal policy make these policies more effective.

[3] The implementation lag is shorter for monetary policy than for fiscal policy.

[4] In practice, fiscal and monetary policies are conducted independently of one another.


[1] Capital and intermediate goods are excluded from the CPI but included in the PPI.

[2] PPI relates to the cost of living.

[3] An inflation rate of 3% implies that the cost of goods and services increases by 3%

monthly.

[4] To calculate the implicit GDP deflator, divide the real GDP by the nominal GDP and

multiply by 100 to get a percentage.


[TURN OVER]


(a) The AS curve is vertical at the level of full employment because the total available

workforce is employed.

(b) Both cost-push and demand-pull inflation result in a lower level of total production and

income.

(c) At the full employment level of total production and income, a contractionary fiscal policy

will shift the AD curve to the right and cause inflation.

(d) If the profit margin is inflexible, higher wage demands can be inflationary.

[1] a, b, c and d

[2] only a and b

[3] only a and d

[4] only a

[5] only b and d


(a) Higher unemployment has social costs, for example it could lead to increased criminal

activity.

(b) A person who has been unemployed for too long might lose their skills and become

unemployable.

(c) Social welfare programmes place a financial burden on society.

[1] a, b and c

[2] only a and b

[3] only a and c

[4] only b

B56 Frank was laid off from his job because of a recession. He is ... unemployed. Susan works at a

surf shop in Durban, but only for three months a year; for the rest of the year she is ...

unemployed.

[1] structurally; seasonally

[2] cyclically; frictionally

[3] structurally; frictionally

[4] cyclically; seasonally

[5] cyclically; structurally



(a) According to Statistics SA the unemployment rate for the first quarter of 2014 was 25,2%.

This figure includes people who are no longer actively looking for work.

(b) South Africa has a serious unemployment problem which has led to social unrest.

(c) A decrease in the foreign demand for South African exports could result in job losses.

[1] a, b and c

[2] only a and b

[3] only b and c

[4] only c


[1] A recession is represented by the upswing section of the business cycle.

[2] All recessions last for the same amount of time and are identical in terms of severity.

[3] Upswings and downswings always last for the same period of time.

[4] Economic growth is not stable.


[1] Eskom’s load shedding programme is a supply side constraint to economic growth.

[2] The discovery of crude oil in South Africa could contribute to economic growth.

[3] Capital widening is when the ratio of capital to labour in the economy increases.

[4] To encourage growth, government could endeavour to reduce the obstacles (as far as

possible) to entrepreneurship.


[1] An increase in any one of the supply factors is sufficient to increase economic growth.

[2] South Africa primarily exports capital goods.

[3] Government spending can be raised indefinitely to increase economic growth.

[4] The export of minerals and metals helped the early South African economy to grow.

© UNISA 2016

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