Grade 11 Economics June 2012

Grade 11 Economics Exam

June 2012.

Time: 120 Minutes Marks: 200

INSTRUCTIONS

1 Answer FOUR questions as follows:

SECTION A: COMPULSORY QUESTION (+/- 20 minutes)

SECTION B: TWO QUESTIONS OUT OF THREE

Question 2 is compulsory

Choose between questions 3 and 4 (+/- 60 minutes)

SECTION C: COMPULSORY QUESTION (+/- 40 minutes)

2 Write the number of the question next to each answer.

3 Number the answers according to the system used in this question paper.

4 Start each question on a NEW SHEET OF PAPER. Leave one to two lines open between sub-sections of each question.

5 Read each question carefully.

6 Answer in full sentences.

7 A neat and systematic presentation of facts is required.

8 Do not answer more than the required number of questions. Only the required number of questions, in the order in which they have been handed in, will be marked.

9 Use a black or blue pen only (graphs / diagrams may be done in pencil).

10 Non – programmable calculators may be used.

THIS QUESTION PAPER CONSISTS OF 12 PAGES AND ONE ANSWER SHEET

SECTION A (COMPULSORY)

QUESTION 1

1.1 For each question, there are four possible answers: A, B, C or D. Choose the one you consider correct and record your choice in the appropriate space on the ANSWER SHEET attached to the question paper.

1.1.1 How much would the production of a ring add to the GDP if the gold used cost R800, the diamond cost R1 500, the finishing cost R200, the manufacturer sold it to a dealer for R3 000, and the dealer sold it to a customer for R3 600?

  1. R2500
  2. R3000
  3. R6600
  4. R3600

1.1.2 Net Domestic Product is equal to Gross Domestic Product minus...

  1. indirect taxes.
  2. subsidies.
  3. net factor payments abroad.
  4. depreciation/consumption of fixed capital.

1.1.3 Study the table below and give the correct term for (X):

(R million)
Primary sector / 58 455
Secondary sector / 154 821
Tertiary sector / 370 074
(X) / 583 350
  1. Gross value added at market prices
  2. Gross value added at basic prices
  3. Gross value added at factor cost
  4. Gross domestic income

1.1.4 The table shows a country's consumer price index for March and April 2000.

March 2000 / 148.6
April 2000 / 151.3

Which statement correctly describes what happened between these two months?

  1. There was an increase in the annual rate of inflation.
  2. There was an increase in the standard of living.
  3. There was a decrease in real interest rates.
  4. There was a decrease in the purchasing power of money.

1.1.5 The table shows the price indices and weights for three commodity groups that are included in the calculation of a country's consumer price index.

Commodity group / Index / Weight
X / 400 / 5
Y / 120 / 3
Z / 80 / 2

By how much has the cost of living increased since the base year?

  1. 52%
  2. 60%
  3. 152%
  4. 520 %

1.1.6 A country with a relatively even spread of income would have a Gini co-efficient of around …

  1. 0.51
  2. 0.78
  3. 0.23
  4. 0.90

1.1.7. If income were distributed equally, the Lorenz curve would be:

  1. a line lying directly on the horizontal axis.
  2. a line lying directly on the vertical axis at 0%.
  3. a line lying directly on the vertical axis at 100%.
  4. a 45-degree line between 0 and 100%.

1.1.8 The “unemployed” in any economy, are those people who…

  1. are willing and able to work, but cannot find employment
  2. who are not in the economically active population
  3. who do not want a job
  4. who have given up trying to find work due to the shortage of jobs.

1.1.9 What will improve South Africa’s current account balance immediately?

A.  a South African buying sports equipment produced in the US

B.  a US resident investing in property in South Africa

C.  a US multi-national company building a new factory in South Africa

D.  South Africans working in the US sending money to their relatives in South Africa

1.1.10 The diagram below shows the aggregate demand and supply curves for an economy.

Which one of the following could explain the shift of the aggregate demand curve from AD1 to AD2?

  1. A reduction in the rate of inflation.
  2. An increase in government spending.
  3. A reduction in taxation.
  4. An increase in interest rates.

1.1.11 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...

  1. 0.
  2. 0,2.
  3. 5.
  4. less than 5.

