Economics Grade 12 Eastern Cape Mock 2012 Memo

Downloaded from hlayiso.com Province of the EASTERN CAPE EDUCATION NATIONAL SENIOR CERTIFICATE GRADE 12 SEPTEMBER 2012 ECONOMICS MEMORANDUM MARKS: 300 This memorandum consists of 19 pages.

Downloaded from hlayiso.com 2 ECONOMICS (SEPTEMBER 2012) SECTION A QUESTION 1 (LO1 – LO4) 1.1 LO1 1.1.1 C  business cycle 1.1.2 B  public 1.1.3 A  terms of trade LO2 1.1.4 B  demand and supply. 1.1.5 C  Subsidy 1.1.6 A  economic profit LO3 1.1.7 C  RDP 1.1.8 A  SDI 1.1.9 C  free trade. LO4 1.1.10 B  benefits debtors. 1.1.11 B  ecotourists. 1.1.12 A  CITES (12 x 2) (24) 1.2 1.2.1 Real flow  1.2.2 Managed floating  1.2.3 Oligopoly  1.2.4 North-South divide  1.2.5 Stagflation  (5 x 2) (10) 1.3 1.3.1 C  Direct or indirect compulsory payments to the government. 1.3.2 H  Shows the relationship between tax revenue and tax rate. 1.3.3 I  Profit maximisation. 1.3.4 F  An example of a negative externality. 1.3.5 A  Removal of restrictive laws and regulations. 1.3.6 D  Incentives to increase sales abroad. 1.3.7 E  A cause of cost-push inflation. 1.3.8 B  Resource that can be replenished or replaced. (8 x 2) (16) TOTAL SECTION A: 50

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 3 SECTION B (Answer any THREE questions from this section.) QUESTION 2 (LO1 AS1 – AS4) 2.1 2.1.1 real  2.1.2 Kondratieff  2.1.3 Auditor-General  2.1.4 decrease (4 x 2) (8) 2.2 List the THREE types of exchange rate systems Fixed rate  Free floating  Controlled / managed floating  (3 x 2) (6) 2.3 DATA RESPONSE 2.3.1 Refers to a small increase in spending leading to a proportionally larger increase in national income.  (2) 2.3.2 The higher the mpc, the higher the multiplier will be.  Multiplier is directly proportional to mpc.  (Any 1 x 2) (2) 2.3.3 Multiplier = 1 . 1 – mpc = 1  1 – 0,6 = 1  0,4 = 2,5  Multiplier effect = R1 bn x 2,5 = R2,5 billion  (6) 2.4 DATA RESPONSE 2.4.1 Shows the income and expenditure for a three year period.  (2) 2.4.2 Education  (2) 2.4.3 Informs the parliament of changes in the economy since the main budget.  Indicates the developments in public policy that will shape the next budget.  (4) 2.4.4 Mr Pravin Gordhan  (2)

Downloaded from hlayiso.com 4 ECONOMICS (SEPTEMBER 2012) 2.5 Discuss ‘extrapolation’ as a feature underpinning forecasting. Technique used to predict the future by using past data.  It involves the extension of the curve assuming structural variables remain the same.  Extending a trend may give information about what is likely to happen.  Trend line can be extended for the length of a cycle.  Channel lines and resistance points must be considered for the trend of a curve.  Predicting economic behaviour using extrapolation is unreliable.  (Any 4 x 2) (8) 2.6 Briefly explain the ‘flows’ in a circular flow. Flows are economic variables that happen over time.  There are two flows: money flow and real flow.  Flow of goods and services and factors of production are referred to as the real flow. Income and expenditure are referred to as the money flow.  For every real flow there is money flow in opposite direction.  (Any 4 x 2) (8) [50] QUESTION 3 (LO2 AS1 – AS3) 3.1 3.1.1 perfect  3.1.2 internal  3.1.3 artificial  3.1.4 independent  (4 x 2) (8) 3.2 List any THREE characteristics of a monopoly. Faced with demand curves  Decide on their production levels  Are exposed to market forces.  No close substitutes. Only one seller.  Price makers.  Exploit consumers. Protected by barriers of entry.  Enjoy favourable circumstances.  (Any 3 x 2) (6) 3.3 DATA RESPONSE 3.3.1 To save SA consumers from price fixing (pricing predators).  (2) 3.3.2 To prevent the abuse of monopoly power.  To regulate the market power through mergers and takeovers.  To prevent price fixing and collusion.  (Any 2 x 2) (4)

