Download Macroeconomics-B - the South African Institute of Management

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SOUTH AFRICAN INSTITUTE OF MANAGEMENT
Macroeconomics-B
Time: 09h00 – 12h00
Mark Allocation: 100 Marks
Date: 23 October 2014
Number of Pages: 9
Examiner’s Instructions:
1. Answer ALL questions in Sections A and B in the Answer Booklet provided.
2. Lay your work out clearly, using headings, sub-headings and paragraph
numbers.
3. The examination should be conducted in strict silence.
4. This is a closed book exam. No books or notes may be consulted during the
exam by a student, except a simple dual language translation dictionary e.g.
English/Xhosa, English/Afrikaans etc.
5. Ensure that your SAIM Number, your ID Number and the Exam Centre
Name/Number are all indicated on your examination book. No names should
be recorded anywhere on the Answer Booklet.
6. Failure to observe the rules and regulations set down by the SAIM will be
considered cheating and you will be disqualified from this examination and
any future SAIM examinations.
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SECTION A: 40 MARKS
Answer ALL Questions
Question 1: Multiple Choice: 25 Questions: 1 Mark Per Question
1. In accordance with the expanded definition, unemployed persons are those persons who:
a) Are between the ages of 15 and 65.
b) are not in paid employment or self-employment.
c) were available for paid employment for the seven days before the interview.
d) took specific steps during the four weeks preceding the interview to find
employment.
e) a, b and c.
2. Frictional unemployment refers to the fact that:
a) Some industries goes through tough times as there is insufficient demand for their
products.
b) Some people find them between jobs.
c) People who have been retrenched as a result of an economic downturn.
d) School leavers are waiting to find jobs.
e) b and d.
3. Which one of the following is not a reason for holding cash ….
a) In order to purchase something- that is, to transact.
b) In order to save some money for future use.
c) In order to provide a reserve in the eventuality of unexpected events.
d) In order to speculate – to take advantage of business opportunities that might
emerge.
e) None of the above.
4. Which of the following would not be seen as a negative externality?
a) Rivers get polluted by acid water from mining activities.
b) Poachers are killing off the rhinoceros population in our game reserves.
c) South African roads are full of potholes because of a lack of maintenance.
d) The CO2 emissions from cars causes air pollution and other environmental impacts.
e) b and c.
5. Inflation, as experienced by firms that manufacture goods, can be measured with‫׃‬
a) The core inflation rate.
b) The production price index (PPI).
c) The CPIX.
d) The consumer price index (CPI).
e) a, c and d.
6. Which of the following is not an example of monetary policy:
a) The interest rates are lowered in order to facilitate consumer spending.
b) The SARB trade in the foreign exchange market to stabilises the weakening
currency.
c) The government announces a new taxation to curb carbon emissions.
d) The SARB step in to “rescue” a bank that is in financial difficulty.
e) a and c.
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7. Under a simple Keynesian Model, aggregate spending is determined by:
a) Investment spending by firms
b) Autonomous consumer consumption.
c) Income induced consumer consumption.
d) a, b and c.
e) b and c.
8. Which of the following flows constitute a permanent or temporary leakage from the
economy?
a) The Savings Institute has launched a successful campaign to get citizens to save a
bigger part of their income.
b) A firm decides to relocate their manufacturing plant from Germiston to Lesotho.
c) The Government announces that a new tax will be implemented to counter the effect
of carbon emissions.
d) Renault announces that they will be importing two new models to South Africa.
e) All of the above.
9. When a country can produce the same goods as another country at a lower cost and/or
more efficiently, this will give the first country ….
a) Technological superiority
b) An absolute advantage.
c) A comparative advantage.
d) A stronger bargaining position.
e) A product through which it can sustain itself.
10. The current account is an important contributor to South Africa’s balance of payments
and reflects ….
a) The net effect of public borrowings.
b) The effect of foreign investments in government bonds.
c) The foreign direct investments in the economy.
d) The in and outflows as a result of imports and exports.
e) All of the above.
