economics 1b- tutorial letter 102, Exercises for Economics of Education
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Daphane.P

economics 1b- tutorial letter 102, Exercises for Economics of Education

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ECS1601/102/3/2017

Tutorial Letter 102/3/2017 Economics 1B

ECS1601 Semesters 1 and 2 Department of Economics

IMPORTANT INFORMATION

This tutorial letter contains the following

• Information on lecturers • Information on myUnisa and e-tutors • Information on 2017 examination • A Workbook to help you practice diagrams,

calculations and explanations

Define tomorrow

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CONTENTS

A. LECTURERS FOR THIS MODULE ................................................................................................. 3

B. MyUNISA AND E-TUTOR WEBSITE .............................................................................................. 3

C. INFORMATION ON THE 2017 EXAMINATION .............................................................................. 4

D. EXERCISES ON LEARNING UNITS .............................................................................................. 5

D1EXERCISES ON LEARNING UNIT 2 ..................................................................................... 5

D2.EXERCISES ON LEARNING UNIT 3 ................................................................................... 12

D3.EXERCISES ON LEARNING UNIT 4 ................................................................................... 15

D4.EXERCISES ON LEARNING UNIT 5 ................................................................................... 22

D5.EXERCISES ON LEARNING UNIT 6 ................................................................................... 31

D6.EXERCISES ON LEARNING UNIT 7 ................................................................................... 43

D7.EXERCISES ON LEARNING UNIT 8 ................................................................................... 54

D8.EXERCISES ON LEARNING UNIT 9 ................................................................................... 63

D9.EXERCISES ON LEARNING UNIT 10 ................................................................................. 65

D10.EXERCISES ON LEARNING UNIT 11 ................................................................................. 67

E. DISCUSSION OF EXERCISES ON LEARNING UNITS ................................................................ 68

E1. DISCUSSION OF EXERCISES ON LEARNING UNIT 2 ...................................................... 68

E2. EXERCISES ON LEARNING UNIT 3 ................................................................................... 75

E3. EXERCISES ON LEARNING UNIT 4 ................................................................................... 77

E4. EXERCISES ON LEARNING UNIT 5 ................................................................................... 85

E5. DISCUSSION OF EXERCISES ON LEARNING UNIT 6 ...................................................... 95

E6. DISCUSSION OF EXERCISES ON LEARNING UNIT 7 .................................................... 108

E7. DISCUSSION OF EXERCISES ON LEARNING UNIT 8 .................................................... 122

E8. DISCUSSION OF EXERCISES ON LEARNING UNIT 9 .................................................... 134

E9. DISCUSSION OF EXERCISES ON LEARNING UNIT 10 .................................................. 137

E10. DISCUSSION OF EXERCISES ON LEARNING UNIT 11 .................................................. 139

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A. LECTURERS FOR THIS MODULE

Your lecturers for ECS1601 are as follows:

Module leader: Ms Malefa Malefane (012) 433 4641 Ms Kafayat Amusa (012) 433 4637 Mr Thabang Malatji (012) 433 4613 Mr Martin Marais (012) 433 4633 Mr Percy Mathevula (012) 433 4613 Ms Amanda Fitschen (012) 433 4611 There is a lecturer on duty for ECS1601 every week day from 8:00 to 15:30 but sometimes we have to attend meetings. If you can’t find any lecturer, please contact the administrative personnel at 012 433 4661. The e-mail address for ECS1601 is ECS1601-17-S1@unisa.ac.za for the first semester and ECS1601-17- S2@unisa.ac.za for the second semester. All e-mail enquiries will be attended to within 48 working hours.