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 5 3.3.3 The Competition Commission  The Competition Tribunal  The Competition Appeal Court  (Any 2 x 2) (4) 3.4 DATA RESPONSE 3.4.1 Failure of markets to produce the quantities of goods and services that consumers want at a price that reflect marginal utilities and relative scarcities.  (2) 3.4.2 Externalities  Public goods  Merit and demerit goods  Imperfect competition  Lack of information  Advertising  Immobility of factors of production  Imperfect distribution of income and wealth  (Any 3 x 2) (6) 3.4.3 Externalities  (2) 3.5 Briefly explain ‘shut-down point’ in a perfectly competitive market. Profit maximisation is where MR = MC.  The firm should consider shutting down when TR<Total cost of production.  If TR<TVC, it should consider closing down.  If price is below MR/MC, the business will not cover its AVC.  If the business is not able to cover AVC, it is better to close down.  This point where price is less than AVC is known as closing down point.  (Any 4 x 2) (8) 3.6 Discuss ‘product differentiation’ as a characteristic of monopolistic competition Products are not identical. Differentiated products are similar in many ways.  Similarity means that they can satisfy the same need. Differences are imaginary.  May have different brand names but contains the same ingredients.  Services of sellers make the product different.  Differences in packaging.  Packaging of a product makes it different from other products.  (Any 4 x 2) (8) [50]

Downloaded from hlayiso.com 6 ECONOMICS (SEPTEMBER 2012) QUESTION 4 (LO3 AS1 – AS4) 4.1 4.1.1 development  4.1.2 IDZ  4.1.3 advalorem  4.1.4 economic  (4 x 2) (8) 4.2 THREE examples of cash benefits to ensure redistribution of income. Unemployment insurance  Disability grant  Child support grant  Old-age pension  (Any 3 x 2) (6) 4.3 DATA RESPONSE 4.3.1 The replacement of goods that was previously imported.  (2) 4.3.2 Industrial Development Corporation.  (2) 4.3.3 Iscor  Sasol  Armscor  (Any 1 x 2) (2) 4.3.4 To develop local industries.  To increase job opportunities.  To improve the balance of payments.  (Any 2 x 2) (4) 4.4 DATA RESPONSE 4.4.1 The number of infants who die before reaching one year of age per thousand live births.  (2) 4.4.2 Sanitation  Electricity  Refuse removal  Water supply  (Any 2 x 2) (4) 4.4.3 Infant mortality  Under-five mortality  Health expenditure  Access to safe drinking water  Access to sanitation facilities  (Any 2 x 2) (4)

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 7 4.5 Discuss any TWO monetary policy instruments used as South African approach for growth and development. 1. Changes in interest rates.  To make credit more expensive or cheaper.  To stabilise exchange rate by encouraging capital inflows or outflows.  2. Open market transactions. Buying of securities in the open market to encourage credit creation.  Selling of securities in the open market to restrict credit creation.  3. Moral persuasion  Persuading banks to act in a desirable manner according to the economic conditions in the economy.  (Any 2 x (2 x 2)) (8) 4.6 Briefly explain ‘Skills Support Programme’ as an incentive offered by DTI. Cash grant for skills development.  To encourage greater investment in training.  To encourage the development of new advanced skills.  Manufacturing businesses qualifying for SMEDP can apply.  Lasts up to three years.  Maximum of 50% of training costs.  (8) [50] QUESTION 5 (LO4 AS1 – AS3) 5.1 5.1.1 price indexes  5.1.2 headline  5.1.3 physical  5.1.4 conservation  (4 x 2) (8) 5.2 List any THREE reasons for the growth of worldwide tourism. Increase in disposable income.  Reduction in working hours  Awareness of leisure and recreation  Improved infrastructure  Increased advertising and promotion  Awareness of the benefits of tourism  Ease of obtaining foreign exchange  (Any 3 x 2) (6)

