Economics Grade 12 IEB 2019 Question Paper

Downloaded from hlayiso.com TOTAL MARKS NATIONAL SENIOR CERTIFICATE EXAMINATION NOVEMBER 2019 ECONOMICS EXAMINATION NUMBER Time: 3 hours 300 marks PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY 1. This question paper consists of 36 pages. Please check that your question paper is complete. 2. Read the questions carefully. 3. All questions are compulsory. SECTION A: Question 1 SECTION B: Question 2, 3, 4 and 5 SECTION C: Question 6. 4. Answer ALL the questions in the spaces provided on this question paper. 5. Answer questions, where possible, point by point but in full sentences. A systematic presentation of facts is required. 6. It is in your best interest to write legibly and to present your work neatly. 7. Non-programmable calculators may be used. 8. Please do not write in pencil as work in pencil will not be marked. However, any sketches or diagrams may be done in pencil. 9. Four blank pages (pages 33 to 36) are included at the end of the paper. If you run out of space for a question, use these pages. Clearly indicate the question number of your answer should you use this extra space. Allocation of marks Q1 Q2 Q3 Q4 Q5 Q6 Total 50 50 50 50 50 50 300 IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 2 of 36 SECTION A QUESTION 1 Select the correct alternative and enter the letter of the correct answer in the block. 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.1 Which ONE of the following is not a method of calculating GDP at market prices? A income method B value-added method C expenditure method D investment method (2) 1.2 Retail sales, unemployment figures and real GDP are all examples of … A leading indicators. B lagging indicators. C counter-cyclical indicators. D coincident indicators. (2) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 3 of 36 1.3 Study Figure 1 and answer the question that follows. Figure 1: The multiplier Aggregate spending R billion Total income (Y) R billion In the above figure, the multiplier is … A 1,5 B 2,0 C 2,5 D 3,0 (2) 1.4 In economics, the "long run" refers to the time period when … A all factors of production are fixed. B all factors of production can change. C revenue is fixed. D some factors of production are fixed and others may vary. (2) 1.5 The price of the product produced in a perfectly competitive industry is … A determined by demand and supply conditions faced by an individual firm. B determined by the government. C determined by demand and supply conditions in the market. D set by a few firms with market power in the industry. (2) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 4 of 36 1.6 In theory, which of the following best describes the characteristics of a public good? A excludable and rivalrous B excludable and non-rivalrous C non-excludable and rivalrous D non-excludable and non-rivalrous (2) 1.7 The cross elasticity of demand between goods X and Y is positive. This implies that they are … A normal goods. B substitute goods. C inferior goods. D complementary goods. (2) 1.8 When a South African buys shares in a British company, this would be recorded in South Africa's … A current account. B capital transfer account. C financial account. D changes in net gold and other reserves account. (2) 1.9 The Phillips curve demonstrates a … A positive relationship between inflation and output. B positive relationship between inflation and unemployment. C negative relationship between inflation and unemployment. D negative relationship between inflation and output. (2) 1.10 Study Chart 1 and answer the question that follows. Chart 1: Venezuela's annual inflation rate What type of inflation was Venezuela experiencing in 2018? A disinflation B hyperinflation C moderate inflation D deflation (2) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 5 of 36 1.11 In 2019, one US dollar buys R12,50 (ZAR) and in 2020, one rand (ZAR) buys $0,075 dollars. Which one of the following statements is most correct? A There is no change in the exchange rate between 2019 and 2020. B SA exports to the US are less expensive in 2020 than in 2019. C Goods imported from the US are more expensive in 2019 than in 2020. D For US investors, South African assets are more expensive to buy in 2020 than in 2019. (3) 1.12 A reduction in South Africa's company tax rate is most likely to … A increase emigration. B reduce the profitability of the country's firms. C increase unemployment. D increase foreign direct investment in the country. (3) 1.13 Study Table 1 below and answer the question that follows. Table 1: National account figures 2017 Item R millions Gross value added at basic prices 4 171 729 Taxes on products 496 