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ECS1601 STUDY NOTES 2022
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ECS 1601Study Notes 2022 Term 2
Written by Brilliant Maisiri
Together We Pass
,Welcome
Dear ECS1601 students,
Welcome to the Together We Pass family, and I hope you find the resources in this study notes useful.
My name is Brilliant Maisiri, and I am lecturing in a range of study groups in 2017, with my
specialisation being in Economics and Accounting.
I have a Bsc Honours in Administration, and I am a member in Chartsec (International Accounting
Board). I worked as a tutor while I was at university, and as full time lecturer I a private college since
2015. I currently work as a lecturer at Skills Academy for the Accounting School.
I have been working with Together We Pass study groups for a number of years, and am pleased to be
assisting with a number of study groups this term. These study notes have been created for my
students in my study groups, as well as for anyone needing some extra help with AUE2601.
If you need additional assistance, please remember you can join my study group at any time to get help
from me directly.
Kind regards
Brilliant Maisiri
Lecturer for ECS1601
Brilliant Maisiri
ECS1601 lecturer
PHONE
WEB
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GGLE+
TWITR
pg. 1
,Contents
Welcome ................................................................................................................................ 1
STUDY UNIT 1 PRODUCTION, INCOME AND SPENDING .................................................................... 5
Three major flows in the economy: ............................................................................................... 5
Two basic sets of markets in the economy .................................................................................... 5
SA economy is an Open Economy – Introducing the Foreign Sector ................................................ 9
Introducing the Financial Sector ................................................................................................... 9
Total Production, Income and Spending: Summary ...................................................................... 10
LEARNER NOTES FOR STUDY UNIT 2 – MONETARY SECTOR .............................................. 11
Functions of Money .................................................................................................................... 12
MONEY IN SOUTH AFRICA ......................................................................................................... 13
FUNCTIONS OF SARB ................................................................................................................ 14
LIQUIDITY PREFERENCE THEORY .............................................................................................. 15
MONETARY POLICY ................................................................................................................... 20
Study unit 3: Reasons for government involvement in economic activity .......................... 23
TOPIC: The Public Sector ........................................................................................................... 23
What are the main reasons for government intervention? ............................................................ 23
Government Legislation and Regulation ...................................................................................... 24
Direct State Provision of Goods and Services ............................................................................... 24
Fiscal Policy Intervention ............................................................................................................ 25
Intervention designed to close the information gap ...................................................................... 25
Government failure .................................................................................................................... 26
STUDY UNIT 4: The foreign sector ....................................................................................... 28
Absolute Advantage ................................................................................................................... 28
Comparative advantage ............................................................................................................. 29
The Balance of Payments ........................................................................................................... 30
EXCHANGE RATE ....................................................................................................................... 32
Factors that influence exchange rates ......................................................................................... 35
STUDY UNIT 5: MEASURING THE PERFORMANCE OF THE ECONOMY ................................. 39
MEASURING THE PERFORMANCE OF THE ECONOMY ................................................................... 39
pg. 2
, *Define GDP .............................................................................................................................. 40
Unemployment rate ................................................................................................................... 48
The Consumer Price Index (CPI) ................................................................................................. 48
Measuring inequality: distribution of income ................................................................................ 50
STUDY UNIT 6 ...................................................................................................................... 52
Say’s Law .................................................................................................................................. 53
The Keynesian model: ................................................................................................................ 54
Other names for A and Y ............................................................................................................ 54
6.3 Consumption spending (chapter 18.3) ................................................................................... 56
characteristics of the consumption function ................................................................................. 58
Relationship between consumption and income ........................................................................... 59
The relationship between consumption and income ..................................................................... 60
The relationship between consumption and saving ...................................................................... 60
6.4 Investment spending ............................................................................................................ 61
6.6 Algebraic version of the simple Keynesian model closed economy without a government ......... 67
6.7 The multiplier ...................................................................................................................... 70
STUDY UNIT 7: Keynesian models including the government and the foreign sector ........ 73
Fiscal policy ............................................................................................................................... 78
Exports (X) ................................................................................................................................ 80
Imports (Z) ............................................................................................................................... 81
Study Unit 8: MORE MACROECONOMIC THEORY AND POLICY: .......................................... 85
The aggregate demand curve: .................................................................................................... 86
The aggregate supply curve: ...................................................................................................... 87
Changes in aggregate demand: .................................................................................................. 88
Changes in aggregate supply: .................................................................................................... 88
The monetary transmission mechanism: ..................................................................................... 89
Monetary and fiscal policy in the AD-AS framework: .................................................................... 90
Monetary and fiscal policy lags: ............................................................................................ 91
Study Unit 9: INFLATION .................................................................................................... 93
Definition of inflation: ........................................................................................................... 93
pg. 3
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