Ecs 1601 Assignment

1 second semester 2
-2020
DUE 21 AUGUST 2020

| (GREAT MINDS TUTORIALS :RANDBURG)

FOR ANY COMMENTS AND QUESTIONS CONCERNING THIS ASSIGNMENT AND SUBJECT MATTER.
Unique number : 862838

Closing Date : 21 August 2020

1.1 The three major flows in any economy are …

[1] income, spending and saving.

[2] income, government spending and consumption.

[3] spending, production and investment.

[4] production, income and spending.

These are the flows that are discussed in the circular flow model.

1.2 The two major markets in the circular flow of income and expenditure are the …

[1] foreign exchange market and factor market.

[2] goods market and factor market.

[3] goods market and services market.

[4] factor market and production market.

These are the two markets the goods market is where households purchase goods and services,
whilst the Factor market is owned by households who sell factors of productions to firms.

1.3 Which one of the following statements on the remuneration of the factors of production is true?

[1] The remuneration for capital is profit, as the business aims to earn a profit on its

financial investments.

[2] The remuneration for labour is rent, as workers are able to pay their rent with the

money they earn.

[3] The remuneration for entrepreneurship is a salary, as entrepreneurs are also

rewarded for their efforts.

[4] The remuneration for natural resources is rent, as natural resources consist of all gifts of

nature.

The following are different Factors of production and their rewards

Natural resources (Land) rent

Capital Interest
Labour Wages /Salary
Entrepreneurship Profit

1.4 In the circular flow of income and spending in South Africa, _____________ firms in the factor
market becomes __________ households, while ____________ households in the goods market
becomes ______________ firms. Expenditure by foreigners on South African products constitutes
_______________ the circular flow.
[1] income to; spending by; income to; spending by; a leakage from

[2] income to; income to; spending by; spending by; an injection into

[3] spending by; income to; spending by; income to; an injection into

[4] spending by; spending by; income to; income to; a leakage from

It is apparent that households own the factors of production hence they sell these factors to firms
and get income whilst the firm’s own businesses which make goods and services which provide
income to firms. Foreign sector buying from SA is an advantage it injects more money (Exports).

1.5 In the circular flow of income and spending, financial institutions …

[1] act as an intermediary between those who have surplus funds and those who have deficit funds.

[2] are not always useful, as households generally spend all their available funds.

[3] create an injection into the flow by collecting savings from participants with surplus units only;
therefore, there is no need to provide funds to deficit units.

[4] generally exist to collect investment spending and transform it into savings.

1.6 Which of the following is a leakage from the circular flow of income and spending in South
Africa?

[1] government purchases of textbooks for state-run schools

[2] the sale of export fruit to the European Union

[3] investment by South African Breweries in a new brewery in South Africa

[4] a decision by a major supermarket chain to sell German beer

German beer provides income for the company in Germany ultimately, this means the super market
would still have to repatriate the funds to Germany which acts as a leakage from SAs point of view.

1.7 If the Minister of Finance wanted to withdraw funds from the economy using the flows of
income, spending and production, you would advise him to …

[1] increase government spending to firms.

[2] decrease government spending to firms.

[3] increase spending on public goods and services.

[4] increase taxes received from households.

Tax is a leakage in the circular flow model whilst all other answers refer to Government expenditure
which is an injection in the circular flow model.

1.8 Money overcomes the problem of a double coincidence of wants inherent in the barter system
through its function as a …

[1] medium of exchange.

[2] unit of account.

[3] standard of deferred payment.

[4] store of value.

Money as a medium of exchange solves the problem of double coincidence of wants, instead of
having to look for a coincidence of needs all the time money can be used to efficiently transact.

1.9 The most comprehensive measure of money is equal to …

[1] M2 plus all short-term and medium-term deposits of the domestic private sector with monetary
institutions.

[2] M1 plus all short-term and medium-term deposits of the domestic private sector with monetary
institutions.

[3] M2 plus all long-term deposits of the domestic private sector with monetary institutions.

[4] M2 plus all medium-term deposits of the domestic private sector with monetary institutions.

M3 is equal to M2 plus all long-term deposits of the domestic private sector with monetary
institutions. The long-term deposits in question have a maturity of longer than six months. (See page
259 mohr)

1.10 Based on your answer to question 9, use the table below to find the total comprehensive
measure of money for the year 2013.

[1] R87 014 million

[2] R549 323 million

[3] R636 337 million

[4] R2 513 865 million

M2 + Long-term deposits (2 051 308 + 462557) = 2 513 337 million.