009 A 15 953 Gross domestic product at market prices B Choose the correct combination for A and B in the table above. A Subsidies on production and 4 651 785 B Subsidies on products and 4 651 785 C Compensation of employees and 3 691 673 D Subsidies on products and 3 691 673 (3) 1.14 Study Table 2 below and answer the question that follows. Table 2: Population, GDP at current prices and GDP at constant prices Year Population GDP at current prices GDP at constant (million) (million) prices (million) 2016 20 100000 100000 2017 21 110000 103000 The data confirms that … A real GDP increased by 10%. B nominal GDP increased by 5%. C the population grew at a faster rate than current prices. D real GDP per capita decreased. (3) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 6 of 36 1.15 If the equilibrium market price of a good increases, this higher price would most likely occur as a result of … A a fall in the price of a substitute. B a rise in the price of a complementary good. C a natural disaster. D new firms entering the market. (3) 1.16 What is most likely to indicate that an economy is developed rather than developing? A a high birth rate and a low death rate B a large primary sector and a high population growth C a large service sector and capital intensive production D a low level of investment and a high rate of savings (3) 1.17 Country X's Lorenz curve is closer to the line of perfect equality than Country Y's Lorenz curve. All other things being equal, which of the following is true? A Country X has a larger Gini coefficient than country Y. B Country Y has a more equitable distribution of income than country X. C Country X's Lorenz curve will move closer to country Y's Lorenz curve if country X's top marginal income tax rate is decreased. D Country Y's Lorenz curve will move closer to country X's Lorenz curve if country Y's top marginal income tax rate is decreased. (3) 1.18 All other things being equal, which one of the following, A, B, C or D, represents the most likely outcome of cuts in interest rates in a country’s economy? Household saving Household Country's borrowing currency A fall fall weakens B rise rise strengthens C rise fall strengthens D fall rise weakens (3) 1.19 Study Table 3 below and answer the question that follows. Table 3: Hypothetical data for an economy Government Spending on Taxes Investments Income from Savings spending imports exports 25 60 30 20 70 35 Which statement about this economy is correct? A It is expanding because exports are greater than investments. B It is contracting because savings are greater than taxation. C It is expanding because injections are greater than leakages. D It is contracting because leakages are greater than injections. (3) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 7 of 36 1.20 An economy is experiencing high unemployment and an inflation rate below the inflation target. Which macroeconomic policy mix is best for this economy? A expansionary fiscal and expansionary monetary policy B contractionary fiscal and contractionary monetary policy C expansionary fiscal and contractionary monetary policy D contractionary fiscal and expansionary monetary policy (3) 50 marks IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 8 of 36 SECTION B QUESTION 2 MACROECONOMICS 2.1 Study Diagram 1 below and answer the questions that follow. Diagram 1: Circular flow of income 2.1.1 Name A to D. (4) 2.1.2 Briefly explain the difference between monetary flows and real flows. (4) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 9 of 36 2.1.3 Briefly explain the relationship between taxes and government spending in the circular flow model. (4) 2.1.4 Use a relevant example to explain the possible impact of the multiplier process on an economy. (6) 2.2 Leading indicators suggest that South Africa's gross domestic product (GDP) is on the road to a recovery. 2.2.1 Name the lowest point on a business cycle before an economy enters a recovery. (2) 2.2.2 Define the economic term gross domestic product. (4) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 10 of 36 2.2.3 Use an example to explain the economic term leading indicator. (4) 2.2.4 Discuss how monetary policy can be used to improve economic growth in an economy. (8) 2.3 The International Monetary Fund (IMF) classifies South Africa's exchange rate as a managed floating system. 