Assignment 7 for ECS1601:
Comprehensive Answers for
Semester 2, 2024 – Achieve Top
Grades
, Question 1 (5 marks)
Maximum word count: 100 words
Explanation:
In South Africa's circular economy, purchasing locally produced goods supports domestic businesses, which
bolsters income flow within the country, enhances employment, and raises government tax revenue, thus
strengthening the economy. Opting for international brands, however, causes a currency outflow, reducing local
spending. The opportunity cost of choosing international products includes potential domestic growth losses,
fewer job opportunities, and reduced economic stability, as local industries receive less support.
Question 2 (10 marks)
Maximum word count: 150 words.
2.1 Money Market Impact Explanation (4 Marks):
South Africa’s lower-than-expected 0.9% GDP growth heightens credit demand in the money market, as
businesses and households may require extra funds to maintain spending amid slow growth. This demand
could drive interest rates up. A diagram should illustrate the money market's supply and demand curves, with
demand shifting rightward and showing a rise in the equilibrium interest rate.
2.2 Foreign Exchange Market Impact Explanation (6 Marks):
If China's growth prospects decline, demand for imports from South Africa might decrease, reducing foreign
currency inflow into South Africa and leading to a depreciation of the South African rand. The foreign exchange
market diagram should reflect a leftward shift in the demand for the rand, resulting in a lower equilibrium
exchange rate.
Question 3 (10 marks)
Maximum word count: 200 words
3.1 Analysis of Ghana’s Inflation and Economic Recommendations (8mks)
Part (i): Type and Impact of Inflation (4 Marks) Ghana’s inflation, as stated in Extract 3A, likely reflects cost-
push inflation due to rising costs in essentials like food, transport, and housing. Cost-push inflation, which
emerges from production and basic necessity costs, erodes purchasing power, especially for lower-income
households heavily reliant on these essentials, thereby broadening the wealth gap. It also diminishes wealth for
those with cash savings, as the currency's real value declines.
Part (ii): Recommendations for Managing Inflation (4 Marks) The Central Bank of Ghana could tighten
monetary policy, such as raising interest rates, to curb borrowing and spending. Additionally, encouraging
production and easing supply constraints in vital sectors could help stabilize prices. Temporary subsidies on
essentials may also mitigate inflation’s effect on low-income households.
3.2 Calculation of Egypt’s Inflation Rate for September 2022 (2 Marks)
To calculate Egypt's September 2022 inflation rate:
September 2021 CPI: 319.88
September 2022 CPI: 372.35
Formula:
Inflation Rate=( (CPI in September 2022−CPI in September 2021)/CPI in September 2021)×100Substitute and
calculate:
Inflation Rate=( (372.35−319.88)/319.88)×100
Substitute values and calculate accordingly.
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