Download 1 What would be the impact on the quantity of money if Jabu

13 AUGUST 2010
Examiners:
Mr P Kanda
FACULTY OF ECONOMIC AND MANAGMENT SCIENCES
DEPARTEMENT OF ECONOMICS - ECONOMICS 120
SEMESTER TEST 1
Total: 30 marks
Time: 60 minutes
Dr F le Roux Mr J van Rensburg Prof M Breitenbach
Mr D Scholtz Mr C Mwabutwa Mr M Seleteng
Mr E Owusu-Sekayere
ANSWER ALL THE QUESTIONS. PLEASE USE THE PINK FORM HANDED TO YOU TO RECORD
YOUR ANSWERS. USE SIDE 1 OF THE FORM AND ENSURE THAT YOU USE THE CORRECT
PROCEDURES TO COMPLETE THE ANSWER FORM IN TERMS OF PROVIDING YOUR STUDENT
NUMBER AND ANSWERS AS CLEARLY ILLUSTRATED ON THE FORM
1 What would the impact be on the quantity of money if Jabu deposited R2 000 cash into his bank
account?
a)
It would increase by R2 000.
b)
It would stay the same.
c)
It would increase by R1 000.
d)
It would decrease by R2 000.
2 Which one of the folloeing is a public good?
a)
A excludable good that is rivalrous in consumption.
b)
A non-excludable good that is rivalrous in consumption.
c)
A excludable good that is non-rivalrous in consumption.
d)
A non-excludable good that is non-rivalrous in consumption.
3 Which one of the following is not a function of government?
a)
Distributive function.
b)
Privatisation function.
c)
Allocative function.
d)
None of the above.
4 Which of the following is not an argument for the use of trade barriers?
a)
Exchange controls.
b)
Dumping.
c)
Government revenue.
d)
National security.
5 Which of the following is not a source of comparative advantage?
a)
Resource endowments.
b)
Technology.
c)
Social welfare.
d)
Differences in tastes or demand.
6 Which of the following would most likely contribute to a deterioration in the South African current
account?
a)
A depreciation of the South African Rand.
b)
A Mozambican company that invests in a South African company.
c)
An increase in mine workers’ transfer earnings to Mozambique.
d)
An increase in transfers from Mozambican citizens to their South African relatives.
7 If the supply of potatoes in South Africa is represented by a normal, upward-sloping curve and the
price elasticity of demand for potatoes is –0.5, then a specific tax of R1 imposed on each unit of potatoes
will be borne
a)
entirely by producers.
b)
more by consumers than by producers.
c)
more by producers than by consumers.
d)
Either (b) or (c) could be correct, depending upon the elasticity of supply.
8 If initially an excess supply of money in the economy exists, equilibrium in the money market would be
restored through a)
individuals buying bonds, causing the price of bonds to rise and the interest rate to fall.
b)
individuals selling bonds, causing the price of bonds to fall and the interest rate to rise.
c)
individuals selling bonds, causing the price of bonds to rise and the interest rate to fall.
d)
individuals buying bonds, causing the price of bonds to fall and the interest rate to rise.
9 If Investec Bank increases the cash reserves that it holds at the South African Reserve Bank (SARB) by
R10 million, what change in demand deposits will this potentially bring about? The SARB insists on a
minimum cash reserve requirement of 10%.
a)
Demand deposits will increase by R10 million.
b)
Demand deposits will increase by R10.1 million.
c)
Demand deposits will increase by R100 million.
d)
Demand deposits will decrease by R100.1 million.
10 The South African Reserve Bank is the monetary authority in South Africa and its main functions
may be grouped into four major areas of responsibility. Which one of the functions below is not a major
area of responsibility?
a)
formulation and implementation of monetary policy.
b)
service to micro-lenders.
c)
provision of economic and statistical services.
d)
maintaining financial stability.
11 One of the following is not a reason for government to intervene in the
economy (i.e., not a market failure):
a)
monopoly and government intervention.
b)
public goods.
c)
symmetric information.
d)
common property resources.
12 If a packet of Larney cigarettes currently costs R25 a packet and the government introduces an excise
duty of R5 per packet, assuming that the demand for Larney cigarettes is totally price inelastic, how
much of the tax burden will be borne by the consumer and how much by the producer?
a)
R5 and R0.
b)
R4,50 and R0,50.
c)
R3,50 and R1,50.
d)
R2,50 and R2,50.
