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ECS1500 Assignment 3 Semester 2 2019 Suggested Solutions
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ECS1500 Economics 1500 Assignment 3 Semester 2 2019 Suggested Solutions UNIQUE NUMBER
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Economics 1500ECS1500
ASSIGNMENT 03 (SECOND SEMESTER)
UNIQUE NUMBER 820340
Learning Units 8 to 10
Complete the assignment and provide your final answers on the prescribed answer sheet.
Feedback on these questions will be provided on myUnisa under Additional Resources
after the final closing date.
For questions 3.1 to 3.5 you need to indicate whether the statement is true or false. As
indicated, if the statement is true, choose [1] and if the statement is false, choose [2].
3.1 An increase in South Africa oil importation from Nigeria will give rise to an
appreciation of the rand against the Nigerian Naira.
[1] True
[2] False
3.2 A deterioration in the balance of payment from a deficit in trade balance leads to a
depreciation of the domestic currency.
[1] True
[2] False
Page 195 of the study guide:
10.5.3 The link between exchange rates, the balance of payments and economic
growth in South Africa
There are other economic variables that affect exchange rates and the balance of payments.
, It is hoped that South Africa's present policy of an accelerated and shared growth initiative to
put the economy on a higher growth path will lead to the desired effect. Historically, high
levels of economic growth in South Africa have been associated with a subsequent increase
in expenditure, and therefore increased imports. This is because South Africa is an open
economy, reliant on imports of machinery and consumer goods. Increases in imports during
a period of economic upswing may not be accompanied by a corresponding increase in
exports from South Africa, since local industries may have their time cut out just supplying
the expanding local markets with their products.
The result is a deterioration in the balance of payments – a vanishing of the all-important
trade surplus – and upward pressure on the rand prices of the various foreign currencies
concerned: the yen, the euro, the pound sterling and the US dollar, and so on. This is
because the excess demand for imports causes the demand curves for the respective
foreign currency units to shift to the right. Once the rand depreciates in this way, it feeds into
consumer and producer price inflation: imported goods become more expensive because of
the depreciation of the rand. The expansionary momentum of the economy runs into higher
prices and may stop altogether before it has got going properly.
3.3 In the circular flow diagram that includes the government (see Figure 8.1 in the
study guide), only households pay for the goods and services.
[1] True
[2] False
3.4 Increased domestic prices leads to a depreciation of the rand.
[1] True
[2] False
The reasons why inflation is regarded as a problem include the following:
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