Downloaded from hlayiso.com 8 ECONOMICS (SEPTEMBER 2012) 5.3 DATA RESPONSE 5.3.1 CPI: Measures the cost of a representative basket of goods to the consumer.  PPI: Measures the cost of production of the representative basket of goods when they leave the factory.  (4) 5.3.2 Subdued local demand.  Appreciation in the external value of the rand.  (4) 5.3.3 6%  (2) 5.4 DATA RESPONSE 5.4.1 The ability of the environment to survive economic activity.  (2) 5.4.2 A source of income  Save millions from municipal budgets  Three times more revenue than landfills  Creates six times more jobs  (Any 3 x 2) (6) 5.4.3 Charging for the use of the environment.  Environmental taxes  Environmental subsidies  Marketable permits  (Any 1 x 2) (2) 5.5 Briefly describe ‘inflation’ as an economic concept. It is a process – not a single non-recurrent activity.  Sustained condition – prices continue to rise.  The rise in the price must be considerable.  There is a general rise in the prices.  Increase in the price of isolated goods does not indicate inflation.  There is a decline in the purchasing power of money.  (Any 4 x 2) (8) 5.6 Discuss ‘property rights’ as a public sector intervention for environmental sustainability. To prevent flora and fauna species from becoming extinct.  Ensures that owners take proper care of the things that belong to them.  Owners will try to use them profitably as long as possible.  Property rights will help in the preservation at little costs to the tax payers.  But property right is not possible in all instances.  (Any 4 x 2) (8) [50]

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 9 QUESTION 6 (LO1 and LO2) 6.1 6.1.1 leakage  6.1.2 privatisation  6.1.3 perfect competition  6.1.4 demerit  (4 x 2) (8) 6.2 List the THREE government approaches to reduce the impact of negative externalities. Persuasion  The price mechanism  Direct controls  (Any 3 x 2) (6) 6.3 DATA RESPONSE 6.3.1 Business cycle (2) 6.3.2 B to C = Depression  D to E = Prosperity / Boom  (4) 6.3.3 Trend line  (2) 6.3.4 Technique used to predict the future by using past data.  (2) 6.4 DATA RESPONSE 6.4.1 When collusion between oligopolists occur openly and formally.  (2) 6.4.2 Oligopoly  (2) 6.4.3 Higher profits  Less uncertainty  Difficult for new businesses to enter  (Any 2 x 2) (4) 6.4.4 OPEC  (2) 6.5 Briefly explain any TWO demand reasons for international trade. 1. Effective wants  There are differences in the demands for individuals.  Taste plays an important role.  2. Income  When income increases, there will be an increase in the demand for local as well as imported goods.  3. International migration  Immigrants usually demand goods from their country of origin. 

Downloaded from hlayiso.com 10 ECONOMICS (SEPTEMBER 2012) 4. Religious, cultural, sociological and life style differences  Differences between countries will determine the consumption patterns.  5. Levels of economic development  Less developed countries spend more on food while developed countries spend more on luxuries  (Any 2 x 4) (8) 6.6 Discuss the rationale of ‘cost-benefit analysis’. CBA is a valuable tool that helps to make informed decisions.  It helps in the efficient allocation of resources.  It is a technique used to measure and compare the costs and benefits of an economic activity.  It is to find the rate of return on the project.  It is also used to find the future costs and benefits as well as its present value.  This technique brings greater objectivity in decision making.  (Any 4 x 2) (8) [50] SECTION C (Answer any TWO questions from this section.) QUESTION 7 (LO1 AS3) Discuss the objectives of the public sector and conclude your discussion by explaining the effects of fiscal policy. INTRODUCTION The state applies fiscal policy with a view to achieve government’s macroeconomic objectives.  (accept any appropriate introduction) (3) BODY Objectives of the Public sector 1. Economic growth Increase in the production of goods and services in the economy.  Measured in terms of real GDP.  Economic growth must be higher than population growth.  Higher growth and development leads to higher standard of living. 2. Full employment  An important aim of all governments.  Means all individuals who are looking for work must find work.  3. Exchange rate stability / Balance of payment stability  Depreciations and appreciations create uncertainty.  Fluctuations in the value of a currency should be limited.  Government should see that the exchange rate remains stable. 

