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ECS1601 ASSIGNMENT 4
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ECS1601 ASSIGNMENT 4 2023
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The question below is based on the following diagram:Which of these statements is correct?
a.
The demand for dollars has shifted from D to D1, resulting in a decrease in the
rand/dollar exchange rate.
b.
At a new equilibrium exchange rate of R17,00/$, fewer rands are required to buy one
dollar.
c.
The demand for dollars has shifted from D to D1, resulting in an increase of the
rand/dollar exchange rate.
d.
The quantity of dollars demanded has fallen from R20 billion to R10 billion.
Feedback
A decrease in the rand/dollar exchange rate means that fewer rands are required to buy
one dollar. This is an appreciation of the rand against the dollar, represented by
a leftward shift of the demand curve. Conversely, a rightward shift of the demand curve
from D to D1 represents a depreciation of the rand against the dollar. This is because the
exchange rate has increased from R15,50/$ to R17,00/$, meaning that more rands are
required to buy one dollar.
The correct answer is: The demand for dollars has shifted from D to D1, resulting in an
increase of the rand/dollar exchange rate.
Question 2
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Question text
Countries engage in international trade because factors of production are unequally
distributed among economies of the world.
,a.
True
b.
False
Feedback
Uneven distribution of the factors of production is one of the basic reasons for
international trade. For example, many countries in Africa are rich in minerals such as
gold, platinum, and diamonds, but may not possess the equipment and skills required to
process them. Therefore, they need to export these raw materials to advanced
economies such as the United States and United Kingdom, which possess the skilled
labour and machinery for processing minerals into final goods.
The correct answer is: True
Question 3
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Question text
The question is based on the following diagram:
,What would the likely impact be on the above diagram if the following events take place:
Due to the drought in South Africa, food imports are increasing.
The gold price is falling.
a.
These events will cause the rand to depreciate. This can be demonstrated by a rightward
shift of the demand for dollar curve due to higher food imports and a leftwards shift of
the supply of dollars curve due to the decline in the gold price.
b.
These events will cause the rand to depreciate. This can be demonstrated by a leftward
shift of the demand for dollars curve. This leftward shift is caused by both an increase in
food imports and a decline in the gold price.
c.
These events will cause the rand to depreciate. This can be demonstrated by a rightward
shift of the supply of dollars curve due to higher food imports and a leftward shift of the
demand for dollars curve due to the decline in the gold price.
, d.
These events will cause the rand to depreciate. This can be demonstrated by a leftward
shift of the supply of dollars curve. This leftward shift is caused by both an increase in
food imports and a decline in the gold price.
Feedback
See section 4.3 of the textbook. An increase in food imports increases total imports and
the demand for dollars increase. This is indicated by a rightward shift of the demand for
dollars curve. A falling gold price decreases export earnings and the supply of dollars
consequently decreases. This is indicated by a leftward shift of the supply of dollars
curve. This combination of an increase in the demand for dollars (rightwards shift of the
demand for dollars curve) and a decrease in the supply of dollars (leftward shift of the
supply of dollars curve) causes the rand to depreciate. Alternative B is therefore the only
correct choice.
The correct answer is: These events will cause the rand to depreciate. This can be
demonstrated by a rightward shift of the demand for dollar curve due to higher food
imports and a leftwards shift of the supply of dollars curve due to the decline in the gold
price.
Question 4
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Question text
One of the following is an instrument of trade policy.
a.
import tariff
b.
foreign exchange reserves
c.
currency depreciation
d.
balance of payments
e.
gross domestic product
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