1. Answers to question from the discussion class.

2. Exercise 1 Which one of the following is not a flow variable? [1] Liabilities [2]profit [3]Income [4] investment [5] savings

3. The three major flows in an economy are [1] total production, total profit and total spending [2] total wages, total investment, total income [3] Total production, total income, total spending [4] total savings, total spending, total production

4. In the circular flow diagram, [1] spending on goods and services flows from firms to households [2]goods and services flow from households to firms [3]factors of production flow from firms to households [4] Income from factors of production flow from firms to households

5. Firms Households Goods market Factors Market 4 3 2 1

6. Using the figure above [1] flows(2) and (3) represent income [2] Flows (2) and (4) represent spending [3] flows (1) and (2) represent spending [4] Flows (1) and (3) represent spending

7. Exercise 2 Money is [1] the same as income [2]Anything that is generally accepted as a medium of exchange [3] the value of all coins and currency in circulation at any time [4]the same as wealth

8. Banks create money by [1] printing additional bank notes [2]paying interest to their depositors [3] Making loans that result in additional deposits [4] offering financial services such as money market accounts

9. If the cash reserve ratio is increased, the credit multiplier [1] Will decrease [2] will decrease, as long as banks hold no excess reserves [3] could either increase or decrease [4] will increase

10. The main reason that people hold money for the purpose of “Acquiring things” is referred to as [1] Transactions motive [2] precautionary motives [3] speculative motive [4] profit motive

11. [1]What are the broad ways in which government spending can be financed? Taxation, borrowing and income from property. [2] Define fiscal policy Policy in respect of the level and composition of government spending,taxation and borrowing [3] Define the budget deficit The difference between government spending and revenue [4] What are the criteria's for a good tax system? Neutrality, administrative simplicity, equitable

12. If the supply curve of petrol has its normal shape and the price elasticity of demand for petrol is perfectly inelastic, then a specific tax of R5 placed on each litre of petrol will be borne by [1] Entirely by consumers [2] entirely by producers [3]more by consumers than by producers [4] more by producers than by consumers

13. Which of the following is an example of expansionary fiscal policy? [1]increase in taxation [2]Increase in government expenditure [3]increase in the VAT rate [4] increase in the money supply

14. If the rand depreciates against the dollar (1)South Africa export prices in dollar terms will increase (2)the rand price of South African imports will decrease (3)the balance on the current account of the South African balance of payments will improve. (4)the South African rate of inflation will decrease

15. 1. Use a diagram to explain what will happen to the exchange rate between the Rand and the Dollar if South African exports to the United States increased – This question is from page 55 of the study guide. See the solutions on page 58 of the guide 2. With the aid of a diagram, explain what will happen to the exchange rate between the Rand and the Dollar when the demand for dollars increases This question is from page 55 of the study guide. See the solutions on page 58 of the guide

16. True of false 1.Exports create a supply of foreign exchange while imports constitute a demand for foreign exchange true 2. An increase in SA imports from the united states will give rise to an appreciation of the rand against the Dollar false 3. If American importers buy more SA goods, the supply of dollars in the South African foreign exchange market increases true

17. The total value of all final goods and services produced in a country during a particular year is called the (1)gross national income (2)gross domestic expenditure. (3)net national income (4)gross domestic product.

18. Question YearNominal GDPReal GDP 2008150 2009305290 2010315300 a)Calculate the growth rate of nominal gdp between 2008 and 2009. 103%. (305-150)/150*100 b) Calculate the growth rate of real gdp between 2008 and 2009. 93.3% c) What do you think the difference in the two figures can be attributed to ?- real gdp has taken into account inflation effects while nominal gdp has not.

19. YearNominal GDP Real GDP 2001280 2002315260 2003305300 Use the information in the table above to calculate the increase in real GDP between 2001 and 2003 7.14%---(300-280)/280*100

20. YearGDP at current prices (R millions) GDP at constant (2003) prices (R millions) 2001300310 2002340350 2003410 2004470430 The increase in real GDP growth between 2001 and 2004 is [1] 0.39% [2] 5.67% [3] 39%. [4] 56.7%

21. True of False if the marginal propensity to consume is ¾, then at an income level (Y) of 100, the induced consumption is 75 True. Induced consumption is cY. Therefore ¾*100=75 If autonomous consumption is 80 and the mpc =4/5, then C=880 at an income level of 1000 true

22. If aggregate spending exceeds aggregate production in the simple Keynesian model (1)unplanned decreases in inventories will occur (2)inflation will occur (3)aggregate spending will also exceed aggregate demand (4) intended saving will equal intended consumption spending

23. Autonomous investment means that investment is independent of the (1)cost of capital goods (2)interest rate (3)level of income. (4) expected revenue to be earned from capital goods

24. In the simple Keynesian model (1)the marginal propensity to consume has no effect on consumers’ ability to save (2)there is an inverse relationship between savings and the level of income (3)induced consumption is a function of the income level (4) the consumption function is made up of an autonomous component only

25. Calculate the value of the multiplier if 1. MPC= 3/4, -----1/(1-c)=1/(1-3/4)=4 =8/10, -----5 =7/8 ------8 =2/3-------3

26. Using the following information about the closed economy to calculate equilibrium level of income Autonomous consumption expenditure=R100 Investment expenditure=R150 c =7/8 You first calculate the value of the multiplier, then multiply that by the sum of your autonomous components. Therefore y=multiplier*[autonomous consumption plus autonomous investment] Y=8*[100+150] Y =2000

27. Suppose the autonomous consumption is R200 million, the marginal propensity to consume is 5/6 and autonomous investment is R400 million. Calculate the following: a)The multiplier 1/{1-c}=1/[1-5/6]=6 b) The equilibrium level of income 3600

28. Calculate the impact on equilibrium level of income of an increase in investment spending of R100 million in the economy above. You add the 100 to the previous total of autonomous components and multiply that value by the multiplier. Y=4200

29. Keynesian with government- government spending We then looked at the impact of adding government spending to the Keynesian model We wanted answers to how the inclusion of government spending impacts on 1. the size of the multiplier----leaves multiplier unchanged 2. autonomous spending-----increases if government spending increases 3. equilibrium level of income------increases if government spending increases

30. See the attached word document on the impact of introducing government spending.

31. Simple Keynesian Keynesian with Government spending