ECS2603. Tutorial Letter 201/2/2014. South African Economic Indicators. Semester 2. Department of Economics ECS2603/201/2/2014

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1 ECS2603/201/2/2014 Tutorial Letter 201/2/2014 South African Economic Indicators ECS2603 Semester 2 Department of Economics IMPORTANT INFORMATION: This tutorial letter contains important information about your module.

2 Dear Student This tutorial letter contains the following: comments on Assignment 01 (second semester only) comments on Assignment 02 (second semester only) format of the October/November 2014 examination 1. COMMENTS ON ASSIGNMENT 01 The compulsory Assignment 01 contributes to your semester mark and consisted of 30 multiple-choice questions. You had to answer all the questions. The answers to the questions could readily be deduced from the prescribed book or study guide (SG) and are as follows: Question Answer Question Answer QUESTION 1 THE CORRECT ANSWER IS OPTION [4]. Refer to section 1.5 under the heading Real and nominal values on page 12 of your prescribed book. QUESTION 2 THE CORRECT ANSWER IS OPTION [2]. Refer to section 1.5 under the heading Percentages on page 12 of your prescribed book. 2

3 ECS2603/201 QUESTION 3 THE CORRECT ANSWER IS OPTION [3]. This is a simple calculation of a percentage change. The change was from 10% to 11%. Use the formula under the heading Percentages on page 12 of your prescribed book QUESTION 4 THE CORRECT ANSWER IS OPTION [4]. GDP at factor cost less subsidies plus taxes equals GDP at basic prices. See table 2.4 in your prescribed book. QUESTION 5 THE CORRECT ANSWER IS OPTION [3]. See table 2.4 in your prescribed book. GDP at market prices plus subsidies less taxes equals GDP at basic prices. QUESTION 6 THE CORRECT ANSWER IS OPTION [3]. See table 2.4 in your prescribed book where a summary is provided. QUESTION 7 THE CORRECT ANSWER IS OPTION [1]. The options put into words the equation GDE + X Z = GDP. Spending can only exceed production if imports exceed exports. Production can exceed spending in an economy if exports exceed imports. QUESTION 8 THE CORRECT ANSWER IS OPTION [4]. Refer to section 2.11 on pages 41 to 45 of your prescribed book regarding saving in an economy. The first two paragraphs cover all three options. QUESTION 9 THE CORRECT ANSWER IS OPTION [2]. Business cycles are covered in chapter 4 of your prescribed book. The answer to this question is purely definitional. QUESTION 10 THE CORRECT ANSWER IS OPTION [4]. Refer to the material under the heading Stock, flows and ratios on page 14 of your prescribed book to learn the difference between a stock and a flow. QUESTION 11 THE CORRECT ANSWER IS OPTION [2]. Consider table S-107; the top half of the table depicts current prices. Read across the individual rows. All sectors listed grew (increased in size) across all the years except mining and quarrying. 3

4 QUESTION 12 THE CORRECT ANSWER IS OPTION [3]. Do the calculations from table S-107. Calculate from the 2012 column. Mining and quarrying as a percentage of the primary sector is / = 78,3% not 76%. Agriculture, etcetera, contributed and mining, etcetera, What is twice 72731? It is and mining s is more than this amount. Option 4 is patently wrong. QUESTION 13 THE CORRECT ANSWER IS OPTION [4]. Make sure you are reading off table S-108 and constant prices. Mining / = 70,6% and 95637/ = 69,2% in The rest of the statements can be assessed by merely considering the data in the table. QUESTION 14 THE CORRECT ANSWER IS OPTION [4]. This question tests your ability to read and manipulate data off a table. Table S-109 and current prices must be used. See section 1.5 of your prescribed book if you have any difficulty calculating a percentage change. QUESTION 15 THE CORRECT ANSWER IS OPTION [3]. Cross-section data are for a particular moment in time, so table S-106 is not a cross-section data table, rather a time series data table. A value for a specific year is not a time series but rather a cross-section data item. Any data that is calculated from year to year is time series data, not cross-section data. QUESTION 16 THE CORRECT ANSWER IS OPTION [2]. For this question you need to focus on government expenditure. Table S-83 records foreign trade, table S-104 records exchange rates, table S-138 records consumer prices and table S-151 records national accounts. Only table S-66 records government statistics. QUESTION 17 THE CORRECT ANSWER IS OPTION [1]. For this question you must follow the same logic as for question 16 and check what each table records. Table S-142 measures producer prices. QUESTION 18 THE CORRECT ANSWER IS OPTION [2]. To calculate inflation you need to read from a table that records consumer prices. The question specifically refers you to table S-139. To calculate the rate of inflation you must use the total CPI and calculate the difference between one year and the next. Once you have done the calculation for each year find the lowest rate of change. [71,8-67,7]/67,7 = 6,06% for Do the same for all the years. 4

