Assignment Memorandum

Faculty Name: Commerce and Law

Module Code: COEC121P
Module Name: Economics 1B
Module Leader: Alwyn McAlpine
Internal Moderator: Nerina Bester
Copy Editor: Ingrid Viljoen
Total Marks: 50
Submission Date: 12/06/2020
This module is presented on NQF level 5.
Mark deduction of 5% per day will be applied to late submission.
Late assignments will not be accepted after a week from the due date.
This is a group assignment.
Groups should consist of two members.

Instructions to Marker
Marking
 Award marks according to the mark allocation suggested in the answers.
 The tick symbol  indicates 1 mark awarded, where applicable.
 Consult the information on mark allocation in the ‘Note to Marker’ note boxes, where relevant.
 The answers provided in this memorandum are sample answers and do not cater for all
possible solutions. Markers, being content experts, must use their own judgement when
marking the students’ answers.
 If you marked using your own discretion and have accepted information as correct that has not
been included in the memorandum, this information has to be written on the memorandum and
a copy of such must be attached to the scripts that will be sent for moderation.
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Pearson Institute of Higher Education is registered with the Department of Higher Education and Training as a private higher education institution
under the Higher Education Act, 101, of 1997. Registration Certificate number: 2001/HE07/008. (Formerly Midrand Graduate and CTI Education
Group).
Plagiarism
 Every assignment must be submitted with a Turnitin Originality Report. The similarity index
must be interpreted by the lecturer and penalties applied accordingly.
 If any part of a student’s report is found to be plagiarised, he/she will be subject to severe
penalties which will apply to all members of the group.

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Section A

Learning Objective
The questions in this assignment will require the student to:
 Demonstrate an understanding of GDP and economic growth, including the calculation of
economic growth rates
 Demonstrate an understanding of employment and unemployment, including the
calculation of the three major labour market indicators as well as inflation
 Demonstrate an understanding of the price level and inflation, including the calculation
inflation rates
 Demonstrate an understanding of the foreign exchange market, with specific focus on: 1.
the factors influencing the demand and supply of foreign currency; 2. foreign exchange
equilibrium; 3. purchasing power parity

Assignment Topic
The assignment is designed test the student’s understanding of basic macroeconomic concepts
and principles in the light of the South African economy in particular.

Scope
Unit 1: A First Look at Macroeconomics
Unit 2: Measuring GDP and Economic Growth
Unit 3: Unemployment and Inflation
Unit 4: Money, the Price Level and Inflation
Unit 5: The Exchange Rate and the Balance of Payments

Technical Aspects
 Assignment to be typed and printed.
 All diagrams need to be neatly drawn with properly labelled axes.

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Marking Criteria
 If a diagram’s axes are not correctly labelled, no marks will be given at all for that specific
diagram.
 Plagiarism is a very serious matter and if any part of your report is found to be plagiarised, you
risk a zero grade which will apply to all members of the group.

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Question 1 15 Marks

Visit the official website of Statistics South Africa (www.statssa.gov.za) and download the
publication, P0211 – Quarterly Labour Force Survey (QLFS) for Quarter 4 of 2019 (Q4, 2019).
Answer the following questions with the aid of the QLFS and your textbook.

1.1 Given the information contained in Table 2 (Appendix 1) of the QLFS (Q4, 2019), calculate
South Africa’s unemployment rate. (Note: This rate has to be calculated given the
information contained in the respective table. No marks will be given for only stating the
rate). Round your answer to TWO decimals. (3 Marks)

Answer
Note to Marker
 Allocate marks as indicated with ticks.
 Student has to calculate the unemployment rate. No marks to be given for only stating the
unemployment rate as the rate itself is shown in the table – student has to show how
StatsSA has derived this rate.

