ECS1601. ASSESSMENT 1 SEMESTER 2 2023

Skip to main contentSide panel ECS1601-23-S2 Online assessments Assessment 1 QUIZ Assessment 1 Started on Saturday, 19 August 2023, 2:43 PM State Finished Completed on Saturday, 19 August 2023, 3:14 PM Time taken 30 mins 14 secs Marks 28.00/40.00 Grade 70.00 out of 100.00 Question 1 Complete Mark 2.00 out of 2.00 Flag question Question text The circular flow model reveals that a decrease in South African imports will … . a. decrease South African imports b. increase revenue to foreign firms c. increase revenue and domestic production in South Africa d. increase output and income in the rest of the world Feedback In South Africa, this will encourage firms to produce locally without depending on foreign imported inputs material. Question 2 Complete Mark 2.00 out of 2.00 Flag question Question text Which one of the following statements is true about causality and correlation? a. Causation between two variables proves correlation. b. An example of correlation is when an increase in the value of imports causes a rise in economic growth. c. Correlation between variables occurs when two variables have a relationship d. Causality between two variables always implies correlation. Feedback Correlation does not imply causation. Correlation between variables occurs when two variables have a relationship. Question 3 Complete Mark 2.00 out of 2.00 Flag question Question text Which one of the following is NOT a purpose of economic theory? a. to help us explain what is happening in the economy. b. to help us to understand what is happening in all aspects of the real world. c. to serve as a basis for policy decisions. d. to describe what happens in the real world. e. to help us predict what will happen if something changes. Feedback Economic theory has three main purposes, namely;(i) to explain how different things are related in the complex real economic world, (ii)to predict what will happen if something changes and (iii) to serve as a basis for the formulation and analysis of decisions on economic policy. See pages 12 to 13 of the prescribed book. Question 4 Complete Mark 0.00 out of 2.00 Flag question Question text Have a look at the following information and answer the question below. Suppose that a firm is spending R49 million per month on salaries, which are allocated as follows: Monthly Salaries - 2020 Monthly Salaries - 2021 CEO R 21 million R 22 million Executives R 15 million R 16 million Three thousand employees R 13 million R 14 million Assume that the CEO spend 0.5%, while executives spend 2% and employees 65% of their monthly salaries on goods and services in both years. (Round off your answers to two decimals). Example on how you should type in your answers: For percentage answer: 1,55% For amount answer: 100 / 1 000 / 100 000 / 106 300,56 Suppose the 2021 monthly salary of the Three thousand employees was increased by 8%. Calculate the new monthly salary of the employees. Type in your answerAnswer 14.04 million Question 5 Complete Mark 0.00 out of 2.00 Flag question Question text South Africa exports gold, diamonds and platinum to the United States (US) and the United Kingdom (UK), generating export income from all three commodities. Which of the following statements is correct? (a) Export income generated from the sale of gold, diamonds and platinum abroad is an injection into the circular flow of income and spending. (b) When South Africa trades with the US and the UK, it does not open opportunities to sell other goods and services abroad. (c) If South Africa imports computers from Dell Technologies in the US, this constitutes a leakage from the circular flow of income and spending. (d) The GDP and the balance of payments will not be affected by an increase in imports. a. b and d b. a and c c. a, b and c d. a, b, c and d Feedback Export income generated from the sale of gold, diamonds and platinum abroad represent an injection into the circular flow of income and spending in the economy. This is money coming into the country, particularly an inflow of foreign exchange into the balance of payments. It not only boosts national income, but also increases the amount of foreign reserves which are important for balance of payments stability. When South Africa trades with the US and the UK, it also presents an opportunity for the country to sell other items to these two trading partners. South Africa can identify the market for intermediate or final manufactured goods to sell to both countries as well as to other countries. In this way, South Africa can generate export income from selling intermediate or manufactured items. An additional stream of foreign income is important for spreading the risk of income loss across different markets. This will ensure greater balance of payments stability. Importing computers from the US constitutes a leakage from the circular flow of income and spending. In this case, money