1.11 In the circular flow of income and spending, government …

[1] Injects government spending into the factor market and collects taxes from the goods market.

[2] Withdraws taxes from firms and households.

[3] Provides public goods and services to the factor market and receives labour from the goods
market.

[4] Withdraws government spending by providing it to firms and withdraws taxes from households.

Taxes levied on (and paid by) households and firms – taxes are usually represented by the symbol T.

1.12 Which one of the following is a function of the South African Reserve Bank?

[1] To formulate and implement fiscal policy

[2] To maintain financial stability

[3] To finance government expenditure

[4] To provide public goods and services

The monetary policy document is meant to over ally maintain stability within the financial services
sector.

1.13 The function of the South African Reserve Bank as bank supervisor entails …

[1] reducing interbank settlement risks by reducing the potential for settlement default by one or
more banks.

[2] making, issuing and destroying banknotes and coins.

[3] achieving a sound, efficient banking system in the interest of depositors of banks and the
economy as a whole.

[4] formulating an exchange rate policy.

The public in this framework are at the heart of the supervision of banks. Supervision is premised on
the notion that banks can default thus should be monitored.

1.14 Which one of the following statements is incorrect?

[1] The opportunity cost of holding money balances is the interest that could have been earned if
the money had been used to purchase interest-bearing assets instead.

[2] The quantity of money demanded for transaction purposes depends on the interest rate.

[3] The demand for money as an asset is also called the speculative demand for money.

[4] The quantity of money demanded for speculative purposes is negatively related to the interest
rate.

The major determinant of transactionary purpose of holding money is income not interest rates.

1.15 Which one of the following statements is incorrect?

[1] As interest rates increase, bond prices decrease.

[2] As interest rates decrease, bond prices increase.

[3] There is a positive relationship between interest rates and bond prices.

[4] If interest rates are high, the quantity of money demanded will tend to be low.

The relationship between interest rates and bond prices is inverse/negative not positive.

1.16 The figure below indicates that …

[1] both the interest rate and the level of income are important in determining the demand for
money, which is inversely related to the interest rate.

[2] only the interest rate is important in determining the demand for money, and therefore, the
demand for money curve is negatively sloped.

[3] an increase in the level of income in the economy will result in a movement along the curve, as
indicated by the change in equilibrium from E0 toE1.

[4] the position of the demand curve for money is determined by the demand for passive balances,
which is determined by the level of income.
Both interest rates which cause a movement along one money demand curve and income which
shifts the money demand curve explain demand for money.

1.17 The quantity of money in an economy is …

[1] determined by the interaction between the cost of credit and the demand for money.

[2] fixed by the South African Reserve Bank.

[3] dependent on the money supplied.

[4] decided jointly by the Reserve Bank and the government, as it has important implications for
inflation targeting.

The SARB is the custodian in a determining the money in circulation in the economy, this function is
independent of government.

1.18 Which one of the following statements on monetary policy is incorrect?

[1] Monetary policy in South Africa is implemented by the South African Reserve Bank (SARB).

[2] The key instrument of monetary policy is the repurchase rate (repo rate).

[3] The SARB’s main objective is to control the growth of the money stock.

[4] The SARB pursues a formal inflation target, set by the Minister of Finance, in conjunction with the
SARB.

(1) The primary object of the South African Reserve Bank is to protect the value of the currency in
the interest of balanced and sustainable economic growth in the Republic. SA constitution.

1.19 How would the South African Reserve Bank approach monetary policy in terms of its inflation-
targeting mandate?

[1] Implement policy aimed at increasing the levels of inflation.

[2] Implement policy aimed at decreasing the levels of inflation.

[3] Refrain from implementing policy, as it cannot control the levels of inflation.

[4] Advise government on the type of fiscal policy that can help with the inflation levels.

The primary objective in this case will be to reduce inflation by the central bank.

1.20 Which tool would the South African Reserve Bank use to achieve these targets?

[1] Decrease the repo rate.

[2] Increase the repo rate.

[3] Keep the repo rate constant.

[4] Advise the government to increase income taxes.

This is a contractionary measure which will reduce lending ability of banks and thus reduce demand
pull inflation.
DECLARATION:
I declare that this work has been composed solely by myself and that it has not been
submitted, in whole or in part, in any previous application for a degree. Except where states
otherwise by reference or acknowledgment, the work presented is entirely my own and I do
not represent UNISA and its views in any way.
DR A.N.M (Phd student)