Transcript Answers to question from the discussion class.

Answers to question from the
discussion class.
Exercise 1
• Which one of the following is not a flow
variable?
[1] Liabilities
[2]profit
[3]Income
[4] investment
[5] savings
• The three major flows in an economy are
[1] total production, total profit and total
spending
[2] total wages, total investment, total income
[3] Total production, total income, total
spending
[4] total savings, total spending, total
production
• In the circular flow diagram,
[1] spending on goods and services flows from
firms to households
[2]goods and services flow from households to
firms
[3]factors of production flow from firms to
households
[4] Income from factors of production flow from
firms to households
Firms
1
4
Factors Market
Goods market
2
3
Households
• Using the figure above
[1] flows(2) and (3) represent income
[2] Flows (2) and (4) represent spending
[3] flows (1) and (2) represent spending
[4] Flows (1) and (3) represent spending
Exercise 2
• Money is
[1] the same as income
[2]Anything that is generally accepted as a
medium of exchange
[3] the value of all coins and currency in
circulation at any time
[4]the same as wealth
• Banks create money by
[1] printing additional bank notes
[2]paying interest to their depositors
[3] Making loans that result in additional
deposits
[4] offering financial services such as money
market accounts
• If the cash reserve ratio is increased, the credit
multiplier
[1] Will decrease
[2] will decrease, as long as banks hold no
excess reserves
[3] could either increase or decrease
[4] will increase
• The main reason that people hold money for
the purpose of “Acquiring things” is referred
to as
[1] Transactions motive
[2] precautionary motives
[3] speculative motive
[4] profit motive
[1]What are the broad ways in which government spending
can be financed?
Taxation, borrowing and income from property.
[2] Define fiscal policy
Policy in respect of the level and composition of
government spending ,taxation and borrowing
[3] Define the budget deficit
The difference between government spending and
revenue
[4] What are the criteria's for a good tax system?
Neutrality, administrative simplicity, equitable
• If the supply curve of petrol has its normal
shape and the price elasticity of demand for
petrol is perfectly inelastic, then a specific tax
of R5 placed on each litre of petrol will be
borne by
[1] Entirely by consumers
[2] entirely by producers
[3]more by consumers than by producers
[4] more by producers than by consumers
• Which of the following is an example of
expansionary fiscal policy?
[1]increase in taxation
[2]Increase in government expenditure
[3]increase in the VAT rate
[4] increase in the money supply
If the rand depreciates against the dollar
(1) South Africa export prices in dollar terms will
increase
(2) the rand price of South African imports will
decrease
(3) the balance on the current account of the
South African balance of payments will
improve.
(4) the South African rate of inflation will
decrease
• 1. Use a diagram to explain what will happen to
the exchange rate between the Rand and the
Dollar if South African exports to the United
States increased
– This question is from page 55 of the study guide. See
the solutions on page 58 of the guide
• 2. With the aid of a diagram, explain what will
happen to the exchange rate between the Rand
and the Dollar when the demand for dollars
increases
• This question is from page 55 of the study guide. See the
solutions on page 58 of the guide
True of false
1. Exports create a supply of foreign exchange while
imports constitute a demand for foreign exchange
true
2. An increase in SA imports from the united states will
give rise to an appreciation of the rand against the
Dollar
false
3. If American importers buy more SA goods, the supply
of dollars in the South African foreign exchange market
increases
true
The total value of all final goods and services
produced in a country during a particular year
is called the
(1) gross national income
(2) gross domestic expenditure.
(3) net national income
(4) gross domestic product.
Question
Year
2008
Nominal GDP
150
Real GDP
150
2009
2010
305
315
290
300
a) Calculate the growth rate of nominal gdp between
2008 and 2009.
103%. (305-150)/150*100
b) Calculate the growth rate of real gdp between 2008
and 2009.
93.3%
c) What do you think the difference in the two figures
can be attributed to?- real gdp has taken into account inflation effects while
nominal gdp has not.
Year
2001
2002
2003
Nominal
GDP
280
315
305
Real GDP
280
260
300
Use the information in the table above to
calculate the increase in real GDP between
2001 and 2003
7.14%---(300-280)/280*100
Year
GDP at current prices
(R millions)
GDP at constant (2003)
prices (R millions)
2001
300
310
2002
340
350
2003
410
410
2004
470
430
The increase in real GDP growth between 2001 and 2004 is
[1] 0.39%
[2] 5.67%
[3] 39%.
[4] 56.7%
True of False
• if the marginal propensity to consume is ¾,
then at an income level (Y) of 100, the induced
consumption is 75
True. Induced consumption is cY. Therefore
¾*100=75
• If autonomous consumption is 80 and the mpc
=4/5, then C=880 at an income level of 1000
true
If aggregate spending exceeds aggregate
production in the simple Keynesian model
(1) unplanned decreases in inventories will occur
(2) inflation will occur
(3) aggregate spending will also exceed aggregate
demand
(4) intended saving will equal intended
consumption spending
Autonomous investment means that investment
is independent of the
(1) cost of capital goods
(2) interest rate
(3) level of income.
(4) expected revenue to be earned from capital
goods
In the simple Keynesian model
(1) the marginal propensity to consume has no
effect on consumers’ ability to save
(2) there is an inverse relationship between
savings and the level of income
(3) induced consumption is a function of the
income level
(4) the consumption function is made up of an
autonomous component only
Calculate the value of the multiplier if
• 1. MPC= 3/4, -----1/(1-c)=1/(1-3/4)=4
=8/10, -----5
=7/8 ------8
=2/3-------3
Using the following information about the closed
economy to calculate equilibrium level of income
Autonomous consumption expenditure=
R100
Investment expenditure
=
R150
c
=
7/8
You first calculate the value of the multiplier, then
multiply that by the sum of your autonomous
components.
Therefore y=multiplier*[autonomous consumption plus
autonomous investment]
Y=8*[100+150]
Y =2000
• Suppose the autonomous consumption is
R200 million, the marginal propensity to
consume is 5/6 and autonomous investment is
R400 million. Calculate the following:
a) The multiplier
1/{1-c}=1/[1-5/6]=6
b) The equilibrium level of income
3600
• Calculate the impact on equilibrium level of
income of an increase in investment spending
of R100 million in the economy above.
You add the 100 to the previous total of
autonomous components and multiply that
value by the multiplier.
Y=4200
Keynesian with government- government spending
• We then looked at the impact of adding
government spending to the Keynesian model
• We wanted answers to how the inclusion of
government spending impacts on
1. the size of the multiplier----leaves multiplier
unchanged
2. autonomous spending-----increases if government
spending increases
3. equilibrium level of income------increases if
government spending increases
• See the attached word document on the
impact of introducing government spending.
Simple Keynesian
Keynesian with Government spending