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 11 4. Price stability Economic growth and employment will improve when prices are stable.  In RSA, price stability is achieved when the inflation rate is between 3% and 6%.  5. Economic equity / Fair distribution of income  Redistribution of income and wealth is necessary.  Progressive tax rates are used to achieve this.  Income from tax is used to finance public and social services.  (Max. 10 x 2) (20) Effects of Fiscal policy 1. Income distribution  Progressive taxation make income more evenly distributed.  Spending on social and welfare payments increases the income of the poor people.  2. Consumption  Changes in the rate of taxation will affect consumer spending.  Consumption also depends on the level of savings and the propensity to consume.  3. Price level  Increase in direct taxes reduces inflationary pressure and aggregate demand.  Increase in indirect taxes will raise the price level.  4. Incentives  Increase in income tax and company tax reduces the incentives to work, save and invest.  High and progressive rate of taxation discourages people from working hard.  5. Laffer curve  Laffer curve explains the relationship between revenue and tax rate. High rate of taxation discourages labour force.  According to the Laffer curve, tax revenue increases only up to a certain point.  At a certain rate tax revenue peaks and then declines.  A reduction in the rate of income tax will encourage more people to work and the tax revenue will increase.  At a lower rate of taxation the tax revenue will be higher than at a higher tax rate.  6. Discretion  Minister can use discretion with regard to a number of fiscal policy decisions.  Certain rules are in place – deficit-, lending- and debt rule.  (Max. 10 x 2) (20)

Downloaded from hlayiso.com 12 ECONOMICS (SEPTEMBER 2012) CONCLUSION The direction of the fiscal policy depends on the specific stage of the business cycle.  (accept any appropriate conclusion) (2) Use the following assessment grid together with the above to assess the discussion. MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. 1 Candidate has shown some understanding of topic but missed important aspects of topic. (1 – 15 marks) 3 Candidate has interpreted topic correctly but has not linked facts to topic. (16 – 30 marks) 5 Candidate has interpreted topic correctly and has linked facts to topic. (31 – 45 marks) (5) [50] QUESTION 8 (LO2: AS2) Write a formal letter to the Minister of Local Government explaining government intervention as an effect of market failures. S. Tshabalala P.O. Box 1000 Mthatha  5100 Date  To: The Minister Ministry of Local Government  Pretoria (3) Sir Re: Government intervention  (2) A. Preventing the misallocation of resources  (2) 1. Incomplete Markets  Market failures misrepresent the allocation of resources.  This results in less than optimal production.  Community goods and services prevent competitive markets from supplying them efficiently.  In most cases it is impossible to determine a price or force users to pay.  Collective goods and services have some characteristics of public goods. 

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 13 These goods can be supplied by competitive markets, but the quantity or the price may not be appropriate.  Government must supply these goods directly by raising taxes.  (Max. 3 x 2) (6) 2. Negative Externalities  Governments have used different methods to reduce the impact of negative externalities.  Persuasion  o Changing the behaviour of people needs public relations campaigns by the government  Price mechanism o Levying a tax to recover the external cost  Direct controls o Government can use laws to reduce negative externalities  (Max.) (4) 3. Positive externalities Price Mechanism o Merit goods provided by private sector must be subsidised.  o Subsidies will improve the consumption of these goods by reducing the cost.  Direct controls o Compulsory education, inoculations and treatment of certain diseases are examples  Artificial monopolies () operate where perfect competition is prevented by entry restrictions.  Natural monopolies () develop in industries that need large capital outlay.  Government can use various methods to correct the situation  Competition from abroad can be used.  Local competition can be promoted  Control bodies such as regulatory authorities can be used  Statutory requirements can also be used to control excessive prices.  (Max.) (6) B. Improving income distribution  (2) Free market economy does not improve income and wealth distribution.  Governments use a combination of taxes and subsidies to effect redistribution.  Traditional methods () refer to the levying of taxes to provide free services to the poor.  Redress methods () relate to the use of laws to enforce redistribution. 