2.3.1 Briefly differentiate between free-floating, managed floating and fixed exchange rate systems. (6) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 11 of 36 2.3.2 Use a graph and an explanation to illustrate what will happen to the R/$ exchange rate if imports increase dramatically due to infrastructure spending by the South African Government. (8) [50] IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 12 of 36 QUESTION 3 MICROECONOMICS 3.1 Study Table 4 below and answer the questions that follow. The table below shows the marginal utility and total utility of toy cars. Table 4: Marginal and total utility of toy cars Quantity of toy cars Marginal utility of Total utility of toy cars (utils) toy cars (utils) 1 10 A 2 8 B 3 6 24 4 4 28 5 C 31 6 0 D 3.1.1 Describe the economic term utility. (2) 3.1.2 Calculate the values of A, B, C and D. (4) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 13 of 36 3.2 A firm is selling 500 units of a good at a price of R20. Having increased the price to R25, the quantity demanded falls to 425 units. 3.2.1 Calculate the difference in total revenue as a result of the price increase. Show all calculations. (4) 3.2.2 Calculate the price elasticity of demand. Show all calculations. (4) 3.2.3 Explain how a firm could benefit from knowing whether the product they sell is price elastic or price inelastic. (4) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 14 of 36 3.3 Study Table 5 below and answer the questions that follow. The table below shows the income elasticity of different products. Table 5: Income elasticity Good Income elasticity of demand X +0.6 Y –0.2 Z +1.4 3.3.1 Describe the economic term income elasticity of demand. (2) 3.3.2 Use economic theory to briefly explain the difference between the income elasticity of demand of good X and good Y. (6) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 15 of 36 3.3.3 Use ONLY a supply and demand graph to show the effects that an increase in income would have on the price and quantity sold of good Z. (6) 3.4 Discuss the following causes of market failure and assess what the government can do about each one. 3.4.1 Imperfect/asymmetric information (6) 3.4.2 Imperfect competition (6) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 16 of 36 3.4.3 Merit goods (6) [50] IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 17 of 36 QUESTION 4 CONTEMPORARY ECONOMIC ISSUES 4.1 Explain the difference between economic growth and economic development. (4) 4.2 South Africa has a much higher GDP per capita than Sri Lanka, but Sri Lanka fares much better than South Africa on the basis of the HDI. 4.2.1 Briefly differentiate between the human development index (HDI) and gross domestic product (GDP) per capita as measures of economic development. (4) 4.2.2 With reference to the statement in 4.2, comment on TWO possible reasons for this being the case. (4) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 18 of 36 4.3 Study Chart 2 and Chart 3 and answer the questions that follow. Chart 2: South Africa's unemployment Percentage of labour force [Source: tradingeconomics.com] Chart 3: South Africa's GDP growth Percentage [Source: tradingeconomics.com] 4.3.1 How is economic growth measured? (2) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 19 of 36 4.3.2 How is unemployment measured? (2) 4.3.3 Name FOUR of South Africa's macro-economic objectives. (4) 4.3.4 Should the South African Government be concerned with the most recent data in Chart 2 and Chart 3? Justify your answer. (4) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 20 of 36 4.3.5 Use an aggregate demand and aggregate supply diagram and a brief explanation to illustrate how better education and training can improve the unemployment rate and the economic growth rate. (10) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 21 of 36 4.4 To reduce its budget deficit, the government could consider increasing direct or indirect taxes. 4.4.1 What is meant by the economic term budget deficit? (2) 4.4.2 Using examples, explain the difference between direct and indirect taxes. (6) 4.4.3 Evaluate the extent to which an increase in both direct and indirect taxes will improve the budget deficit. (8) [50] IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 22 of 36 QUESTION 5 MIXED QUESTIONS 5.1 Study Source 1 and Source 2 and answer the questions that follow. Source 1: Demand for labour Source 2: Average salaries In High Demand Sectors in terms of major demand IT Project Administration/ Nursing/ Management Professional Care Giving Average salary (CTC) offerings Average salary (CTC) offerings for a skilled-level position for a skilled-level position GP: R39 074 – R47 656 p.m. GP: R19 668 – R24 473 p.m. WC: R34 247 – R47 050 p.m. WC: R17 980 – R24 143 p.m. KZN: R19 455 – 24 600 p.m. [Source: <http://www.businessessentials.co.za>] 5.1.1 What does the economic concept demand for labour mean? (2) 5.1.2 With reference to Source 2 and your own knowledge, discuss TWO reasons