5 ECS2603/201 QUESTION 19 THE CORRECT ANSWER IS OPTION [5]. [97,8-92,6]/92,6*100 = 5,6155 which is 5,62% with rounding. QUESTION 20 THE CORRECT ANSWER IS OPTION [2]. Only table S-134 measures a labour statistic and can therefore be used to measure an employment variable. QUESTION 21 THE CORRECT ANSWER IS OPTION [3]. Use row 4357F for the calculations. [ ]/ = 202,1% for the overall percentage increase from 2002 and For the annual percentage increase use the formula on page 51 of your prescribed book is the final period and 2002 the starting period. There are nine periods in-between so you raise the / to the power of 1/9 and then subtract 1 and multiply by 100 to get a percentage. You cannot do this in your head nor on a non-scientific calculator. You can use Excel where you use SHIFT and the number 6 to raise to the power of whatever number you need, in this case 9. The answer is 13,1%. QUESTION 22 THE CORRECT ANSWER IS OPTION [2]. For the answer to this question read down the 2011 column. Take each item and compare it to the total value of Of the general public services, environmental protection, health, education and defence environmental protection is the smallest proportion. QUESTION 23 THE CORRECT ANSWER IS OPTION [4]. Option [5] is clearly incorrect, as there is no 6012J in table S-107. You also need to make sure the series you use is at constant prices that eliminates all J series. The only complete Y series option is 6006Y. QUESTION 24 THE CORRECT ANSWER IS OPTION [1]. For this question you need to work from table S-109. Make sure to also use the bottom half of the table, at constant prices. Calculate the difference between each year from 2008 to may be greater, but it is not on the list of options QUESTION 25 THE CORRECT ANSWER IS OPTION [4]. Refer to table S-109 and make sure to use the bottom half of the table for real values. For the years 2008 to 2012, calculate the proportion of final consumption expenditure to gross domestic expenditure (for 2008 it is calculated as follows: / = 79,9%). Do the same for all the years. 5

6 QUESTION 26 THE CORRECT ANSWER IS OPTION [3]. Once again the question tests your ability to work with data in a table. Read the columns named total public sector for [1], total private sector for [2] and grand total for [3] and [4]. QUESTION 27 THE CORRECT ANSWER IS OPTION [1]. This question expected you to make sense of a table in order to become familiar with its contents. The correct answer becomes obvious with calculations and comparison. QUESTION 28 THE CORRECT ANSWER IS OPTION [5]. In table S-155, the data required are provided in the bottom half of the table. Although table S-153 provides business cycle indicators, these do not provide information on the turning point in a business cycle as in table S-155. QUESTION 29 THE CORRECT ANSWER IS OPTION [3]. You can eliminate alternatives by simply looking at the data and not doing any calculations. Make sure you use constant prices and compare the correct years as per option. QUESTION 30 THE CORRECT ANSWER IS OPTION [3]. Look at table S-112 on page 72 of Tutorial Letter 101. In each case, do the necessary calculation to be able to ascertain which option is correct. Only option [3] is correct. This question tests your understanding of reading tables and doing calculations between years and within categories. 6