B. MYUNISA AND E-TUTOR WEBSITE

Please visit the ECS1601-17-S1/ECS1601-17-S2 website on myUnisa. Every week as you progress through the study programme we shall post a slide show to help you work through the study material for that week. Difficult concepts are explained in more detail on these slides. We also post a quiz containing questions on the learning material for that week. These questions are similar to the questions that you can expect in the exam. You can try these questions and then discuss the answers with your fellow students on your e-tutor group. Student will be allocated to an e-tutor during the course of the semester. You will also find your e-tutor webpage on myUnisa. It will be named ECS1601-17-S1-xxE/ ECS1601-17-S2-xxE where the xx refers to your e-tutor group number. E-tutors have been appointed to help you with any academic problem that you may encounter. You can expect the following from your e-tutor: • A weekly e-mail sent to your myLife address containing information that the e-tutor regards as

important • Regular posts on the discussion forum to motivate you and provide additional questions on the

study material • Feedback on your questions or if you provided answers to a particular question, e.g. a question in

the quiz, feedback to your answer. • Academic support: if you have any questions about the contents of the module, please discuss this

with your e-tutor and fellow students on the Discussion forum. You are encouraged to use the discussion forum on the e-tutor site to discuss questions and issues on the study material with your fellow students. Should you find that your e-tutor is not providing these services, please contact one of your lectures so that we can investigate the issue and solve the problem. The discussion forum on the main ECS1601-17-S1/ ECS1601-17-S2 webpage will only be monitored until students are allocated to e-tutor groups.

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C. INFORMATION ON THE 2017 EXAMINATION

The exam paper will consist of two main sections each counting 50% of the total of 100. Section A will contain questions for which you have to provide short written answers and Section B will contain 30 multiple choice questions that you will answer on a mark reading sheet. The assignments for ECS1601, the activities in the learning units and the quizzes that will be released on myUnisa contain examples of multiple choice questions. Examples of the questions for which you have to provide written answers are provided in the activities in the learning units and in the quizzes that will be released on myUnisa. We have also compiled this workbook which contains examples of the types of questions you can expect in Section A of the exam. Section D contains the questions with space for answering the questions, and the answers are provided in Section E. You are expected to answer the question in the workbook as soon as you have completed a learning unit. You should then use the answers in Section D to evaluate your answers. If you do not understand the answers you have to revise the work in that learning unit, and you should seek help from your e-tutor, face-to-face tutor (if you have joined a group) or your lecturer. It is very important that you are able to answer this type of questions as half of the examination paper will consist of this type of question. You can expect the following types of questions in Section A of the exam: • Questions where you have to provide definitions for certain concepts • Questions where you have to provide a list e.g. a list of characteristics, a list of functions

etc. • Questions where you have to provide an explanation of economic concepts, theory or policy • Questions where you have to use a model to explain economic concepts, an economic

situation, economic policy etc. • Questions where you have to use a diagram of a model to explain economic concepts, an

economic situation, economic policy etc. (You have to understand how to draw the diagrams yourself.)

• Questions where you have to interpret a diagram of an economic model, an economic situation, economic policy etc.

• Questions where you have to do calculations regarding economic variables or economic models

• Questions where you have to apply economic theory to explain a certain situation or how a certain economic problem may be corrected

Section D of this tutorial letter contains examples of most of the above type of questions. It is therefore essential that you work through the workbook as you progress through the learning units.

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D. EXERCISES ON LEARNING UNITS

This part of the tutorial letter provides you with the opportunity to practise the diagrams, calculations and explanations that you have to master for ECS1601. Use this section as follows: • Read the question carefully. • Answer each question in the space provided. • Evaluate your answer using the suggested answers in section 2.

D1 EXERCISES ON LEARNING UNIT 2

1.1 Complete the following table: (10) Function of money Medium of exchange Store of value Motive for holding money for this function

Symbol used to depict this motive for holding money

Does this form part of the active or passive demand for money?

Main determinant of this motive for holding money

Is the relationship positive or negative?

1.2 (a) Draw a diagram that illustrates the relationship between the interest rate level and the

demand for active balances. (2)

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1.2 (b) Draw a diagram that illustrates the relationship between the interest rate level and the

demand for passive balances. (2)

1.3 (a) Complete the following: (2)

Total demand for money = + .

