Exam (elaborations)
Assignment 2 ECS1601 Answers with Diagrams (UNISA NOTES) 2021
- Course
- ECS 1601
- Institution
- University Of South Africa (Unisa)
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Assignment 2 ECS1601 20211. 3 Reference: Prescribed book PG 277
Markets sometimes fail and when they do, a case for government intervention arises. In
other words, government intervention may be required in an attempt to correct market
failure.
1. 3 Reference: Prescribed book PG 277
Markets sometimes fail and when they do, a case for government intervention arises. In
other words, government intervention may be required in an attempt to correct market
failure.
2. 4 Reference: Prescribed book PG 287
There are two broad groups of public officials: those who are elected (the politicians) and
those who are appointed (the bureaucrats or civil servants). These officials are the agents of
the public but, as elsewhere in then economy, the agents do not always serve the interests
of the principals (in this case the public). This does not imply that politicians and bureaucrats
are inherently less intelligent, less hardworking, less competent or more corrupt than other
people. On the contrary, the problems arise because they have virtues, flaws and motives of
their own, like all other participants in the economy.
3. 3 Reference: Prescribed book PG 288
Privatisation is the opposite of nationalisation – it refers to the transfer of ownership of
assets from the public sector to the private sector (ie the sale of state-owned assets to the
private sector). The case for privatisation is usually based on three broad arguments. The
first concerns the problem of financing increasing government expenditure in a situation
where tax burdens are already very high. Privatisation will attract FDI.
4. 4 Reference: Prescribed book PG 289
Whereas fiscal policy refers to the use of government spending, taxation and borrowing to
affect economic activity, monetary policy entails the manipulation of interest rates. Fiscal
policy is controlled directly by the government, while monetary policy is conducted by the
central bank. But these policies have to be applied in harmony, otherwise the one may
counteract or negate the effects of the other.
, 5. 4 Reference: Prescribed book PG 289
The main instrument of fiscal policy is the budget and the main policy variables are
government spending and taxation. In South Africa the budget is presented to Parliament
annually by the Minister of Finance, usually in February. In the budget the Minister outlines
government’s spending plans for the financial year, which runs from 1 April of the current
calendar year to 31 March of the following calendar year, and indicates how government
proposes to finance its expenditure. The budget speech is one of the most important events
on the economic calendar and always attracts a lot of attention. Once the budget proposals
are accepted, government is empowered to spend the funds and to collect taxes and
borrow to finance the spending. The budget is essentially a reflection of political decisions
about how much to spend, what to spend it on and how to finance the spending.
6. 3 Reference: Prescribed book PG 289
When the economy is in a recession, the tendency is therefore to apply expansionary fiscal
and monetary policies to stimulate economic activity. As far as fiscal policy is concerned, this
usually means that government spending is raised and taxes reduced (or not increased). The
difference between government spending and taxation, called the budget deficit, will
therefore tend to increase. In contrast, when the economy is expanding too rapidly and
inflation and balance of payments problems are being experienced, the appropriate
response is to apply restrictive or contractionary fiscal and monetary policies. As far as fiscal
policy is concerned, this means that government spending has to be reduced and/or taxes
have to be increased.
7. 2 Table 3.1 in the prescribed textbook shows that the total spending by general
government (% of GDE) was 20,5 in 2010%.
8. 4 Reference: Prescribed book PG 292
Government has certain property which yields income. Income from property includes the
interest and dividend income that is derived from government’s full or partial ownership of
enterprises such as Eskom, Telkom and Transnet, profit earned from government
production and the sale of agricultural, forestry and fishing products, rent (for example in
the form of mining rights), and other license fees and user charges. But income from
property is a relatively insignificant source of revenue.
9. 3 Reference: Prescribed book PG 293
These costs of taxation – economists refer to them as the excess burden or deadweight loss
of taxation – have to be kept as low as possible. This is usually achieved through taxes which
do not induce taxpayers to change their behaviour. Taxation should have the minimum
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