STUDY UNITS COVERED : STUDY UNITS 1-2. DUE DATE : 3:00 p.m. 20 AUGUST 2013

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1 Page 1 of 8 ASSIGNMENT 2 ND SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1-2 DUE DATE : 3:00 p.m. 20 AUGUST 2013 TOTAL MARKS : 100 INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete Instructions to Students for Completing and Submitting Assignments must be collected from any IMM GSM office, the relevant Additional Tuition Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1) You are required to submit ONE assignment per subject. 2) The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however, the examination papers will count out of 100%. 3) Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4) Number all the pages of your assignment (e.g. page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5) The IMM GSM requires assignments to be presented in a typed format, on plain A4 paper. Unless otherwise specified, this assignment must be completed within a limit of 1500 words, excluding the bibliography. Students who exceed the word limit may find that only part of the submitted assignment will be marked. 6) A separate assignment cover, which is provided by the IMM GSM, must be attached to the front of each assignment. 7) Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8) The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 20 August Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 20 August 2013 and up to 5:00 p.m. the following day, after which no assignments will be accepted. 9) If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website, on 4 October 2013.

2 Page 2 of 8 Answer ALL the questions Questions 1 and 2 are based on the table below, which describes the process by which a loaf of bread is made available to a consumer as a final good. Farmer sells wheat to miller 0,70 Miller sells flour to baker 1,05 Baker sells bread to grocer 1,90 Grocer sells bread to consumer 2,25 Price (R) of a loaf of bread QUESTION 1 [40] Indicate your answers to each of the following questions on the answer sheet provided. Each answer is worth two (2) marks. For each section below select the MOST APPROPRIATE answer from the choices given. Mark your answers with an X in the correct block on the ANSWER SHEET on page The total value of a loaf of bread is a. R1,55. b. R2,25. c. R0,35. d. R5,90. e. R4, The value added by the grocer equals a. R2,25. b. R1,90. c. R1,05. d. R0,70. e. R0, If 2000 is the base year for real GDP calculations, we know for certain that nominal GDP a. is less than real GDP in b. is greater than real GDP in c. equals real GDP in d. in 1999 will be greater than real GDP in e. in 1999 will be less than real GDP in 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 people who are physically unable to work. The unemployment rate in this country equals a. 8%. b. 10%. c. 13,3%. d. 20%. e. 25%.

3 Page 3 of A consumer s real purchasing power refers to a. the nominal income level of the consumer. b. wage income earned through employment. c. the maximum volume of goods and services that the consumer can buy. d. nominal GDP per capita. e. real GDP deflated by the price level. 1.6 If the cash reserve requirement of the banking system is 20% and banks hold no excess reserves, then the value of the credit multiplier will be a. 0. b. 0,2. c. 5. d. less than 5. e. greater than Which of the following would cause a decrease in the supply of money? a. An increase in the rate at which the central bank lends to commercial banks b. A reduction in the reserve requirement c. Purchase of government securities by the central bank d. A reduction in the income tax rate e. None of the above. 1.8 If a commercial bank increases its cash reserves (held at the Reserve Bank) by R5 million, what change in demand deposits will this bring about? Assume the Reserve Bank insists on a minimum cash reserve requirement of 5% and that the banks hold no excess reserves. a. Demand deposits will increase by R5 million. b. There will certainly be no change in demand deposits. c. Demand deposits will increase by R10,1 million. d. Demand deposits will increase by R100 million. e. Demand deposits will decrease by R50 million. 1.9 If the Reserve Bank wishes to implement a deflationary open-market policy, which of the following will most likely occur? a. The Bank will try to lower the repo rate. b. The Bank will offer more credit to the commercial banks. c. The Bank will buy securities from the commercial banks. d. The Bank will sell securities to the commercial banks. e. The Bank will increase the credit multiplier If people deposit their cash into a demand deposit account with instant access to their money, which of the following is true? a. The money supply will increase. b. The demand for money has increased. c. The supply of money has decreased. d. The demand for money has decreased e. The supply of money has not changed.