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑝𝑒𝑜𝑝𝑙𝑒

Unemployment rate = × 100 
𝐿𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒
6 139 000
Unemployment rate = × 100 
22 668 000

Unemployment rate = 27.10% 

1.2 Given the information contained in Table 2 (Appendix 1) of the QLFS (Q4, 2019), calculate
South Africa’s labour force participation rate. (Note: This rate has to be calculated given the
information contained in the respective table. No marks will be given for only stating the
rate). Round your answer to TWO decimals. (3 Marks)

Answer
Note to Marker
 Allocate marks as indicated with ticks.
 Student has to calculate the labour force participation rate. No marks to be given for only
stating the labour force participation rate as the rate itself is shown in the table –
student has to show how StatsSA has derived this rate.

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 𝐿𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒
Labour force participation rate = × 100 
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑎𝑔𝑒 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
22 668 000
Labour force participation rate = × 100 
38 134 000

Labour force participation rate = 59.44% 

1.3 Given the information contained in Table 2 (Appendix 1) of the QLFS (Q4, 2019), calculate
South Africa’s labour absorption rate. (Note: This rate has to be calculated given the
information contained in the respective table. No marks will be given for only stating the
rate). Round your answer to TWO decimals. (3 Marks)

Answer
Note to Marker
 Allocate marks as indicated with ticks.
 Student has to calculate the labour absorption rate. No marks to be given for only stating
the labour absorption as the rate itself is shown in the table – student has to show
how StatsSA has derived this rate.

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑝𝑒𝑜𝑝𝑙𝑒

Labour absorption rate = × 100 
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑎𝑔𝑒 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
16 529 000
Labour absorption rate = × 100 
38 134 000

Labour absorption rate = 43.34% 

1.4 In your own words, distinguish between the following types of unemployment (include an
example as well): (6 Marks)
 Cyclical unemployment
 Structural unemployment
 Frictional unemployment

Answer
Note to Marker
 Allocate marks as indicated with ticks.
 One (1) mark for an applicable definition and one (1) mark for an applicable example.

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Cyclical unemployment refers to the rising and falling of unemployment due to fluctuations in
the business cycle. When the economy is expanding, moving towards the peak, employment
rises and unemployment falls. 
When the economy enters its contractionary phase, heading towards its trough, unemployment
rises again. Workers are usually laid off during recessions and hired during economic booms. A
worker that gets retrenched due to a recession, later finding a suitable job again, has
experienced cyclical unemployment. 

Structural unemployment occurs when there is a mismatch between the skills of a worker and
the skills required by an industry, as a result of technological advancements or international
competition that changes the skills required for a particular job. 
This causes the skills of a specific worker to become obsolete in a specific industry of location.
For instance, with the evolution of technology and the subsequent advancements in automation
through computers, the demand for labour decreases. 

Frictional unemployment refers to the situation whereby workers leave and enter the labour
force, as well as the creation of new jobs and the destruction of existing jobs. 
In any economy, there is constantly a flow of people into and out of the labour force.
For instance, scholars or graduates seeking jobs upon the completion of their school tuition or
degrees; people retiring or being retrenched, fired or simply leaving to find a better opportunity.
This constant flow of people into and out of the labour force causes temporary unemployment. 

End of Question 1

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Question 2 15 Marks

Visit the official website of Statistics South Africa (www.statssa.gov.za) and download the
publication P0441 – Gross Domestic Product (GDP) for Quarter 4 of 2019 (Q4, 2019). Answer
the following questions with the aid of this publication and your textbook.

2.1 What was South Africa’s gross domestic product (GDP), at market prices, for 2018?
(1 Mark)
Answer
Note to Marker
 Allocate marks as indicated with ticks.
 Student has to indicate “million” or “000 000”, else no marks. (There is a big difference
between R3 144 539 and R3 144 539 000 000)

R3 144 539 million/or R3 144 539 000 000 

2.2 What was South Africa’s gross domestic product (GDP), at market prices, for 2019?
(1 Mark)
Answer
Note to Marker
 Allocate marks as indicated with ticks.
 Student has to indicate “million” or “000 000”, else no marks. (There is a big difference
between R3 149 337 and R3 149 337 000 000)

R3 149 337 million/or R3 149 337 000 000 

2.3 Calculate South Africa’s economic growth rate for this period (i.e. 2018/2019). Round your
answer to TWO decimals. (2 Marks)

Answer
Note to Marker
 Allocate marks as indicated with ticks.
 Compensation marks allowed: If student has answered Q2.1 and/or Q2.2 incorrectly but
follows the correct logic to calculate the growth rate, award full marks.

