Lesson 1

Question 1

what is an economic growth?

Answer 1

It is traditionally defined as the annual rate of increase in
total output (production) or income in the economy.

Question 2

what is GDP?

Answer 2

GDP is the total value of all final goods and services produced within the boundaries of a country during a particular period (usually one year)

Question 2

what are the 2 conditions of economic growth?

Answer 2

1. , production, or income, should be measured in real
   terms – that is, the effects of inflation should be eliminated
2. the figures should also be adjusted for population growth. In other words, they should be expressed in per capita terms.

Question 3

why is GDP a gross measurement?

Answer 3

GDP is a gross measurement because it includes the total amount of goods and services produced, some of which are simply replacing goods that have depreciated or worn out.

Question 4

how does GDP measures within a country?

Answer 4

GDP measures the goods and services produced inside the borders of a country by
both the citizens and foreigners. This then reflects the level of economic activity that is
taking place in the country

Question 5

how is total value measured?

Answer 5

Total value is measured by expressing the value of production in terms of the prices
of the various final goods and services

Question 6

how is GDP usually valued at what price?

Answer 6

GDP is usually valued at market prices, but it is also possible to value it using basic prices or factor cost (or factor income).

Question 7

what are final goods?

Answer 7

Final goods and services refer to those goods and services that are consumed by households and firms

Question 8

what are intermediate goods?

Answer 8

Intermediate goods are purchased to be used as inputs in producing other goods before they are sold to end users. Intermediate goods, such as the crude oil used to manufacture petrol, or flour for baking bread, are excluded to avoid double
counting.

Question 9

why does GDP measures the production of new goods and services? (current production)

Answer 9

GDP measures the production of new goods and services (called current production)
during a specified period and is an annual flow because it measures the value of goods
and services produced over a year

Question 10

what is nominal GDP?

Answer 10

Nominal GDP or GDP at current prices is the sum of the quantities of final goods and
services produced, multiplied by their current price

Question 11

what are the 2 reasons as to why nominal GDP increase?

Answer 11

An increase in nominal GDP might
increase over time because of
● an increase in the quantity of goods and services produced
● an increase in the prices of goods and services produced

Question 12

what is real GDP?

Answer 12

Real GDP or GDP at constant prices is a measure of GDP in which the quantities produced are valued at the prices in a base year instead of at current prices

Question 13

what is a base year used for?

Answer 13

A base year is used to
overcome the problem of price changes by expressing the prices of goods and services in terms of prices in a particular year

Question 14

how does a positive economic growth occur?

Answer 14

Positive economic growth actually occurs only when total real production or income
grows at a faster rate than the population

Question 15

how does a decline in real GDP occur?

Answer 15

. If the population growth rate exceeds the
economic growth rate, a decline in real GDP per capita occurs.

Question 16

what is real GDP per capita used for?

Answer 16

Real GDP per capita is widely used as a measure of the economic welfare or wellbeing
of residents of a country

Question 16

what is assumed when the real GDP per capita rises?

Answer 16

If real GDP per capita rises, it is assumed that people are better off

Question 17

what are the problems of using real GDP per capita?

Answer 17

there is also a problem with the composition of output and the distribution of income. If a factor such as an increase in defense expenditure was responsible for the increase in GDP, it does not necessarily follow that there was a concomitant increase in
economic welfare

Question 18

what is inflation?

Answer 18

Inflation is defined as the sustained rise in the general level of prices

Question 19

what is a fiscal policy?

Answer 19

Fiscal policy is the government’s policy in respect of the nature, level and composition
of government spending, taxation and borrowing, aimed at pursuing particular economic goals

Question 20

what is the main instrument of fiscal policy?

Answer 20

The main instrument of fiscal policy is the budget, while the main policy variables are government spending and taxation.

Question 21

in South Africa, how often does the minister of finance presents the budget to the parliament?

Answer 21

In South Africa, the minister of finance presents the budget to parliament annually, usually in February.

Question 22

what’s the difference between an expansionary and a contractionary fiscal policy?

Answer 22

An expansionary fiscal policy entails an increase in the demand for goods in the economy by increasing government spending and/or decreasing taxes. A result of such a policy is that the budget deficit increases.

A contractionary fiscal policy entails a decrease in the demand for goods in the economy by decreasing government spending
and/or increasing taxes. As a result of such a policy is that the budget deficit decreases.

Question 23

in the macroeconomics level what element is fiscal policy part of?

Answer 23

At the macroeconomic level, fiscal policy is one of the main elements of demand management or stabilisation policy

Question 24

what is monetary policy?

Answer 24

This involves all deliberate actions by the monetary authorities to influence the monetary aggregates, the availability of credit, interest rates and exchange rates, with a view to affecting monetary demand, output, income, prices and the balance of payments.

Question 25

what is the difference between an expansionary and contractionary monetary
policy?

Answer 25

An expansionary monetary policy in South Africa entails a decrease in the repo
rate. A decrease in the repo rate decreases the market interest rate and cost of credit
in the economy in order to increase the demand for goods in the economy.

A contractionary monetary policy entails an increase in the repo rate which increases the market interest rate and cost of credit in the economy in order to decrease the demand for
goods in the economy

Question 26

what age group is not allowed to work in South Africa and what are the working conditions for people over that age to 18?

Answer 26

It is a criminal offence to employ a child under the age of 15 years in South Africa. In
addition, children between the ages of 15 and 18 are protected from work that is “exploitative, hazardous, inappropriate for their age, detrimental to their schooling, or detrimental to their social, physical, mental, spiritual, or moral development”.

Question 27

in macroeconomics, how long is short run and medium run?

Answer 27

In macroeconomics the short run refers to a few years, the medium run to a decade and the long run to a few decades or more