11. Which of the following statements is correct? Governments can protect their own
economies/industries by:
a) Imposing trade barriers
b) Introducing subsidies for local producers.
c) Reducing import tariffs.
d) Instituting quantitative restrictions on imports.
e) a, b and d.
12. Which of the following can be regarded as a public good, on the basis that it is both nonrivalrous and non-excludible?
a) Street lights.
b) South Africa’s marine resources.
c) State museums.
d) Soccer stadiums.
e) a, b and c.
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13. The following is an example of a progressive tax‫׃‬
a) Value Added Tax.
b) Personal Income Tax.
c) Estate Duty.
d) Companies Tax.
e) None of the above.
14. Which of the following is not a main source of cost-push inflation?
a) Increases in wages and salaries.
b) Decreases in profits margins.
c) Decreases in productivity.
d) Natural disasters.
e) The cost of imported capital and intermediate goods.
15. Which of the following is a criterion of a good tax?
a) Administrative simplicity.
b) That it reduces administrative and compliance costs.
c) That it should exclude the poor.
d) a and b.
e) a and c.
16. Which of the following items are not included for the purposes of calculating the GDP?
a) Goods which are produced outside the domestic economy.
b) Second-hand goods.
c) Services rendered by professional people.
d) Intermediate goods.
e) All of the above.
17. Contractionary Monetary Policy can be defined as ….
a) The measures taken by the Minister of Finance to introduce a new tax.
b) The measures taken by the SARB to cool the economy down.
c) The measures taken by the SARB to stimulate consumer spending.
d) The measures taken by the Minister of Finance to establish new trade relations with
a foreign country.
e) All of the above.
18. When government introduces an excise duty (‘sin tax’) on a specific product such as
cigarettes, we expect to see the following‫׃‬
a) The relative prices of the goods will increase.
b) The producers might have to reduce their profit margins in order to maintain volumes.
c) Government will earn additional income.
d) Consumers will have to pay more and will probably consume less of the product.
e) All of the above
19. When considering the AD-AS model, which of the following factors will not move the
demand curve to the right? ‫׃‬
a) A decrease in net exports.
b) An increase in investment spending.
c) A decrease in taxes.
d) A decrease in interest rates.
e) An increase in autonomous consumption.
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20. A firm’s decision to make an investment, is informed by‫׃‬
a) The cost of the capital goods
b) The expected return/yield that will be made on the investment.
c) The interest rate that will be paid on borrowed capital.
d) The opportunity cost of using the funds to invest.
e) All of the above.
21. When considering the AD-AS model, which of the following factors will not move the
supply curve downwards to the right? ‫׃‬
a) The prices of factors of production decreases.
b) Productivity decreases.
c) Weather conditions improve.
d) Prices of imported goods or capital decreases.
e) None of the above.
22. Based on the monetary transmission mechanism, which of the following would we not
expect to see when the SARB raises the repo rate:
a) Market interest rates will increase.
b) Consumer spending will decrease.
c) The unemployment rate will decrease.
d) Aggregate demand will decrease.
e) Upward pressure on prices (inflationary pressures) should decrease.
23. If an investment of R30 million is made and the multiplier is ⅔ , the equilibrium level of
income is expected to increase with‫׃‬
a) R45m.
b) R60m.
c) R75m.
d) R90m.
e) None of the above.
24. The monetarists explain inflation by linking it to the growth in the supply of money. In
order to determine the level of supply, an equation of exchange (identity) has been
determined which includes the following‫׃‬
a) The quantity of money.
b) The velocity of circulation of money.
c) The average price level of goods.
d) The real value of goods or services produced.
e) All of the above.
25. Which of the following is a measure of economic growth after the effect of inflation on
the prices of goods and services has been taken into account?‫׃‬
a) Gross national income.
b) Real GDP.
c) Per capita GDP.
d) Real GNI.
e) The trade ratio.
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Question 2: True of False: 10 Questions. 1 Mark Per Question: 10 Marks
Indicate for each of the following statements whether the statement is True or False and
then provide one reason to motivate your answer.
2.1 The monetary ‘transmission mechanism’ illustrates the impact of an increase in interest
rates on aggregate spending, income and production.