7 ECS2603/201 2 COMMENTS ON ASSIGNMENT 02 The compulsory Assignment 02 contributes to your semester mark and consisted of thirty multiple-choice questions. You had to answer all the questions. The following table contains the correct answers to Assignment 02 (second semester). Question Answer Question Answer QUESTION 1 THE CORRECT ANSWER IS OPTION [4] The labour absorption capacity is calculated as the increase in formal employment as a percentage of the increase in the labour force. QUESTION 2 THE CORRECT ANSWER IS OPTION [3] A person who works at a shop once a week is not regarded as unemployed, albeit underemployed, and a person who seeks, but cannot find employment, is regarded as an unemployed person. A full-time student is not regarded as unemployed. QUESTION 3 THE CORRECT ANSWER IS OPTION [3] A comparison of the strict and expanded definitions of unemployment in South Africa shows that unemployment in terms of the strict definition is lower than in terms of the expanded definition. The expanded definition does not exclude "discouraged" work-seekers, as is the case with the strict definition, which states, inter alia, that a person must have taken steps to find a job in order to be considered unemployed. 7

8 QUESTION 4 THE CORRECT ANSWER IS OPTION [1] If the South African CPI was 154,0 in 2007 and 168,0 in 2008, the official rate of inflation over this period was 9,1%. This is calculated by dividing the index figure for the current period by the index figure for the base period, and multiplying the answer by 100 (154,0/168,0 x 100 = 9,1%). See also the solution to question 15 below. QUESTION 5 THE CORRECT ANSWER IS OPTION [5] The South African PPI is NOT used to calculate the official rate of inflation. If the question had stated CPI, rather than PPI, the correct answer would have been 5%. QUESTION 6 THE CORRECT ANSWER IS OPTION [1] If the export price index of a country is 148 and its import price index is 186 in the same year, its terms of trade for that period are calculated by dividing the export price index by the import price index (see page 144 of the prescribed book). As 148/186 = 79,6, option [1] is correct. QUESTION 7 THE CORRECT ANSWER IS OPTION [1] The difference between the spot exchange rate and the forward exchange rate is determined by the spot rate and the interest rate differential between the two countries (see page 147 of the prescribed book for a more complete explanation). The forward rate is a calculation based purely on the interest rate differential, and other factors (whether economic or political) are not taken into consideration. QUESTION 8 THE CORRECT ANSWER IS OPTION [5] The Lorenz curve shows the degree of inequality in the distribution of income among the population. QUESTION 9 THE CORRECT ANSWER IS OPTION [1] A quantile ratio is the ratio between the percentage of income received by the highest x% of the population and the percentage of income received by the lowest y% of the population. QUESTION 10 THE CORRECT ANSWER IS OPTION [3] If the ZAR/USD exchange rate is given as ZAR8,00 = USD1,00 in the SA Reserve Bank Quarterly Bulletin, it is the middle rate at approximately 10:30 of that particular day that is published. Option b is therefore correct. 8

9 ECS2603/201 QUESTION 11 HE CORRECT ANSWER IS OPTION [3] Option a is correct, as total public sector employment between the first and second quarters of 2008 remained unchanged. Option c is also correct, as total private sector employment reached a peak in the first quarter of Option [3] is therefore the correct answer. Employment in construction was not exceed by employment in the general government in the third quarter of 2012, as the index numbers should multiplied by the actual employment numbers in 2000 to obtain actual employment per sector, as well as total employment. Employment in all sectors did not increase since Public-sector business enterprises and manufacturing recorded declines in employment levels, evidenced by the fact that the employment index in these instances declined to below 100 in 2012, with 2000 = 100. QUESTION 12 THE CORRECT ANSWER IS OPTION [2] The annual average growth rate in real annual gross value added at basic prices from 2006 to 2012 is calculated by means of a financial calculator on a compounded basis. As the answer is 2,8% (2,7668%), option [2] is correct. QUESTION 13 THE CORRECT ANSWER IS OPTION [3] Expenditure on gross domestic product (6006Y) at constant 2005 prices over the period 2005 to 2012 grew by 24,3%. Gross capital formation (6180Y) at 41,0% recorded the highest growth, and option 3 is therefore correct. The other components recorded in the question recorded growth as follows: Final consumption expenditure by households (6007Y) 30,3% Final consumption expenditure by general government (6008Y) 36,8% Exports of goods and services (6013Y) 3,9% QUESTION 14 THE CORRECT ANSWER IS OPTION [1] The GDE deflator ratio for 2011 is 1,45. The GDE deflator is calculated by dividing GDE at current prices in 2011 by GDE at constant prices in See table 6-5 on page 121 of the prescribed book. QUESTION 15 THE CORRECT ANSWER IS OPTION [3] Inflation is calculated as the change in CPI from the one year to the next. For this purpose, series (7170N) in table S-139 has to be used. In the five years under consideration (2008 to 2012), the rates of inflation were 9,9% in 2008, 7,2% in 2009, 4,3% in 2010, 5,0% in 2011 and 5,6% in Inflation was therefore the lowest in Please note that the CPI index number was the lowest in 2008, but inflation is calculated as the change in the CPI, and not taken as the level of the CPI. See also the answer to question 4. 9