1.3 (b) Draw a diagram that illustrates the total demand for money. (2)

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1.4 Indicate which component of money demand (active balances or passive balances) will be affected by each of the following. Also, indicate the direction of change in the demand for money (increase or decrease) and whether a shift of the demand curve for money, or a shift along the curve, will take place. (12)

Change Component of money demand that will be

affected

Direction of change in money demand

Indicate if a shift of the demand for

money curve will take place or if a shift along the

demand for money curve will take

place (a) Increase in income

level

(b) Decrease in income level

(c) Increase in interest rate

(d) Decrease in interest rate

1.5 Explain why a negative relationship exists between the interest rate level and the passive

demand for money. (9)

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1.6 (a) Explain how the interest rate level is determined in the economy. (3) (b) Explain the role of banks in the money-creation process. (7)

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1.7 (a) Illustrate how an increase in the income level will affect the money market. (7) 1.7 (b) Illustrate how a decrease in the income level will affect the money market. (7)

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1.7 (c) Illustrate how an increase in the interest rate level will affect the money market. (7)

1.7 (d) Illustrate how a decrease in the interest rate level will affect the money market. (7)

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1.8 Explain why the South African Reserve Bank (SARB) may decide to increase the repo rate and how this increase in the repo rate will affect the money market. (10)

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D2. EXERCISES ON LEARNING UNIT 3

2.1 (a) Use the information in the following table and indicate whether the tax (A, B and C) is an example of regressive, proportional or progressive tax. Write your answer down in column 4. (3)

Show all your calculations to determine the correct answers in the space indicated below. 1 2 3 3 4

Income Amount paid to

tax Income

Amount paid to

tax Income

Amount paid to

tax Indicate

type of tax

A

R3 000

R150

R5 000

R250

R10 000

R500

B R300 R600 R1 500

C R240 R240 R240

Calculations:

2.2 (b) Indicate the correct answer. (1) Tax X indicated in the diagram (see next page) is an example of __________.

o regressive tax o proportional tax o progressive tax

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(b) Provide a reason for your answer. (1)

2.3 (c) Indicate the correct answer. (1) Tax Y indicated in the diagram is an example of ___________.

o regressive tax o proportional tax o progressive tax

(b) Provide a reason for your answer. (1)

2.4 (d) Indicate the correct answer. (1) Tax Z indicated in the diagram is an example of _________.

o regressive tax o proportional tax o progressive tax

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(b) Provide a reason for your answer. (1)

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D3. EXERCISES ON LEARNING UNIT 4 3.1 The following table shows the total quantity of computers and amount of petrol that country A

and country B can produce in a day, given their resources. Use the information in the following table to complete the second table and answer the questions that follow: (4)

Computers Petrol Country A 500 computers 30 000 litre Country B 400 computers 20 000 litre

Cost to produce one

computer in terms of petrol

Cost to produce one litre of petrol in terms of computers

Country A

Country B

(a) Which country has an absolute advantage in the production of computers? Provide a

reason for your answer. (2)

(b) Which country has an absolute advantage in the production of petrol? Provide a reason

for your answer. (2)

(c) Which country has a relative advantage in the production of computers? Provide a reason

for your answer. (2)

(d) Which country has a relative advantage in the production of petrol? Provide a reason for

your answer. (2)

(e) Which country should produce computers? Provide a reason for your answer. (3)

(f) Which country should produce petrol? Provide a reason for your answer. (3)

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3.2 The following information is provided for country X: Imports = $500 000 Exports = $400 000 Will GDP exceed GDE? Explain your answer. (5)

3.3 Draw a diagram that illustrates the demand for dollars in South Africa. Explain the slope of the

curve. (4)

Explanation:

3.4 Draw a diagram that illustrates the supply of dollars in South Africa. Explain the slope of the curve. (4)

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Explanation:

3.5 Draw a diagram that illustrates how the rand/dollar exchange rate is determined. Show the

equilibrium exchange rate and explain why it is the equilibrium exchange rate. (10)

Explanation:

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3.6 Suppose trade regulations have changed, which results in a significant increase in exports from South Africa to America. Using a diagram, illustrate how this change will affect the exchange rate of the rand to the dollar. (7)

Explanation:

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3.7 Use a diagram to explain how an increase in the number of South African tourists, visiting the United States, will affect the exchange rate of the rand to the dollar. (7)

Explanation:

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3.8 (a) The following diagram depicts a change in the rand/dollar exchange rate. Explain whether the rand appreciated or depreciated and how and why this change will influence imports, exports and the balance of payments. Also, explain how it will affect domestic prices. (8) (b) Explain what the monetary authorities can do to counteract the change in the rand/dollar exchange rate and why this may be difficult to accomplish. (5)