13 An expansionary monetary policy would entail:
a)
An increase in the repo rate.
b)
The central bank buying securities from commercial banks.
c)
An increase in the cash reserve requirement ratio.
d)
None of the above.
14 Which of the following statements is true?
a)
Money is income.
b)
The speculative demand for money depends on the level national income.
c)
The total demand for money is inversely related to the level of interest rate.
d)
The interest rate is the opportunity cost for holding bonds.
15 A tax that affects the lower income group more negatively than rich people is referred to as a:
a)
Specific tax.
b)
Proportional tax.
c)
Progressive tax.
d)
Regressive tax.
16 Which of the following is incorrect?
a)
Money is another term for wealth.
b)
Money is another term for income.
c)
Money is a standard of deferred payment.
d)
(a) and (b).
17 Assuming that the Central Bank minimum cash reserve requirement is 2.5% , if a commercial bank
increases its cash reserves (held at the central bank) by R10 million, what will the change in demand
deposits be?
a)
Demand deposits will increase by R10 million.
b)
There will be no change in demand deposits.
c)
Demand deposits will increase by R2.5 million.
d)
Demand deposits will increase by R400 million.
18 The South African income tax system is:
a)
Regressive.
b)
Progressive.
c)
Proportional.
d)
None of the above.
19 Which of the following would be classified as an expansionary fiscal policy?
a)
Decrease in interest rates.
b)
Increase in money supply.
c)
Increase in government expenditure.
d)
Decrease in money supply.
20 In the balance of payments statement, under which category goods, services, current transfers and
income recorded?
a)
Financial account.
b)
Capital transfer account.
c)
Current account.
d)
All of the above.
21 Which one of the following is not a function of the South African Reserve Bank?
a)
formulation and implementation of monetary policy.
b)
provision of economic and statistical services to the government.
c)
determination of the inflation targets.
d)
maintaining financial stability.
22 Which of the following best describes the M3 measure of the money supply?
a)
M3 = M1 + M2 + all long term deposits of the domestic private sector with monetary institutions.
b)
M3 = M1 + M2 + quasi money.
c)
M3 = M2 – M1 + coins, notes and demand deposits.
d)
M3 = M2 + all long term deposits of the domestic private sector with monetary institutions.
23 Of the major taxes in South Africa, ... is an example of a proportional tax, ... is an example of a
regressive tax and ... is an example of a progressive tax.
a)
excise duty, value added tax, company tax.
b)
company tax, customs duty, personal income tax.
c)
company tax, value added tax, personal income tax.
d)
value added tax, company tax, personal income tax.
24 Which of the following functions of money is unique to money
a)
Store of value.
b)
Unit of Account.
c)
Standard of deferred payment.
d)
Medium of exchange.
25 One of the functions of the South African Reserve Bank is to ensure financial stability in South Africa.
This does not involve
a)
Supervision of financial institutions.
b)
Ensuring an efficient National Payment System.
c)
A lender of last resort to deficit Banks.
d)
Setting import tariffs.
26 Private goods are:
a)
rivalrous and excludable.
b)
non-rivalrous but excludable.
c)
rivalrous but non-excludable.
d)
none of the above.
27 Countries use different measures of the quantity of money. In South Africa, there are three different
measures which include M1, M2 and M3. As advisor to the Reserve Bank of South Africa, which of the
following will be included in M1?
a)
cheque deposits.
b)
gold.
c)
stocks.
d)
credit cards.
28 The South African Reservebank are concerned about the levels of the money stock in the country.
Which of the following actions can they use to mop up or decrease money supply to address the concern?
a)
Decrease in prime overdraft rate.
b)
Transfer of government funds from South African Reserve Bank to private banks.
c)
Lowering the repo rate.
d)
Selling government securities in the open market.
29 The Minister of Finance, in his Parliamentary budget speech announced that Junior clerks in the civil
service receiving an annual salary of R100,000 will be paying income tax amounting to R20,000 and
Executive Officers receiving R400, 000 per annum will be paying R100,000 in terms of income tax. This is
an example of
a)
Proportional tax.
b)
Regressive tax.
c)
Progressive tax.
d)
Both proportional and progressive tax.
30 One labourer In South Africa can produce 50kg of maize or 10 litres of sunflower oil per week. In
Botswana one labourer can produce 30 kg of maize or 6 litres of sunflower oil per week. In this case
a)
South Africa should export maize and import sunflower oil.
b)
Botswana should export maize and import sunflower.
c)
South Africa has a comparative advantage in both maize and sunflower oil.
d)
There is no basis for mutually beneficial trade.