Downloaded from hlayiso.com 14 ECONOMICS (SEPTEMBER 2012) E.g. BEE, affirmative action, empowerment, land restitution and redistribution, property subsidies, RDP houses etc.  Minimum Wages () are also used to enforce redistribution of income.  Unskilled workers are at a disadvantage when negotiating with their employers.  Maximum prices/Price ceiling () are set by the government to benefit the poor.  Minimum prices () are set for basic food stuffs to ensure that sufficient quantities are produced.  Subsidies on goods () have the effect of lowering the prices of such goods.  (Max.) (10) C. Enhancing macroeconomic stability  (2) If macroeconomic objectives are not achieved it is considered as market failure.  Government intervention focuses on demand side or supply side of the economy.  Most important demand-side policies are monetary and fiscal policies.  Supply side problems such as lack of information and immobility of factors of production must be removed.  (Max. 3 x 2) (6) Yours faithfully  S. Tshabalala  (2) Use the following assessment grid together with the above to assess the discussion. MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. 1 Candidate has shown some understanding of topic but missed important aspects of topic. (1 – 15 marks) 3 Candidate has interpreted topic correctly buy has not linked facts to topic. (16 – 30 marks) 5 Candidate has interpreted topic correctly and has linked facts to topic. (31– 45 marks) (5) [50]

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 15 QUESTION 9 (LO3 AS4) Write a detailed essay on the economic indicators under the headings Production, Employment and Price changes. INTRODUCTION Economic indicators are used to measure the performance of the economy.  (accept any appropriate introduction ) (3) BODY A. Production Production of an economy is measured in terms of GDP.  GDP can be calculated by production, income and expenditure method.  GDP is the value of final goods produced within the boundaries of a country over given period.  1. GDP at current prices  GDP calculated at market or current prices is called nominal GDP.  Nominal GDP shows the monetary value of goods and services.  2. Real GDP  Growth performance of the economy is measured in terms of real GDP.  Real GDP is obtained when the effects of inflation is removed from nominal GDP.  Real GDP is used to show real aggregate economic activity and movement of business cycles.  It is also used for forecasting.  3. Per capita real GDP Economic growth allows people to consume more goods and services.  But if population grows faster than economic growth people will be worse off.  For this reason Per capita real GDP is calculated.  Per capita real GDP is real GDP divided by the number of population.  An increase in per capita real GDP shows an improvement in the standard of living.  Per capita figures indicate economic development, living standards and also compare living standards.  (Any 7 x 2) (14)

Downloaded from hlayiso.com 16 ECONOMICS (SEPTEMBER 2012) B. Employment 1. Economically Active Population  People between ages 15 and 65 years who are willing to work, are known as economically active population (labour force).  People in this group are workers in the formal and informal sector, employers and self-employed persons and unemployed people.  2. Employment rate Number of employed persons expressed as a percentage of the EAP.  Employment rate in RSA is low compared to developed countries  Employment indicators are used for calculating trends and structural changes in the economy.  Also used to calculate productivity  It also shows the success of the economy in utilising its full potential.  3. Unemployment These are people in the EAP who: Did not work for seven days before the interview  Want to work and are available to work within a week  Have taken steps to look for work  Unemployment is the most important cause of poverty  (Any 7 x 2) (14) C. Price changes Price changes are part of market economy.  When abnormal changes in prices occur for longer periods, it is called inflation or deflation.  Inflation is an indicator of the health of the economy  Inflation is monitored by PPI and CPI  Production prices  It is used to measure prices when goods leave the factory or when imported goods enter the country  PPI serves as an indicator to predict Consumer goods inflation  Consumer prices  CPI shows price changes of a shopping basket of goods of an average household  CPI is the most comprehensive indicator of consumer price inflation  CPIX shows the inflation rate excluding the effect of mortgage bond interest rates.  Interest rates are used by SARB to control inflation.  (Any 6 x 2) (12) CONCLUSION Pro-cyclical indicators move in the direction whereas counter-cyclical indicators move in the opposite direction.  (2)

