ECONOMICS PAST PAPER

Question 1

Distinguish between microeconomics and macroeconomics and provide an example of a
microeconomic issue and an example of a macroeconomic issue.

Answer 1

Microeconomics focuses on individual parts of the economy. for EG, utility, prices of products

Macroeconomics focuses on the economy as a whole. for eg, production price and index

Question 2

What are the basic types of income in the economy? How do they relate to the 4 factors of
production? Name the 4 factors along with the type of remuneration earned.

Answer 2

natural resources will be rent income
wages and salaries to labor
interest to capital
profit to entrepreneurs

Question 3

Discuss the three basic purposes of macroeconomic theory. (PEP)

Answer 3

To predict what will happen if something changes

To explain how different things are related in complex real economic world

Analysis of decisions on economic policy

Question 4

List the five objectives of macroeconomic policy.

EFPBE

Answer 4

1. Economic growth
2. Full employment/low stable unemployment
3. Price stability/low stable inflation
4. Balance of payments stability/external stability
5. Equitable/socially acceptable distribution of income

Question 5

Gross Domestic Product (GDP)

Answer 5

Expenditure on GDP = C + I + G + X – Z
• C = consumption expenditure
• I = investment expenditure
• G = government expenditure
• X = exports
• Z = imports

Question 6

Net Investment

Answer 6

Net Investment = Capital Expenditures – Depreciation (non-cash)

Question 7

Gross Domestic Expenditure (GDE)

Answer 7

Gross domestic expenditure = C + I + G+z

• Total value of all spending in South Africa

Question 8

Briefly explain the relationships between wants, means, scarcity and choice.

Answer 8

Wants are unlimited while the means that are available to satisfy those wants are limited . Scarcity has to make choices.

Question 9

Briefly discuss the main components of total spending in the economy.

Answer 9

• Use income to satisfy wants
• By all sectors of the economy
• Consumption expenditure by households (C)
• Investment (capital) expenditure by firms (I)
• Government spending (G)
• Foreign sector spending: exports (X) – imports (Z)

Question 10

What are the two major accounts of the balance of payments? What types of transactions are
recorded in each major account?

Answer 10

Two major accounts:
• Current account: exports and imports, primary income payments and receipts
• Financial account: financial flows like the sale of bonds and shares

Question 11

What is the balance on the current account of the balance of payments?

Answer 11

Service receipts, payments for services, exports , imports

Question 12

Financial account: financial flows like the sale of bonds and shares

Answer 12

direct investments, portfolio investments and other investments, sales bonds shares

Question 13

What is the change in the country’s gold and foreign exchange reserves given the
above?

Answer 13

Difference between current account and financial account
• Change in reserves = current account balance + financial account
balance

Question 14

Briefly explain the three basic criteria for a ‘good tax’.

Answer 14

• Neutrality: Should have minimum possible effect on relative prices various market participants base their decisions.

•Equity: People should pay according to their Ability.
Horizontal equity
• Vertical equity
• Benefit principle
• Administratively simple
• Compliance costs
• Tax avoidance vs tax evasion

Question 15

Explain the difference between progressive, proportional and regressive taxes and give an
example of each type.

Answer 15

• Progressive
• The higher your income, the larger the percentage of income paid
in tax.
• Proportional
• Tax ratio is the same for all levels of income.
• Regressive
• Takes a larger percentage of poorer individuals’ or households’
income in tax.