flows out of South Africa in the form of payments for imports to the US. This transaction decreases national income and increases gross domestic expenditure (GDE = C + I + G). Both the GDP and the balance of payments are affected by an increase in imports. Remember that GDP = C + I + G + (X ñ Z). An increase in imports increases gross domestic expenditure (C + I + G), ultimately affecting the GDP. Net exports (X ñ Z) are recorded in the balance of payments. A negative balance of net exports (where X Z) means that there is a net outflow of foreign exchange from the current account of the balance of payments. Likewise, a positive balance of net exports (where X Z) means that there is a net inflow of foreign exchange into the current account of the balance of payments. Question 6 Complete Mark 2.00 out of 2.00 Flag question Question text Emily (who holds a master's degree in Economics and has five years of work experience) has been appointed as an economics researcher at PricewaterhouseCoopers (PwC), a financial services company. At her workstation, she will be using the Apple MacBook Air 13-inch laptop with a high-resolution screen display. The degree and experience she is bringing to the company are considered a __________, while the laptop she will be using is an example of__________as a factor of production. a. human capital; capital b. human capital; labour c. entrepreneurship; technology d. capital; entrepreneurship Feedback Emily is coming to PwC as a masterís graduate and experienced worker; therefore, she is coming as a skilled worker. A master's degree requires graduates to have specialised knowledge in a specific subject area and the ability to conduct independent research. So, the degree and five yearsí work experience she is bringing to the company are a labour factor of production. The Apple MacBook Air that Emily will be using to conduct economics research for the company is a capital factor of production she will be using. In this case, she will be using the device to provide (produce) services. Such services include research reports, presentations, and meetings through apps like Zoom and Microsoft Teams. However, this laptop can also be regarded as technology due to its high performance and use of Microsoft Office. Entrepreneurship refers to individuals who employ other factors of production to provide goods and services with the aim of making a profit. Entrepreneurs start their own firms after identifying opportunities where they can introduce an innovation that similar, existing firms in a market do not sell to consumers. This process involves taking a risk, as there is no guarantee that the firm will be profitable or that consumers will respond well to the new product or service. Technology as a factor of production is usually embedded in capital. For instance, Microsoft Teams is a software programme to set up virtual meetings, make calls, share documents and do presentations. Therefore, we can regard this software as a technology used for multiple purposes. Technology is not restricted to software installed in a computer and can also include devices such as the MacBook Air. This is an ultra-thin, lightweight laptop with a powerful graphics processing unit (GPU). It performs at high speed, getting things done faster. Information Flag question Information text Blank space. Move on to the next question. Question 7 Complete Mark 2.00 out of 2.00 Flag question Question text Suppose the number of higher-rate taxpayers in Botswana increased by one million, mainly driven by an increase in employment income. In the money market, the……. (i) demand for active balances (L1) will increase and will be reflected in a rightward shift of the L1 curve. (ii) demand for passive balances will increase. (iii) total demand for money (L) will decrease and will be reflected in a leftward shift of the L curve. a. (i) and (ii) are correct b. (ii) and (iii) are correct c. Only (ii) is correct d. Only (i) is correct e. (i), (ii) and (iii) are correct Feedback Refer to section 2.5 in the study guide, and sections 2.5 and 2.6 in the prescribed textbook Question 8 Complete Mark 0.00 out of 2.00 Flag question Question text The following question is based on the passage below: People are rushing in because of a lack of faith in government currencies. The Federal Reserve and other central banks have crushed interest rates and are printing unimaginable amounts of money to pay for Covid-19 relief measures and to stimulate damaged economies. Bitcoin and other cryptocurrencies are now seen as a respectable investment class, and financial institutions are adding Bitcoin to their portfolios. Enthusiasts say Bitcoin is the new gold and that it will eventually replace the Dollar. Not so fast! Whatever Bitcoin is, it is not money. We use money to buy products and services. The Dollar, for instance, is like a claim cheque on a car, a coat, or a ticket to an event - only, in