10 QUESTION 16 THE CORRECT ANSWER IS OPTION [2] As goods account for 49,86% of the CPI index as is evidenced by deducting the services portion of 50,14 from the total weighting of 100. Option a is correct and option b is incorrect. Option c is incorrect, as communication has a larger weight in the CPI index than recreation and culture. QUESTION 17 THE CORRECT ANSWER IS OPTION [2] The price index for goods increased every year from 2006 to 2012, as is evidenced by series (7169N) on page S-139. Option a is therefore correct. The price index for communication services decreased from 100,0 in 2011 to 99,8 in 2012 and option b is therefore incorrect. The index numbers (the price indices for food and non-alcoholic beverages and for alcoholic beverages and tobacco) do not determine the weight in the overall CPI. The overall weight of each group of products and services is given in the top lines of tables S-138 and S-139. Option c is therefore incorrect. QUESTION 18 THE CORRECT ANSWER IS OPTION [2] Real expenditure on GDP (6006Y) declined by some 1,5% in 2009 and option [2] is therefore correct. QUESTION 19 THE CORRECT ANSWER IS OPTION [4] Real final consumption expenditure (6620Y) has shown the largest annual rate of growth in 2011 (an increase of 4,8% compared to 2010). QUESTION 20 THE CORRECT ANSWER IS OPTION [4] The decline in the weighted nominal effective exchange rate of the rand, compared to the weighted real effective exchange rate of the rand over the period 2007 to 2012, is calculated on the basis of price movements between South Africa and its major trading partner countries. See pages 147 to 150 of the prescribed book. QUESTION 21 THE CORRECT ANSWER IS OPTION [2] The same exchange rates were not used to convert the US dollar prices of gold and platinum to rand. In the case of the gold conversion in 2012, as an example, the rate was R8,217 = US$1,00, while it was R8,207 = US$1,00 in the case of platinum. The increase in the rand platinum price in 2012, with a concomitant decline in the US dollar price of platinum in the same year, is the result of a weakening in the rand/us dollar exchange rate, and option [2] is therefore correct. Option [3] is incorrect, as the oil price increased by 53,5% over the period 2007 to 2012, while the gold price increased by 139,9% over this period. The percentage movement in the Brent crude oil price was the largest in 2009 (compared to 2008), when the price declined by 63%. 10

