Question 1 (5 marks) Maximum word count: 100 words
1.1
Suppose you live in South Africa and have the option to buy proudly South African products or international brands. With reference to the circular flow of goods and services and the circular flow of ...
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Question 1 [Word count = ]
Circular Flow of Goods and Services
The circular flow of goods and services refers to the movement of products and services
between households, firms, government, and the foreign sector. In this context,
purchasing Proudly South African products has several advantages:
Supporting the local economy: Buying Proudly South African products helps
stimulate economic growth and job creation within the country. When you purchase
local products, you contribute to the income and spending of local firms, which in turn
supports the livelihoods of workers and their families.
Reducing imports: By choosing local products, you decrease the reliance on imported
goods. This helps to improve the balance of trade and reduces the outflow of money
from the country. It also strengthens the local industry by creating a demand for their
products.
Promoting local innovation and development: Supporting local products encourages
innovation and development within the country. Local firms are more likely to invest in
research and development, leading to the creation of new and improved products. This
fosters a culture of entrepreneurship and innovation, which benefits the entire economy.
Opportunity Costs of Buying International Items
While purchasing international items may offer certain advantages, it is important to
consider the opportunity costs involved. Opportunity cost refers to the value of the next
best alternative that is forgone when a choice is made. Here are some potential
opportunity costs of buying international items instead of locally produced ones:
, Lost employment opportunities: When you choose international items over local
products, you may be indirectly contributing to the loss of job opportunities within the
local economy. This can have a negative impact on the overall employment rate and the
well-being of individuals and communities.
Reduced domestic production: Buying international items can lead to a decrease in
demand for locally produced goods. This may result in reduced production levels and
capacity utilization for local firms, potentially leading to business closures and a decline
in the domestic industry.
Weakened local supply chains: By relying heavily on international products, local
supply chains may become weaker and less resilient. This can make the country more
vulnerable to disruptions in global trade, such as supply chain disruptions or trade
disputes.
Missed opportunities for local innovation: Choosing international items over local
products may discourage local firms from investing in research and development. This
can hinder the growth of local industries and limit opportunities for innovation and
technological advancement within the country.
Foregone economic multiplier effects: When you purchase local products, the
income generated by local firms circulates within the economy, creating a multiplier
effect. This means that the initial spending generates additional rounds of spending,
leading to increased economic activity and income. By buying international items, you
miss out on these multiplier effects, which can have a positive impact on the overall
economy.
In conclusion, purchasing Proudly South African products not only supports the local
economy but also helps to foster innovation, reduce imports, and strengthen domestic
industries. While international items may offer certain benefits, it is important to consider
the opportunity costs involved and the potential negative impacts on employment,
domestic production, supply chains, innovation, and the overall economy.
Question 2 [Word count = ]
2.1 To explain how the money market in Mauritius will be affected by the country's
change in economic growth in 2023, we can use a diagram. The money market diagram
shows the relationship between the interest rate and the quantity of money supplied and
demanded.
Effect of Economic Growth on the Money Market in Mauritius
In the money market diagram, an increase in economic growth would lead to an
increase in the demand for money. This is because higher economic growth typically
leads to increased investment and business activity, which in turn increases the
demand for funds to finance these activities.
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