Exam 2019

Question 1

Capital inflows in the balance of payments accounts include

a. purchases of foreign financial assets by SA residents.
b. direct investments in foreign countries by SA residents.
c. purchases of SA government bonds by foreigners.
d. All of the above are True.
e. Both a and b are True.

Answer 1

c. purchases of SA government bonds by foreigners.

Question 2

The current account in South Africa’s balance of payments accounts includes

a. exports of platinum and of South African made motor vehicles.
b. imports of T shirts and smartphones.
c. interest and dividend receipts and payments.
d. All of the above are True.
e. Both a and b are True.

Answer 2

d. All of the above are True.

Question 3

Which of the following statements is/are correct? In the overall balance of payments accounts

a. the current account balance is never equal to the capital account balance.
b. the difference between the current and capital accounts is equal to the change in foreign exchange reserves.
c. the current account measures exports and imports while the capital account measures dividend and interest flows.
d. the current account measures exports and imports as well as dividend and interest flows.
e. Both b and d are True.

Answer 3

e. Both b and d are True.

Question 4

Which ONE of the following variables is a stock variable?

a. A nation’s trade surplus.
b. The government budget deficit.
c. National reserves.
d. One year’s savings by a household from its disposable income.
e. The current account balance in a particular year.

Answer 4

c. National reserves.

Question 5

Assume that the private financial account is in balance, and assume that errors and omissions in the balance of payments accounts are zero. If a country is running a current account surplus and the central bank refuses to intervene in the foreign exchange market, what would happen?

a. The domestic exchange rate would weaken.
b. The domestic exchange rate would strengthen.
c. The government budget surplus would tend to fall.
d. Exports would rise.
e. Both a and d are True.

Answer 5

b. The domestic exchange rate would strengthen.

Question 6

The rate of unemployment can be calculated by

a. simply dividing all unemployed persons by all employed persons.
b. subtracting those employed from the total labour force to find the number of unemployed and express this number as a percent of the total labour force.
c. subtracting those unemployed from the total labour force and express this number as a percent of the total labour force.
d. dividing all unemployed by the total population.
e. Both a and d are True.

Answer 6

b. subtracting those employed from the total labour force to find the number of unemployed and express this number as a percent of the total labour force.

Question 7

In a closed economy, the equilibrium level of income is R500 billion, taxes fall by R60 billion and the marginal propensity to consume is 0.60. What will be the new equilibrium level of income?

a. R350 billion
b. R410 billion
c. R560 billion
d. R590 billion
e. R750 billion

Answer 7

d. R590 billion

Question 8

Now in an open economy, the equilibrium level of income is R500 billion, taxes fall by R60 billion, the marginal propensity to consume is 0.60 and the marginal propensity to import is 0.20. What will be the new equilibrium level of income?

a. R350 billion
b. R410 billion
c. R560 billion
d. R590 billion
e. R750 billion

Answer 8

c. R560 billion

Question 9

Income today is R5 000 and income tomorrow is R2 000. The interest rate is 4%. Wealth today is equal to which ONE of the following?

a. R6 716.98
b. R6 886.79
c. R6 923.08
d. R7 000.00
e. R7 200.00

Answer 9

c. R6 923.08

Question 10

Income today is R5 000 and income tomorrow is R2 000. The interest rate is 4%. Maximum consumption tomorrow is equal to which ONE of the following?

a. R6 716.98
b. R6 886.79
c. R6 923.08
d. R7 000.00
e. R7 200.00

Answer 10

e. R7 200.00

Question 11

If the household chooses to smooth consumption equally between both time periods (Y1=R5000, Y2=R2000, r=4%), then consumption in each time period will be equal to which ONE of the following?

a. R3 500.00
b. R3 511.42
c. R3 529.41
d. R3 550.72
e. R3 598.13

Answer 11

c. R3 529.41

Question 12

The speculative demand for money is negatively related to interest rates because

a. When interest rates are very low households want to own bonds in anticipation that the price of bonds will rise.
b. When interest rate are very high households do not want to own bonds because they expect that the price of bonds will fall.
c. When interest rates fall the price of bonds also falls.
d. When interest rates rise the price of bonds also rises.
e. When interest rates fall the price of bonds rises.