11 ECS2603/201 QUESTION 22 THE CORRECT ANSWER IS OPTION [3] The biggest depreciation in the value of the rand between 2007 and 2012 (for the period as a whole) of the stated currencies was against the Japanese yen, at 71,7%. Option [3] is therefore correct. The other declines were 48,9% against the Swiss franc, 43,9% against the Australian dollar, 40,4% against the Chinese yuan and 28,7% against the Taiwanese dollar. QUESTION 23 THE CORRECT ANSWER IS OPTION [2] The biggest appreciation in value of the exchange rate of the currencies between 2007 and 2012 was the Japanese yen against the Indian rupee. Option [2] is therefore correct. One yen bought about 0,351 rupees in 2007 and bought about 0,669 rupees is This is an appreciation of some 90,6% in the value of the yen against the rupee. The Swiss franc appreciated from 34,42 rupees = 1 Swiss franc in 2007, to 56,92 rupees = 1 Swiss franc in This is an appreciation of some 65% over this period. The rest of the stated currencies declined in value against the rand. QUESTION 24 THE CORRECT ANSWER IS OPTION [1] Real gross value added at basic prices showed the largest percentage increase in QUESTION 25 THE CORRECT ANSWER IS OPTION [3] The volume of exports (including gold) increased by 12,8% from 2004 to 2012 (the percentage difference between 92,1 and 103,9), while the price of exports (including gold) increased by 111,2% (the percentage difference between 94,4 and 199,4) over the same period. QUESTION 26 THE CORRECT ANSWER IS OPTION [1] This question applies the principles explained as the terms of trade (see for instance pages 145 and 146 of the prescribed book) for the relevant figures, namely series (5036L) and series (5037L) in table S-83. All the options are correct. The terms of trade (including and excluding gold) improved from 2004 to 2012, from 98,7 to 122,0 and from 98,8 to 116,1 respectively. As the terms of trade improved over the relevant period, South Africa could have purchased a larger quantity of imports. As the terms of trade including gold improved more than the terms of trade excluding gold, between 2004 and 2012 the exports of gold contributed to South Africa's ability to purchase a larger quantity of imports. QUESTION 27 THE CORRECT ANSWER IS OPTION [1] The overall percentage increase and annual rate of percentage increase in government expenditure from 2002 to 2011 were 202,1% and 13,1% per annum respectively. 11

12 QUESTION 28 THE CORRECT ANSWER IS OPTION [5] As a percentage of total government expenditure, environmental protection was the smallest of the stated alternatives in 2011, at 0,8% of total expenditure. QUESTION 29 THE CORRECT ANSWER IS OPTION [4] The increase in the average capital-labour ratio between 1970 and 2012 shows that the capital per unit of labour has increased from 1970 to 2012 (page 161 of the prescribed book). Option b is therefore correct. Option a is incorrect, as the ratio is calculated on the basis of real figures (i.e. after inflation). Option c is incorrect, as the annual percentage increase in real disposable income from 1966 to 2012 was larger at 1,2% per annum than the percentage increase in real gross domestic product per capita (0,7% per annum). Option [4] is therefore correct. QUESTION 30 THE CORRECT ANSWER IS OPTION [2] The fact that GNI per capita has increased as a percentage of GDP per capita from 1966 to 2012, is an indication that primary income to the rest of the world has declined as a percentage of South Africa's primary income from the rest of the world (page 35 of the prescribed book). Option [2] is therefore correct. Option [1] is incorrect, as it states that GNI per capita has increased as a percentage of GDP per capita from 1966 to 2012 because primary income to the rest of the world has increased as a percentage of South Africa's primary income from the rest of the world. Per capita income per se is not a reflection of foreign trade or of foreign investment. Options 3 and 4 are therefore incorrect. 12

13 ECS2603/ FORMAT OF THE OCTOBER/NOVEMBER 2014 EXAMINATION The October/November 2014 examination paper is a fill-in paper. You may not remove the paper from the examination venue. The paper consists of two (2) sections: A and B. SECTION A (40 marks) ANSWER ALL OF THE QUESTIONS. Each question carries 5 marks. The questions consist of calculations as well as written sentence answers to questions. SECTION B (60 marks) Section B consists of 30 MULTIPLE-CHOICE QUESTIONS. In section B, questions must be answered on the mark-reading sheet which will be supplied. Carefully follow the instructions for the completion of a mark reading sheet. Only one of the alternatives per question (listed as 1, 2, etc) is correct. You must therefore not mark more than one alternative per question. For a correct answer you will receive two (2) marks. No marks will be deducted for incorrect answers. The number of lines provided for answering each question should give an indication of how much you should write (the maximum). If you have a handwriting that deviates from the average (you would know that), take this into account. A few pages for rough work are provided at the end of the script. We wish you all of the best with your studies. Please do not hesitate to contact one of your tutors should you experience any difficulties with the explanations of the assignment questions. Ms AK Fitschen Mr CH Rudolph Tel: Tel: fitscak@unisa.ac.za rudolch@unisa.ac.za Office number: 2-22 Office number: 2-19 (Both in the Club One building, Hazelwood, Pretoria) 13