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Topics: Consumption function, Aggregate demand, Macroeconomics Pages: 7 (562 words) Published: September 27, 2013
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This partial fill-in paper consists of 14 pages plus instructions for the completion of a mark-reading sheet. Read the following instructions CAREFULLY before answering the paper. The paper is divided into two sections: Section A and Section B. SECTION A

Candidates must answer ALL the questions in this section.
SECTION B
In this section ALL the questions must be answered on the mark-reading sheet which is supplied. Carefully follow the instructions for the completion of the mark-reading sheet. Please ensure that you use the correct unique number on the mark-reading sheet: If you are registered for ECS102-8, use the unique number 497757. If you are registered for REC102-Y, use the unique number 489493. As your mark-reading sheet can get lost, you MUST also write down your answers for this section. On the last page of this paper space is provided for this purpose.

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ECS1028/REC102Y
October/November 2010

SECTION A [50 MARKS]
Answer ALL the following questions in the blocks provided.
QUESTION 1

[9]

(i)

Define the Gross Domestic Product (GDP).

(4)

(ii)

List any two reasons why Gross Domestic Product may not be a good indicator of economic activity.
(2)

(iii)

Define ad valorem tax and give one example of an ad valorem tax.

(3)

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ECS1028/REC102Y
October/November 2010

QUESTION 2
(i)

(ii)

[6]

Use the following diagram to show how the equilibrium in the money market changes if the level of income in the economy decreases. Remember to label your diagram.

(3)

If the number of United States of America tourists coming to South Africa increases, iIllustrate on the following diagram the impact on the value of the Rand on the South African foreign exchange market. Remember to label your diagram.

(3)

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ECS1028/REC102Y
October/November 2010

QUESTION 3

[13]

The following information about a Keynesian model is given:
Autonomous consumption spending
Government spending
Investment spending
Exports
Autonomous imports
Marginal propensity to consume
Marginal propensity to import
Proportional tax rate
Full employment level of income
(i)

(ii)

(iii)

(iv)

R250 million
R200 million
R180 million
R120 million
R50 million
6/8
1/6
1/3
R1 500 million

Derive the consumption function and state the value of the marginal propensity to consume.

(2)

Assuming the economy is a closed economy, calculate the size of the multiplier. (Show all your calculations.)

(2)

Assuming the economy is an open economy, calculate the size of the multiplier. (Show all your calculations.)

(2)

What happens to the size of the multiplier once the economy is opened.

(1)

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ECS1028/REC102Y
October/November 2010

(v)

Calculate aggregate autonomous spending. (Show all your calculations.)

(2)

(vi)

Calculate the equilibrium level of income for the open economy. (Show all your calculations.)
(2)

(vii) By how much must exports increase to move the economy to the full employment level of income? (Show all your calculations.)

QUESTION 4
(i)

Briefly discuss the reasons why people hold money.

(2)

[22]
(6)

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ECS1028/REC102Y
October/November 2010

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(ii)

Given the following information on the production of gold and beef per day in South Africa and Lesotho:
Country

Gold (tonnes)

Beef (kg)

South Africa

80

60

Lesotho

40

120

Explain why Lesotho has a comparitive advantage in the production of beef.

(iii)

(iv)

(3)

What are the determinants of induced consumption in the Keynesian model of an open economy with a government sector?

(4)

Briefly explain the assumptions of the aggregate demand and aggregate supply models that distinguish it from the Keynesian model.

(4)

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(v)

Explain the monetary transmission mechanism.

ECS1028/REC102Y
October/November 2010

(5)...
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