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3.9 Explain how the central bank can counteract the effect of an appreciation of the rand against the dollar. (5)

3.10 Explain what it means when a country’s terms of trade decreases and what the implications of

such a change will be. (6)

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D4. EXERCISES ON LEARNING UNIT 5 4.1 Indicate which of the following statements are true or false. (5) No Statement True False a An increase in real GDP implies that economic growth has taken place.

b An increase in the unemployment rate implies that unemployment has increased.

c An increase in the CPI implies that inflation has taken place.

d An increase in the balance of payments deficit implies that a country has attained (or is closer to attaining) external stability.

e An increase in the Gini coefficient implies that income is being distributed more equitable in a country.

4.2 Farmer A buys beetroot seed for R5 000 from farmer B and plants these seeds. The beetroot

grows well and six months later, the farmer sells the beetroot on the market for R15 000 to a factory that produces beetroot salad. The salad factory sells the beetroot salad to a shop for R23 000. The shop sells it to the consumers for R28 000.

(a) Using the production method, calculate the value added to GDP by the above

transactions. (2) (b) Using the expenditure method, calculate the value added to GDP by the above

transactions. (2) (c) Using the income method, calculate the value added to GDP by the above transactions. (2) Show all calculations.

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4.3 Indicate which of the following statements are true or false: (14) No Statement True False

a Value of total sales = Total primary income + Value of intermediate goods and services

b Value of total sales + Total primary income = Total primary income

c Goods, which were sold during the current period, but were produced during earlier periods, are included in the current GDP.

d GDP is a stock concept. e Gross domestic product – Depreciation = Net domestic product

f GDP @ market prices – Taxes on products + Subsidies on products ≡ GDP @ basic prices

g GDP @ basic prices + Other taxes on production – Other subsidies on production ≡ GDP @ factor cost

h GDP @ factor cost – Other taxes on production + Other subsidies on production ≡ GDP @ basic prices

i GDP @ basic prices + Taxes on products – Subsidies on products ≡ GDP @ market prices

j GNI = GDP + Primary income receipts from the rest of the world + Primary income payments to foreigners

k GDP = GNI – Primary income receipts from the rest of the world + Primary income payments to foreigners

l GDP = C + I + G + X + Z 4.4 Use the figures obtained from the SARB Quarterly Bulletin for March 2016, shown in the

following table, to calculate the aggregates indicated below. 2014 2015

R million Gross value added at factor cost 3 341 472 3 488 407 Taxes on production 71 649 81 531 Subsidies on production 8 021 9 380 Taxes on products 404 939 444 871 Subsidies on products 12 972 14 476

(a) Calculate GDP at basic prices for 2014 and 2105. (5) (b) Calculate GDP at market prices for 2014 and 2015. (5)

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4.5 Use the information obtained from the SARB Quarterly Bulletin for March 2016 in the following

tables to answer the questions that follow: (a) By how much did the nominal GDP grow from 2014 to 2015? (2) (b) By how much did the real GDP grow from 2014 to 2015? (2) (c) Which of nominal or real GDP would be better to use for measuring economic growth?

Explain your answer. (5) 2014 2015 R million GDP @ current prices 3 867 719 4 031 394 GDP @ constant 2010 prices 3 020 879 3 031 041

4.6 Use the information obtained from the SARB Quarterly Bulletin in the following tables to answer

the questions that follow:

2014 2015 R million Final consumption expenditure by households 2 299 426 2 428 813 Gross capital formation 771 641 810 929 Final consumption expenditure by general government 772 808 778 571 Exports of goods and services 1 186 640 1 233 094 Imports of goods and services 1 257 292 1 273 535 Residual item 23 844 13 081 Primary income from the rest of the world 82 235 98 016 Primary income to the rest of the world 183 779 198 382

(a) Calculate the GDE for South Africa for 2014 and 2015. (7)

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(b) Calculate the GDP for South Africa for 2014 and 2015 using the expenditure approach. (6)

(c) What percentage of domestic GDP did each different type of expenditure constitute for 2015? (10)

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