Expenditure on GDP At constant 2000 prices

Transcription

1 FACULTY OF ECONOMIC AND MANAGEMENT SCIENCES DEPARTMENT OF ECONOMICS ECONOMICS 320 November Examination 10 NOVEMBER 2007 Total: 100 marks Time: 135 minutes Internal examiners: Mr FJ Scholtz Ms KL Thompson External examiner: Dr TJ de Wet QUESTION 1 Consider the following information from the NIPA accounts for 2003 and the copy of the South African Balance of Payments (attached as Appendix A to the question paper) and calculate compensation of employees: (Show all calculations) R millions Final consumption expenditure by households Final consumption expenditure by government Gross capital formation Gross domestic expenditure Net operating surplus Net taxes on production and imports Primary income receipts from the rest of the world Primary income payments to the rest of the world Net saving Gross national income at market prices Net current transfers received from the rest of the world QUESTION 2 [25] 2.1 Use the information contained in the following table and calculate the real growth rate in fixed capital formation by general government (quarter-on-previous quarter expressed at an annualised rate) for the second quarter of (5) (Show formulae and all calculations) Period Expenditure on GDP At current prices Expenditure on GDP At constant 2000 prices Fixed Capital Formation by Gen. Govt. (current prices) (seasonally adjusted (seasonally adjusted (seasonally adjusted annualised rates) annualised rates) annualised rates) 2006: Q Q Q Q : Q Q In real terms, has fixed capital formation by general government increased or decreased as a percentage of GDP from 2007Q1 to 2007Q2? (Show your calculations) (3) 2.3 Would government grants to the poor be included in the figure for gross capital formation in the NIPA accounts? Explain your answer. (2) 1

2 2.4 You are faced with a situation where you need to deflate a nominal series output for the mining sector, published on a monthly basis. What deflator will you use? Explain your reasons for choosing that particular deflator. (2) 2.5 What would be the best deflator to use for deflating a price series in times of terms of trade volatility? Explain why. Briefly highlight potential shortcomings of this deflator. (3) [15] QUESTION 3 Consider the data contained in the appendix below titled Expenditure on Gross Domestic Product (Appendix B) and also the excerpt from the current account of the balance of payments (Appendix C) and answer the following questions: (Provide the formula used and show all calculations) 3.1 Calculate the deficit on the current account as a percentage of GDP for the first and second quarters of the What is the trend here? (3) 3.2 Why do many observers and economists view the large deficit on the current account as a problem against the present prevailing economic circumstances? What is the concern with the degree of exposure on the balance of payments? Refer to the full balance of payments as reflected in Appendix A in this regard. (5) 3.3 What does change in liabilities related to reserves represent? Interpret the negative value for Again, refer to the figure as reflected in Appendix A. (2) [10] QUESTION 4 Define business cycles and elaborate on the critical moments in a business cycle. [5] QUESTION With the announcement of the latest medium term budget policy statement in October, the Minister of Finance called for the adoption of a more conservative fiscal stance and thus pencilled in surpluses on the budget until 2010/11. Cosatu however argued that budgeting for surpluses on the budget further exacerbate poverty. What would the effect of higher levels of government spending be against the present economic backdrop? What did the Minister say would any surpluses that do materialise be used for? (4) 5.2 (a) List the functions of money. (2) (b) Using the latest prime overdraft rate and the September figure for CPIX inflation, calculate the real interest rate in South Africa at present. (2) [8] QUESTION 6 Suppose that you have been commissioned to analyse the public debt of South Africa. You are specifically asked to explain what has caused the payments of this debt to increase sharply over the past three decades until To do so, you estimate a regression equation as follows: DEBT ln( PAY ) = β 0 + β1 ln( GDP) + β2 ln + β3 ln( INTRATE) + β4 ln( DOMRATE) GDP Where: PAY = interest payments on the public debt GDP = gross domestic product DEBT GDP = public debt to GDP ratio 2

3 INTRATE = measure of foreign interest rate DOMRATE = domestic interest rate 6.1 What do you expect the signs of each of the slope parameters above should be? Motivate. (4) Upon running the above behavioural equation through a statistical software package, you obtain the following results (t-statistics in parenthesis): DEBT ln( PAY ) = ln( GDP) ln ln( INTRATE) ln( DOMRATE) GDP ( 11.01) (43.79) (2.41) (3.10) (1.97) R R 2 2 = = F = SEE = DW = Economically interpret the results above. (4) 6.3 Statistically evaluate the results above. (6) 6.4 If the following values (not logged!) are predicted for the explanatory variables in 2007, provide a forecast of ln(pay) and PAY (the interest payment on public debt) for 2007: GDP = INTRATE = 3.5 DEBT = 39 GDP DOMRATE = 9 (4) 6.5 Compare and contrast the t-statistic and the F-statistic of a regression equation, with particular reference to what each of them test for. (4) [22] QUESTION 7 (Answer any 3 of the following four questions) With respect to the possibility of South Africa reaching a real economic growth rates as targeted in the Accelerated and Shared Growth Initiative for South Africa by 2014, discuss the probability of South Africa reaching such a target against the background of: 7.1 In a recent report by the International Monetary Fund (IMF) it was said that the IMF had serious doubts about South Africa achieving its 6 % economic growth target. Do you agree with this statement? (5) 7.2 It is said that the present exposure on the South African balance of payments poses a serious threat to overall economic stability and could potentially derail the achievement of the ASGI-SA goals. Do you agree? (5) 7.3 Many argue that the South Africa s macroeconomic employment creation initiatives are not nearly aggressive or focussed enough to halve the present unemployment rate by Do you agree with this statement? (5) 7.4 The present breach of the 6 per cent inflation target range poses a significant threat to progress in South Africa. Do you agree? (5) 3

4 Appendix A use this to answer Question 1 and Question 3 4

5 Appendix B use these pages to answer Question 3 5

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7 Appendix C use this page to answer Question 3 7