the case of the Dollar, it can be used to purchase or sell anything. Money works best when it has a stable value. While there are stories of vendors being willing to accept a cryptocurrency like Bitcoin, cryptocurrencies will remain curiosities until their value is stable. Source: According to the passage, which of the following functions of money is violated by cryptocurrency? (i) medium of exchange (ii) store of value (iii) unit of account a. (ii) and (iii) are correct. b. (i) and (ii) are correct. c. (iii) is correct. d. (ii) is correct. e. (i), (ii) and (iii) are correct. Feedback According to the passage, Bitcoin is not a form of money because it violates the characteristics. Although the article makes reference to some vendors accepting cryptocurrency as a medium of exchange, it is not universally accepted as a form of tender and consequently it also violates this property. See Section 2.2 of the prescribed book. Question 9 Complete Mark 2.00 out of 2.00 Flag question Question text When the inflation rate is expected to exceed the target rate by a significant margin, the South African Reserve Bank (SARB) will tend to a. reduce the cost of credit to the banks. b. increase the repurchase rate (repo rate). c. use moral suasion to persuade banks to provide more loans to their clients. d. decrease the repo rate. e. purchase government bonds on the open market. Feedback When banks experience a shortage of funds or a liquidity deficit, they can borrow from the SARB at a specific interest rate called the repurchase rate. When the inflation rate is expected to exceed the target rate (in South Africa, it is 3% to 6%), the SARB might have to increase the repo rate. Since the repo rate represents a cost to the bank, an increase in the repo rate will result in an increase in the interest rate at which the bank will be willing to provide credit to its customers. The cost of credit (interest rate) will thus increase immediately. The result will be a decrease in the stock or quantity of money in the economy. Question 10 Complete Mark 2.00 out of 2.00 Flag question Question text In 2022, Stats SA has reported that South Africa’s gross domestic product (GDP) decreased as a result of ESKOM power cuts or load-shedding, which led to a decline in economic activities across several industries. This negatively affected the remuneration of the factors of production and income of the businesses. In the money market, this would be illustrated by which diagram? a. [3] and [4] b. [1] and [3] c. [1] and [2] d. [2] and [4] Feedback Refer to section 2.5 in the study guide, and sections 2.5 and 2.6 in the prescribed textbook. Question 11 Complete Mark 2.00 out of 2.00 Flag question Question text Thato has logged into her Absa Online Banking profile to view the monthly rental income she has been earning from her late father’s house for the past 12 months. In this case, the monthly rental income is an example of a __________ variable. a. liquidity b. credit c. stock d. flow Feedback A flow variable is measured over a period of time (for example 12 months or five years). While a stock variable is measured at a particular moment in time (for example 31 December 2023). Question 12 Complete Mark 2.00 out of 2.00 Flag question Question text Which of the following statements is correct about the primary objective of the SARB? a. SARB’s objective is to make use of the repo rate to influence economic activities. b. SARB protects the value of the currency in the interest of balanced and sustainable economic growth in the Republic. c. SARB’s objective is to sell government security to commercial banks. d. SARB does not need to consult the cabinet member responsible for national financial matters since it performs it functions independently. Feedback SARB protects the value of the currency in the interest of balanced and sustainable economic growth in the Republic. Question 13 Complete Mark 2.00 out of 2.00 Flag question Question text Suppose the SARB increases repo rate in an attempt to curb inflation. As a result the…. a. cost of borrowing charged by banks will decrease. b. quantity of money supply will increase by percentage increase of repo rate. c. price of interest-bearing securities or bonds in South Africa will increase. d. creation of money will slow down as demand for loans declines. Feedback Refer to section 14.8 (Open-market policy). When the SARB wishes to curb rising inflation, it will increase the interest rate. This will discourage the creation of bank deposits as people and firms will reduce or postpone borrowing from the banks, since the cost of borrowing rises as the interest rate increases. The quantity demanded for money decreases as the cost of borrowing (interest rate) rises. Question 14 Complete Mark 2.00 out of 2.00 Flag question Question text Which one of the following statements is correct? a. Money is not the only possible store of value. b. Money is