Answer 12

e. When interest rates fall the price of bonds rises

Question 13

Tobin’s q suggests that if the stock market value of a company is ________ than the replacement cost of its installed capital then a firm should invest.

a. less
b. greater
c. the same as
d. q = 1
e. q < 1

Answer 13

b. greater

Question 14

Keynes believed that the short run fluctuations in economic activity were caused mainly by instability in

a. investment.
b. taxes.
c. exports.
d. consumption and savings.
e. government spending.

Answer 14

a. investment.

Question 15

Under flexible exchange rates, a fall in global oil prices without any change in global capital flows will cause

a. the exchange rates of oil importers to strengthen and of oil exporters to weaken.
b. the exchange rates of oil importers to weaken and of oil exporters to strengthen.
c. the exchange rates of both oil importers and oil exporters to weaken.
d. the exchange rates of both oil importers and oil exporters to strengthen.
e. Exchange rates will be unchanged.

Answer 15

a. the exchange rates of oil importers to strengthen and of oil exporters to weaken.

Question 16

When the exchange rate threatens to weaken, to maintain a fixed exchange rate in the short term the central bank must

a. sell foreign currency from reserves.
b. buy foreign currency.
c. reduce taxes.
d. raise government spending.
e. Both c and d are True.

Answer 16

a. sell foreign currency from reserves.

Question 17

The slope of the IS curve will be

a. very steep if investment is very elastic to changes in interest rates.
b. fairly flat if investment is fairly elastic to changes in interest rates.
c. vertical if investment is perfectly elastic to changes in interest rates.
d. flatter the more desired demand exceeds output.
e. flatter the more output exceeds desired demand.

Answer 17

b. fairly flat if investment is fairly elastic to changes in interest rates.

Question 18

At any point to the right of the IS curve which ONE of the following is correct?

a. Desired demand exceeds supply therefore firms will reduce output.
b. Desired demand is less than supply therefore forms will increase output.
c. Desired demand exceeds supply therefore firms will increase output.
d. Desired demand is less than supply therefore firms will reduce output.
e. Government will increase its expenditure so that we return to the IS curve.

Answer 18

d. Desired demand is less than supply therefore firms will reduce output.

Question 19

In the open economy ISTRIFM model with imperfect capital mobility, a change of the Rand exchange rate from R8.00 to R6.50 will shift

a. both the IS and IFM schedules to the right.
b. both the IS and IFM schedule to the left.
c. the IS schedule to the right and the IFM schedule to the left.
d. the IS schedule to the left and the IFM schedule to the right.
e. only the IS schedule to the left.

Answer 19

b. both the IS and IFM schedule to the left.

Question 20

The slope of the Aggregate Supply (AS) curve is steeper when

a. there is excess capacity in the economy.
b. there is excess capacity in the labour market.
c. output increases without any changes in prices or money wages.
d. money wages are fixed when prices rise.
e. money wages rise when prices rise.

Answer 20

e. money wages rise when prices rise.

Question 21

In the combined ISTR and ADAS models, a decision by the Central Bank to reduce its target interest rate will result in

a. a fall in interest rates, a fall in prices and a fall in output.
b. a fall in interest rates, a rise in prices and a rise in output.
c. a fall in interest rates, a rise in prices and a fall in output.
d. a fall in interest rates, a fall in prices and a rise in output.
e. a rise in interest rates, no change in prices and no change in output.

Answer 21

b. a fall in interest rates, a rise in prices and a rise in output.

Question 22

If the long run aggregate supply (AS) curve is vertical then

a. there is no trade-off between higher inflation and lower unemployment in the long run.
b. the long-run Philips curve is vertical.
c. inflation targeting always increases unemployment.
d. lower inflation always results in higher employment and lower unemployment,
e. Both a and b are True.

Answer 22

e. Both a and b are True.