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 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2019 − 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2018
Economic growth rate = ( ) × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2018
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2019 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2018
Economic growth rate = ( − ) × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2018 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2018
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2019
Economic growth rate = ( − 1) × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃2018
R3 149 337 000 000
Economic growth rate = ( − 1) × 100 
R3 144 539 000 000

Economic growth rate = 0.15% 

2.4 Distinguish between the terms “nominal GDP” and “real GDP”. (4 Marks)

Answer
Nominal GDP refers to the total value of all final goods and services produced within the borders
of a country, based on current prices. 
Real GDP refers to the total value of all final goods and services produced within the borders of a
country, based on constant (or base year) prices. 

2.5 According to the publication, what year is used as the base year for economic growth
calculation purposes? (1 Mark)

Answer
2010 

2.6 Refer to the above-mentioned publication again and answer the questions that follow.
a. Draw a diagram to illustrate the change in real GDP (i.e. GDP @ market prices) for the
period 2014 to 2019. Label your and curves axes correctly. (3 Marks)

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 Answer

Figure 1 – Real GDP

Source: McAlpine, A. 2020.

b. On the same diagram, illustrate the economy’s potential GDP given the following
hypothetical data: (1 Mark)

Potential
GDP
Year (R million)
2014 3 035 000
2015 3 060 000
2016 3 085 000
2017 3 110 000
2018 3 135 000
2019 3 160 000
Table 1 – Potential GDP
Source: McAlpine, A. 2020.

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Answer

Figure 2 – Business cycle

Source: McAlpine, A. 2020.

c. In 2016, which phase of the business cycle does the South African economy find itself
in? (1 Mark)

Answer
Trough (recessionary phase also acceptable) 

d. Between 2017 and 2018, which phase of the business cycle does the South African
economy find itself in? (1 Mark)

Answer
Economic expansion 

End of Question 2

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Question 3 10 Marks

Visit the official website of Statistics South Africa (www.statssa.gov.za) and download the
publication P0141 – Consumer Price Index (CPI) for January 2020. Answer the following
questions with the aid of this publication and your textbook.

3.1 Calculate South Africa’s month-on-month inflation rate for the period December 2019 to
January 2020. Round your answer to TWO decimals. Hint: Use the headline CPI in your
calculations. (2 Marks)

Answer
Note to Marker
 Allocate marks as per ticks given.

𝐶𝑃𝐼𝐽𝑎𝑛,2020 − 𝐶𝑃𝐼𝐷𝑒𝑐,2019
Inflation rate = ( ) × 100
𝐶𝑃𝐼𝐷𝑒𝑐,2019
𝐶𝑃𝐼𝐽𝑎𝑛,2020 𝐶𝑃𝐼𝐷𝑒𝑐,2019
Inflation rate = ( − ) × 100
𝐶𝑃𝐼𝐷𝑒𝑐,2019 𝐶𝑃𝐼𝐷𝑒𝑐,2019
𝐶𝑃𝐼𝐽𝑎𝑛,2020
Inflation rate = ( − 1) × 100
𝐶𝑃𝐼𝐷𝑒𝑐,2019
114.1
Inflation rate = ( – 1) × 100 
113.8

Inflation rate = 0.26% 

3.2 Calculate South Africa’s year-on-year inflation rate for the period January 2019 to January
2020. Round your answer to TWO decimals. Hint: Use the headline CPI in your
calculations. (2 Marks)

Answer
Note to Marker
 Allocate marks as per ticks given.