always the best possible store of value. c. In a monetary economy, there always has to be a double coincidence of wants. d. Money can never lose its usefulness as a unit of account. e. The stock of money consists of notes and coins. Feedback The store of value is not unique to money. During periods of high inflation, money loses its purchasing power, and it is not a good store of value. During inflationary periods, there is thus a tendency to use other objects as stores of value (for example fixed property, shares and works of art. See page 24 in the prescribed book. Question 15 Complete Mark 2.00 out of 2.00 Flag question Question text The South African Reserve Bank (SARB) uses ___________ as an instrument to maintain price stability. a. the prime overdraft b. value-added tax c. the money supply d. the repo rate Feedback SARB uses the repo rate as an instrument to maintain price stability. Question 16 Complete Mark 0.00 out of 2.00 Flag question Question text The tax and income of two South African households, A and B, are as follows: Household A Household B Income (R) 5 000 1 500 PAYE (R) 1 500 200 VAT-Paid on Goods (R) 300 300 Tax Paid on Fuel (R) 800 600 According to the table, which of the following is correct? (i) PAYE is a progressive tax, (ii) VAT is a progressive tax. (iii) Taxes on fuel are regressive taxes. a. (i) and (iii) is correct. b. (i) and (ii) are correct. c. (i), (ii) and (iii) are correct. d. (ii) and (iii) are correct. e. (iii) is correct. Feedback To answer this question, the student needs to compare the percentage of the income that is taxes in the respective households. Percentage of Tax = (Taxable Income/Total Income)*100 As a result, the shares of PAYE, VAT & Taxes on fuel are: % of PAYE = (Total PAYE Paid/Total Income)*100 % of VAT = (Total VAT Paid/Total Income)*100 % of Taxes on Fuel = (Total Fuel Taxes Paid/Total Income)*100 Given the above, we can see that the PAYE is progressive tax. VAT and fuel are regressive taxes. Question 17 Complete Mark 2.00 out of 2.00 Flag question Question text Which of the following statements is/are correct? (a) Privatisation of Denel is the transfer of ownership from a private enterprise to the government. (b) An example of nationalisation is when the South African Reserve Bank transfers ownership to the government. (c) One of the arguments in favour of privatisation is that the privatised firm may attract foreign direct investment and charge higher prices to both domestic and international customers. b b and c a and b a, b and c Feedback Nationalisation is when SARB transfers ownership to the government. The topic of nationalisation/privatisation has been a heated debate for years to date, thus arguments in favour of privatisation are that the privatised firm may attract FDI and charge higher prices for both domestic and international customers. Question 18 Complete Mark 2.00 out of 2.00 Flag question Question text Tax such as VAT would generally be regarded as a. progressive, because the consumption expenditure of the rich is greater than that of the poor. b. regressive, because low-income households spend a greater proportion of their income on goods that attract VAT. c. progressive, because most goods consumed by poor households are zero rated. d. proportional, because the VAT rate is constant across goods that attract VAT. e. regressive, because the VAT burden increases as household income rises. Feedback A tax is regressive if the ratio between tax paid and taxable income decreases as taxable income decreases (or rises as taxable income falls). In other words, a regressive tax takes a larger percentage of the income of low-income individuals and groups than of those with higher incomes. Indirect taxes (for example, VAT) are often regressive. See page 59 in the prescribed book. Question 19 Complete Mark 0.00 out of 2.00 Flag question Question text Ayanda is from Lesotho. She got a job in South Africa in 2020; she earned a salary of R30 000 a month and paid income tax of R3 300. In 2022, her salary increased to R35 000 a month and she paid an income tax of R3 600. Income tax paid by Ayanda is an example of a … tax. a. proportional b. progressive c. regressive d. general Feedback As the salary increases, the income tax bracket increases hence the tax is progressive. Question 20 Complete Mark 0.00 out of 2.00 Flag question Question text The participation of the government in the economy because: (i) Markets do not always result in efficient allocations. (ii) Markets can lead to inequitable allocations such as income inequality. (iii) Markets are always efficient, and this requires government intervention. (iv) Market systems experience considerable fluctuations, and this requires interventions to bring about stability. a. (i), (ii) and (iv) are correct. b. (ii) and (iv) are correct. c. (i) and (ii) are correct. d. (ii), (iii) and (iv) are correct. Finish review Contact us Follow us