1.1.12 Which one of the following will cause the demand curve for money to shift to the right?

  1. An increase in real GDP
  2. A decrease in the repo rate
  3. An increase in the quantity of money supplied
  4. An increase in the price level (12 x 2 = 24)

1.2 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (1.2.1 – 1.2.5) on your ANSWER SHEET.

1.2.1 Spending on imports (is / is not) included in the calculation of the GDE of an open economy.

1.2.2 The output produced in South Africa by a French-owned company is part of South Africa's (GDP / GNP).

1.2.3 Portfolio investment refers to investments in (fixed assets / equities).

1.2.4 Expenditure by tourists is regarded as an invisible (export / import).

1.2.5 The SARB (buys / sells) securities when it wants to support a repo rate increase with open market operations. (5 x 2 = 10)

1.3 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A – M) next to the question number (1.3.1 – 1.3.8) on your ANSWER SHEET.

COLUMN A / COLUMN B
1.3.1 / Transfer payment / A / When the remuneration for a factor of production is included more than once in the calculation of the National Income.
1.3.2 / Financial account / B / M2 plus long term deposits.
1.3.3 / Aggregate demand / C / The interest (%) that the issuer promises to pay the bondholder until the maturity date.
1.3.4 / Demand-pull inflation / D / The purchase and sale of government stock by the SARB in the bond market.
1.3.5 / Deflationary fiscal policy / E / Records international transactions in assets and liabilities.
1.3.6 / Open market operations / F / M1 plus M2 plus long term deposits.
1.3.7 / M3 / G / Occurs when aggregate demand is bigger than aggregate supply.
1.3.8 / Coupon rate / H / When the government raises interest rates to cool off the economy.
I / The adjustment of the repo rate and the quantity of money lent by the SARB to other banks.
J / Payments and receipts relating to the flow of good and services across borders.
K / Income paid but not earned in the time period under consideration.
L / When the government reduces government expenditure and increases taxes to cool off the economy.
M / Determined by everything that influences total expenditure in the economy

(8 x 2 = 16)

SECTION A TOTAL: [50]

SECTION B: Answer TWO Questions

Question 2 is compulsory. Choose between questions 3 and 4

QUESTION 2: MEASURING THE PERFORMANCE OF THE SA ECONOMY.

Start this question on a NEW and SEPARATE SHEET OF PAPER.

2.1 Determine which of the following statements are true or false. Write only True or False next to the number (2.1.1 – 2.1.4).

2.1.1 One of the macroeconomic objectives is that no price in the economy should increase.

2.1.2 The best measure of the distribution of income in a country is real GDP per capita.

2.1.3 An increase in nominal GDP by 7% indicates that output has increased by 7%.

2.1.4 Only transactions that represent production of new goods and services are included in the GDP. (4 x 2 = 8)

2.2 List THREE ways of measuring income distribution in an economy (3 x 2 = 6)

2.3 Study the table and answer the questions that follow:

R millions
Compensation of employees / 621230
Net operating surplus / 411945
Consumption of fixed capital / 172394
Gross value added at factor cost / 1205569
Other taxes on production / 28700
less Other subsidies on production / 3860
Gross value added at basic prices / 1230409
Taxes on products / 146738
less Subsidies on products / 2671
Gross domestic product at market prices / 1374476

Source: SARB Quarterly Bulletin March 2005

2.3.1 What method has been used to calculate GDP in the table above? (2)

2.3.2 What is “net operating surplus”? (3)

2.3.3 Define “taxes on products” and give an example. (3)

2.3.4 What would you need to do to calculate the GNP at market prices? (2)

2.4. Study the extract of the balance of payments (BOP) below and answer the questions that follow.

2.4.1 Define the term “Balance of Payments”. (2)

2.4.2 Which item captures the effect of a foreigner purchasing some shares on the JSE Securities Exchange? (2)

2.4.3 Name ONE other account that forms part of the balance of payments. (2)

2.4.4 Comment on the change in the Balance on Current Account for the years above. What does this indicate? (4)

2.5 Discuss in detail four macroeconomic goals of a developing country. (16)

[50]

QUESTION 3 (OPTIONAL): INFLATION.

Start this question on a NEW and SEPARATE SHEET OF PAPER.

3.1 Determine which of the following statements are true or false. Write only True or False next to the number (3.1.1 – 3.1.4).