𝐶𝑃𝐼𝐽𝑎𝑛,2020 − 𝐶𝑃𝐼𝐽𝑎𝑛,2019
Inflation rate = ( ) × 100
𝐶𝑃𝐼𝐽𝑎𝑛,2019

𝐶𝑃𝐼𝐽𝑎𝑛,2020 𝐶𝑃𝐼𝐽𝑎𝑛,2019
Inflation rate = ( − ) × 100
𝐶𝑃𝐼𝐽𝑎𝑛,2019 𝐶𝑃𝐼𝐽𝑎𝑛,2019

𝐶𝑃𝐼𝐽𝑎𝑛,2020
Inflation rate = ( − 1) × 100
𝐶𝑃𝐼𝐽𝑎𝑛,2019

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 114.1
Inflation rate = ( – 1) × 100 
109.2

Inflation rate = 4.49% 

3.3 Suppose a hypothetical company called ABC Logistics agreed to pay its workers R50 an
hour in 2014 and R55 in 2015. The price level (i.e. CPI) for these years was 176 in 2014
and 198 in 2015.
a. Calculate the real wage rate for 2015. (4 Marks)

Answer
Note to Marker
 Allocate marks as per ticks per ticks given.
 Note that students could have used any other (similar) methods as long as the same logic
was applied.

Wage rate (2014) = R50

Wage rate (2015) = R55
% change in wage rate = 10%

𝐶𝑃𝐼2015
Inflation rate = ( − 1) × 100
𝐶𝑃𝐼2014
198
Inflation rate = ( – 1) × 100 
176

Inflation rate = 12.5% 

Real wage rate (2014) = R50 (base year)

1.1
Real wage rate (2015) = R50 × 
1.125

Real wage rate = R48.89 

b. Did these workers really get a pay rise between these two years? Explain your
answer. (2 Marks)

Answer
No , workers’ wage rate has actually fallen in real terms since the inflation rate exceeded the
rise in the nominal wage. 

End of Question 3

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Question 4 10 Marks

4.1 Suppose that yesterday, the South African rand traded at R14.70 to the US dollar. Today,
the South African rand traded at R14.84 to the US dollar.
Did the rand appreciate or depreciate against the dollar? (1 Mark)

Answer
The rand has depreciated against the US dollar. 

4.2 Suppose that yesterday, the UK pound traded at £0.0076 to the Japanese yen. Today, the
UK pound traded at £0.0080 to the Japanese yen.
Did the yen appreciate or depreciate against the pound? (1 Mark)

Answer
The yen has appreciated against the UK pound. 

4.3 Suppose the rand to dollar exchange rate is R/$=0.07 (or equivalently, $/R=14.23) today at
which R1 000 000 are demanded and supplied. The South African Reserve Bank’s
Monetary Policy Committee (MPC) decides to increase the repo rate due to inflationary
pressures.
With the aid of a well labelled diagram, illustrate the impact of the MPC’s decision on the
foreign exchange market, ceteris paribus. Use the market for the South African rand as a
reference point. (5 Marks)

Answer
Note to Marker
Allocate marks as per ticks given.

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 Figure 3 – Foreign exchange market
Source: McAlpine, A. 2020.

4.4 Suppose a laptop costs R15 000 in South Africa and the exact same laptop costs $1 000 in
the United States. If purchasing power parity (PPP) holds, what should the exchange rate
between the South African rand and the US dollar be? Round your answer to THREE
decimals. (1 Mark)

Answer
$/R = 15 (i.e. one US dollar trades for R15) or
R/$ = 0.067 (i.e. one South African rand trades for $0.067) 

4.5 Now assume that the price of laptops in South Africa rises to R17 000, while laptop prices in
the United States remain the same. Briefly explain how this change will affect the value of
the rand in the short-run. (Assume that laptops are the only products sold in both countries).
(2 Marks)

Answer
If prices in South Africa increase while remaining constant in the United States, people will view
the value of the rand is as being too high  in the foreign exchange market, thereby expecting
that it will eventually depreciate (due to a fall in the demand for rand and a rise in the supply of
rand). 

End of Question 4

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