for differences in salaries. (6) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 23 of 36 5.2 Relief for consumers as CPI hits two-year low. Headline CPI compared with CPI excluding fuel (annual rate of change) Headline CPI y/y CPI excluding fuel y/y [Source: Consumer Price Index (CPI), January 2019] 5.2.1 What does the acronym CPI stand for? (2) 5.2.2 Briefly differentiate between cost-push and demand-pull inflation. (4) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 24 of 36 5.2.3 Discuss THREE consequences of inflation. (12) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 25 of 36 5.3 US Trade War with China heats up. [Source: <www.zanews.co.za>] 5.3.1 Describe TWO forms of protectionism. (4) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 26 of 36 5.3.2 Discuss TWO possible reasons for countries using trade barriers to protect their economies. (8) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 27 of 36 5.3.3 Trade is a key growth area for most countries. Discuss THREE reasons why countries trade. (12) [50] 200 marks IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 28 of 36 SECTION C QUESTION 6 DATA RESPONSE 6.1 Study Cartoon 2 and Source 3 below and answer the questions that follow. Cartoon 2 [Source: <https://www.businesslive.co.za/bd/opinion/2018-06-04-cartoon-fuel-price-heist>] Source 3: SA's petrol market Petrol market in South Africa The South African Government is concerned about the rising cost of petrol in South Africa, which is largely caused by the rand to dollar exchange rate and the price of crude oil. There have been calls for the government to set maximum petrol prices. Another suggestion is to allow petrol stations to discount petrol prices, as is the case with diesel. Currently the petrol price is regulated but the diesel price is not. South Africa has only a handful of major producers and, if prices are deregulated, there is a risk that prices will be decreased in order to eliminate competition from the small independent suppliers. Once these smaller players are wiped out of the market, the oligopoly could then collude on prices. [Source: Adapted from: <https://www.mg.co.za>] IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 29 of 36 6.1.1 Describe the economic term maximum price. (2) 6.1.2 With reference to Source 3, briefly explain how the TWO factors mentioned in paragraph 1 influence the cost of petrol in South Africa. (4) 6.1.3 Explain TWO economic challenges facing South Africa because of the rising cost of petrol. (6) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 30 of 36 6.1.4 Discuss, with the aid of a diagram, what will happen if the government imposes a maximum price on petrol that is below the equilibrium price and assess what effect this will have on the market for petrol. (10) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 31 of 36 6.1.5 The petrol market in South Africa is regarded as an example of an oligopoly. Justify how this example corresponds with FOUR characteristics of oligopolies. (16) IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 32 of 36 6.2 Study Source 4 and answer the questions that follow. Source 4: South Africa's trade balance There are always winners and losers in exchange rate movements. One of the economic theories is that an improvement in South Africa's trade balance can be attributed to the weakening of the rand against the dollar. However, demand for imported goods is often more inelastic than the demand for our exported goods. EXPORTS IMPORTS R118 884 554 896 R115 350 179 371 Trade balance: R3 494 375 525 Top 5 countries we exported to: Top 5 countries we imported from: 1. China (9,9) 1. China (19,6) 2. Germany (8,5) 2. Germany (9,5) 3. United States (7,0) 3. United States (6,4) 4. Japan (4,9) 4. Saudi Arabia (4,8) 5. India (4,8) 5. Nigeria (3,9) [Figures: November 2018] [Source: <http://www.sars.gov.za/ClientSegments/Customs-Excise/Trade-Statistics/Pages/default.asp>] 6.2.1 Which country is South Africa's biggest trade partner? (2) 6.2.2 With reference to Source 4, identify whether the trade balance represents a leakage or an injection. (2) IEB Copyright © 2019

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 33 of 36 6.2.3 Evaluate whether a weaker rand will always lead to an improvement in the trade balance. (8) 50 marks Total: 300 marks IEB Copyright © 2019 PLEASE TURN OVER

Downloaded from hlayiso.com NATIONAL SENIOR CERTIFICATE: ECONOMICS Page 34 of 36 ADDITIONAL SPACE (ALL questions) REMEMBER TO CLEARLY INDICATE AT THE QUESTION THAT YOU USED THE ADDITIONAL SPACE TO ENSURE THAT ALL ANSWERS ARE MARKED. IEB Copyright © 2019

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