2.2 The ‘marginal propensity to consume’ is indicated by the slope of the consumption
function and refers to the fact that consumers will spend a significant part of all the income
that they receive.
2.3 Stagflation is a technical term that reflects a situation where the economy is growing
whilst there is a high/rising level of unemployment.
2.4 The foreign currency flows as a result of goods and services being imported/exported is
reflected in the current account of the balance of trade.
2.5 There is a negative relationship between domestic economic activity and the level of
imports.
2.6 The Gini-coefficient measures the inequality in the distribution of income in a country.
2.7 When we consider the equilibrium level of income, the size of the ‘multiplier’ will reduce
when the rate of household savings increase.
2.8 Indexation requires that one measures price increases and their impact on pensions and
salaries.
2.9 Jean-Baptiste Say is known for the notion that, by creating demand, a country’s
economy can be stimulated to grow.
2.10 Consumer spending is only driven by an increase in the level of income in the economy
Question 3: 5 Marks
Define each one of the following terms for one (1) Mark each.
3.1 The credit multiplier.
3.2 Expansionary Fiscal policy.
3.3 CPIX.
3.4 The Phillips curve.
3.5 Cyclical unemployment.
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SECTION B: 60 MARKS
Answer ALL Questions as directed
Question 1: 15 Marks. Answer BOTH questions
1.1 Discuss and explain the role of financial intermediaries in the economy and then draw a
diagram to illustrate the flow of funds through the financial system.
10 Marks
1.2 Discuss and explain the reserve asset requirement that the SARB impose on retail banks
in South Africa. Also indicate how this requirement relates to the credit multiplier.
5 Marks
Question 2: 10 Marks. Answer ONE of the questions
2.1 One of the macroeconomic objectives is that of ‘balance of payment stability.’ Briefly
discuss how this objective is measured, what strategies can be employed by the government
to counter a trade deficit.
10 Marks
OR
2.2 Discuss the macroeconomic objective of ‘a more equitable distribution of income’.
Elaborate on the causes of the inequality in income, how it is measured and the South
African government’s strategies aimed at closing the income gap.
10 Marks
Question 3: 10 Marks. Answer ONE of the questions
3.1 The South African Reserve Bank contributes to economic stability and facilitates the
supply of money to the economy. In this process, it can either follow a contractionary policy
or it can pursue a more expansionary policy. Explain the differences between the two
concepts and indicate how the SARB will go about it, should they wish to pursue a
contractionary monetary policy.
10 marks
OR
3.2 Market failure is generally seen an acceptable reason for the government of a country to
get involved in the economy. Discuss five forms/examples of ‘market failure’ and indicate
what measures the government can institute in order to eradicate each one of these
perceived ‘failures’.
10 marks
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Question 4: 10 Marks. Answer ONE of the questions. Each question has two
parts
The poultry farmers in South Africa have recently laid a complaint with the government that
Brazilian chicken is being “dumped” in the South African market.
4.1 Explain what is meant by the term “dumping” and indicate why it poses a threat to the
South African poultry industry.
10 marks
4.2 Explain what measures the government can implement, should they agree that the local
industry requires some protection.
10 marks
OR
Inflation could have a seriously negative impact on the economy and citizens of a country.
However, before one can address the threat of inflation, one needs to first understand what
causes inflation.
4.3 Briefly explain the economic impact of a high inflation rate.
10 marks
4.4 Explain the structuralist approach to inflation and describe the factors that come into play
in the inflationary process.
10 marks
Question 5: 15 Marks. Answer ALL THREE questions. 5 Marks Each
Governments are important role-players in the economies of their respective countries.
Discuss each of the following questions given this role of government in the South African
economy.
5.1 Identify and list five causes or reasons for the growth in government spending. 5 marks
5.2 Explain the government’s policy with regards to managing the inflation rate.
5 marks
5.3 Explain the government’s policy with regards to the exchange rate.
5 marks
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SOUTH AFRICAN INSTITUTE OF MANAGEMENT
MULTIPLE CHOICE ANSWER SHEET
Macroeconomics-B
SAIM NO:………………
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TOTAL FOR EXAMINATION: 100 MARKS
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