4 Page 4 of Money financing of a government deficit a. occurs when the government borrows from the central bank. b. occurs when the central bank buys securities from the government. c. occurs when any banking institution buys securities from the government. d. is a way of reducing the supply of money. e. leaves the government with an ongoing obligation to pay interest Which of the following is likely to lead to an increase in inflation? a. An increase in taxes b. Monetary and credit policies that reduce private consumption c. More efficient public activities d. An increase in money-financed spending e. None of the above If government spending is higher than current government revenue, this is known as a. a deficit on the current account of the balance of payments. b. the budget deficit. c. the public debt. d. money financing. e. good fiscal management The South African income tax system is a. regressive. b. a flat-rate tax. c. proportional. d. progressive. e. indirect Which of the following would be classed as an expansionary fiscal policy? a. An increase in the money supply b. A reduction in the number of goods exempted from VAT c. An increase in government taxation d. An increase in government expenditure e. An increase in the VAT rate 1.16 Which of the following is recorded on the financial (capital) account of the balance of payments? a. A group of South Africans spends three weeks touring Europe b. A monetary gift from Canadian citizens to their relatives in South Africa c. A German firm pays R5 million dividends to the holders of its shares in South Africa d. An American firm sells its shares in a South African construction firm e. A group of German tourists visits the Kruger National Park in South Africa for two weeks

5 Page 5 of Which of the following summarises transactions involving a country s international exchange of goods, services, current transfers and income? a. Current account b. Financial account c. Balance of payments d. Gold standard e. Balance of trade 1.18 Which of the following would most likely contribute to a deficit (or reduce the surplus) on the South African current account? a. A depreciation of the rand b. A Malaysian company invests in a South African oil company c. An increase in transfers from Italian citizens to their South African relatives d. A decline in imports e. An increase in mine workers transfer of earnings to Mozambique 1.19 The foreign exchange rate is the rate at which a. one country s goods trade for those of another country. b. the currency of one country trades for the goods of another country. c. currencies of different countries are exchanged. d. one country s currency trades for silver provided by another country. e. the services of one country trade for the currency of another country Suppose that the euro/us dollar exchange rate changes from 1,3 euros per dollar to 1,1 euros per dollar. Then a. the euro has depreciated against the dollar. b. this will increase the demand for Eurozone goods by the United States. c. this will lead to a decline in exports by the United States to the Eurozone. d. the euro has appreciated against the dollar. e. the dollar has appreciated against the euro. QUESTION 2 [10] As from January 2013 changes were made to the composition of the CPI basket (SA) of goods and services. 2.1 Name: a. three goods which were added to the basket under the category personal care, and (3) b. two goods under the category meat that were removed from the basket. (2) 2.2 What are the weightings of the following items within the all urban CPI (SA) in February 2013? a. Bread and cereals (1) b. Tertiary education (1) c. Wine (1)

6 Page 6 of What was the headline CPI in February 2013 for SA? (December 2012 = 100) (1) 2.4 What was the headline CPI (for all urban areas) annual inflation rate for SA in February 2013? (1) QUESTION 3 [10] 3.1 Which of the following are changes in injections and which are changes in withdrawals in South Africa s circular flow of income? In each case, specify whether the change is an increase or decrease ceteris paribus. a. The local council funds a new metro project for the city. (2) b. The government raises tax allowances. (2) c. A leading South African company wins a major overseas contract. (2) d. Government reduces child benefits. (2) e. Depreciation in the exchange rate affects the popularity of holidays abroad. (2) QUESTION 4 [20] 4.1 Draw a bar graph which indicates the balance for each of the following accounts for the years 2005 to 2012: a. Current account b. Financial account c. Change in gross gold and other foreign reserves (10) 4.2 In his budget speech of 27 February 2013, Pravin Gordhan indicated the different sources of tax revenue where he plans to get approximately R898 billion from for the 2013/2014 tax year. Below are the different tax sources. You need to research the amounts for each of the tax revenue sources indicated below and then draw a pie chart showing the tax revenue for each category. (10) Tax Revenue 2013/2014 Personal Income Tax Excise Duties Corporate Income Tax Customs Duties VAT Fuel Levies Other

7 Page 7 of 8 QUESTION 5 [10] Distinguish between the following: a. Gross Domestic Product (GDP) (4) b. Gross Domestic Expenditure (GDE) (3) c. Gross National Income (GNI). (3) PRESENTATION [10] ASSIGNMENT TOTAL: 100

8 Page 8 of 8 ANSWER SHEET (DETACH THE ANSWER SHEET AND INCLUDE IT WITH YOUR ASSIGNMENT) ASSIGNMENT: MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) DATE: 20 AUGUST 2013 QUESTION: STUDENT NUMBER: ONE (1) S QUESTION NO. SELECTED ANSWER 1.1 a b c d e 1.2 a b c d e 1.3 a b c d e 1.4 a b c d e 1.5 a b c d e 1.6 a b c d e 1.7 a b c d e 1.8 a b c d e 1.9 a b c d e 1.10 a b c d e 1.11 a b c d e 1.12 a b c d e 1.13 a b c d e 1.14 a b c d e 1.15 a b c d e 1.16 a b c d e 1.17 a b c d e 1.18 a b c d e 1.19 a b c d e 1.20 a b c d e