3.1.1 The index used to measure prices at the factory gate is the PPI.

3.1.2 The main monetary instrument used by the SARB to fight inflation is taxes.

3.1.3 When there is inflation, tax payers’ nominal incomes rise

3.1.4 According to the quantity theory of money, if M increases, price levels fall in the economy. (4 x 2 = 8)

3.2 Identify and briefly discuss THREE negative consequences of inflation (3 x 2 = 6)

3.3 Study the information below and answer the questions that follow:

Consumer price index for metropolitan areas (2000=100)
Month / 2002 / 2003
January / 110,2 / 122,0
February / 110,8 / 121,9
March / 112,1 / 122,5

Source: South African Reserve Bank Quarterly

3.3.1 Define the term "consumer price index". (2)

3.3.2 What is the base year? (2)

3.3.3 Calculate the year-on-year inflation rate for March 2003. Show your workings (3)

3.3.4 Is there any evidence of deflation in the table? Explain your answer (3)

3.4 Study the graph below which shows the inflation rate in South Africa 2001 – 2010 and answer the questions that follow:

3.4.1 What is the SARB’s target inflation range? (2)

3.4.2 Do you think the SARB has been successful in achieving this over the last ten years? (4)

3.4.3 What do you think caused the increase in the inflation rate in the years 2004 to 2008? (4)

3.5 Explain, with the aid of a diagram, why policy makers cannot solve the stagflation / cost-push inflation dilemma using only demand sided policies (i.e. monetary and fiscal policies). (8)

3.6 Explain the quantity theory of money. (8)

[50]

QUESTION 4 (OPTIONAL): THE MONETARY SECTOR

Start this question on a NEW and SEPARATE SHEET OF PAPER.

4.1 Determine which of the following statements are true or false. Write only True or False next to the number (4.1.1 – 4.1.4).

4.1.1 In a money economy there has to be a double coincidence of wants before trade can take place.

4.1.2 Fiscal policy refers to any measures taken by the South African Reserve Bank to influence the supply of money and the interest rates.

4.1.3 M2 is equal to M1 plus long term deposits.

4.1.4 If the money supply increases, interest rates will increase. (4 x 2 = 8)

4.2 Identify THREE characteristics of a good system of money. (3 x 2 = 6)

4.3 Study the diagram below which shows the traditional approach to equilibrium in the money market and answer the questions that follow:

4.3.1 What do the curves labelled LL and M1M1 represent? (4)

4.3.2 Which approach – accommodation policy or open market operations – is more likely to be used to explain monetary policy in this model? (2)

4.3.3 Briefly explain how the monetary authority would change the equilibrium from E1 to E2 using the appropriate policy identified above. (4)

4.4 Study the table below showing monetary aggregates in South Africa and answer the questions that follow:

Source: SARB Quarterly Bulletin March 2012

4.4.1 Define M1. (3)

4.4.2 Calculate the growth in M1 from 2006 to 2011. (3)

4.4.3 Briefly explain why M1 has grown in the period shown. (4)

4.5 Discuss in detail TWO functions of money. (8)

4.6 Briefly discuss FOUR functions of the SARB. (8)

[50]

SECTION B TOTAL: [100]

SECTION C (COMPULSORY)

Start this question on a NEW and SEPARATE PAGE.

INSTRUCTIONS

Essay responses should include an introduction, body and conclusion. Five marks will be awarded for the introduction and conclusion. In addition, 5 marks will be allocated for the interpretation of the topic and language usage. A maximum of 40 marks will be awarded for the body.

QUESTION 5: THE MONETARY SECTOR AND INFLATION

The South African Reserve Bank regards its primary goal in the South African economic system as "the achievement and maintenance of price stability".

Discuss the monetary policy options available to the SARB to fight inflation and how these policies impact the economy. [50]

SECTION C TOTAL: [50]

GRAND TOTAL: [200]

Grade 11 Economics Exam

June 2012

ANSWER SHEET.

NAME: ______TEACHER: _____

A / B / C / D / 1.3.1
1.1.1 / 1.3.2
1.1.2 / 1.3.3
1.1.3 / 1.3.4
1.1.4 / 1.3.5
1.1.5 / 1.3.6
1.1.6 / 1.3.7
1.1.7 / 1.3.8
1.1.8
1.1.9
1.1.10
1.1.11
1.1.12
1.2.1
1.2.2
1.2.3
1.2.4
1.2.5

13