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 17 Use the following assessment grid together with the above to assess the discussion. MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. 1 Candidate has shown some understanding of topic but missed important aspects of topic. (1 – 15 marks) 3 Candidate has interpreted topic correctly buy has not linked facts to topic. (16 – 30 marks) 5 Candidate has interpreted topic correctly and has linked facts to topic. (31– 45 marks) (5) [50] QUESTION 10 (LO4 AS2) Policies to promote tourism INTRODUCTION The policy suggestions aim to ensure and accelerate the delivery of tourism benefits to all South Africans.  It aims to maintain the sustainability of the tourism industry to enhance the quality of life of South Africans.  (Max.) (3) BODY A. Marketing  The marketing and promotion of South Africa’s tourism is most important.  South African tourist attractions must be promoted as tourist destinations.  Generic promotions (South Africa as a whole) must be made.  SA tourism was created for this.  Generic marketing programmes must be included by travel agents  Factors such as value for money, the political miracle, climate, friendliness etc. must be emphasised.  Domestic marketing must encourage citizens to consider a wide variety of destinations and group tours.  Purposes such as biodiversity, cultural, sport, recreation etc. must be Promoted.  Destinations such as World Heritage sites, Kruger National Park etc. must be given importance.  (Any 6 x 2) (12) B. Spatial Distribution / Directing  Most tourists go to the same familiar destinations that are well known. 

Downloaded from hlayiso.com 18 ECONOMICS (SEPTEMBER 2012) 1. Create representative bodies  Industries linked to an attraction can form representative bodies to market effectively.  Describe the product more attractively.  Competitive prices must be charged  Products must be promoted considering focus, wording, timing and medium.  Location and accessibility of the attraction are also important.  2. Improve and extend supporting services The cause of uneven distribution of tourists is the lack of supporting services.  Accommodation() – adequate facilities must be provided  Services () – An increasing range of facilities and services should be provided.  Access() – The development and maintenance of transport facilities are essential  Ancillary (support) services () – to both the consumer and the industry through networking and information.  3. Improve marketing  4 x P’s: Product () – were product described in best way? Price () – must be competitive.  Promotion () – reconsider all aspects of advertising.  Place () – location and accessibility are important.  (Max.) (14) A. Taxing  Growth of tourism leads to an increase in tourist taxes.  Most countries are using it as a source of state revenue.  Taxes should be raised in according to guidelines  Equity () – Taxes should be fair compared to other sectors.  Efficiency() – Taxes should have minimal effect on the demand for travel and tourism  Taxes must be used to regulate the flow of tourists to specific areas.  Simplicity () – Taxes should be simple to pay and administer.  (Max.) (8) B. Infrastructure Requires economic and social infrastructure and basic services  More infrastructure () – Physical infrastructure should increase as tourism increases.  Lack of quality infrastructure reduces tourist flow.  Upgrading() – if expansion is not possible, upgrading should be done.  New technology () – should be implemented in all areas to market tourism products domestically and internationally.  (Max.) (6)

Downloaded from hlayiso.com (SEPTEMBER 2012) ECONOMICS 19 CONCLUSION The policy suggestions aim to ensure and accelerate the practical delivery of tourism benefits to all South Africans.  (2) Use the following assessment grid together with the above to assess the discussion. MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. 1 Candidate has shown some understanding of topic but missed important aspects of topic. (1 – 15 marks) 3 Candidate has interpreted topic correctly buy has not linked facts to topic. (16 – 30 marks) 5 Candidate has interpreted topic correctly and has linked facts to topic. (31– 45 marks) (5) [50] TOTAL SECTION C: 100 GRAND TOTAL: 300