# Economics Grade 12 Paper 2 North West Mock 2025 Memo

> Grade 12 Economics Paper 2 memorandum from the North West Mock Exam 2025, 19 pages. Read online or download the free PDF.

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- Updated: 2026-09-27
- Subject: Economics
- Grade: Grade 12
- Document type: Memorandum
- Year: 2025
- Exam period: North West Mock Exam
- Paper: 2
- Curriculum: CAPS
- Pages: 19

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### Page 1

education

Department:

Education

North West Provincial Government
REPUBLIC OF SOUTH AFRICA

ECONOMICS P2
MARKING GUIDELINES
SEPTEMBER 2025

MARKS: 150

These marking guidelines consist of 19 pages.

### Page 2

SECTION A (COMPULSORY)
QUESTION 1

1,1

1.2

1.3

MULTIPLE CHOICE QUESTIONS

30 MARKS — 20 MINUTES

1.1.1 A-price vv

1.1.2 D- average variable cost vv

1.1.3. D- monopolistic competitive vv

1.1.4 A- by levying excise tax vv

1.1.5 C - South African Reserve Bank vv

1.1.6 B- labour vv

1.1.7 C-coal vv

1.1.8 B- Cape Fynbos Region vv (8 x 2)

MATCH ITEMS

1.2.1 F- actual expenditure of a business on the purchase or hire of
inputs required for the production process v

1.2.2 1 - sells homogenous products v

1.2.3 D- products that are not similar v

1.2.4 H- set below the market price to enable the poor to afford certain
goods ¥

1.2.5 G- measures the price of a fixed basket of consumer goods and
services ¥

1.2.6 B- they have the same effect as imports on the balance of
payments “

1.2.7 E- to keep resources that are non-renewable intact, e.g. ecological
systems, heritage sites v

1.2.8 A-  aninternational agreement aimed at reducing greenhouse
gases Vv (8 x 1)

GIVE THE TERM

Implicit cost v

as exenes axes
OAnRWNH=

Monopolistic competitive market v

Imperfect market v

Paleo tourism v

Environmental subsidies v

Eco tourism ¥ (6 x 1)

TOTAL SECTION A:

(6)
30

### Page 3

SECTION B

Answer any TWO of the three questions in this section in the ANSWER BOOK.

QUESTION 2: MICROECONOMICS 40 MARKS - 30 MINUTES
ZA Answer the following questions.
2.1.1 Name TWO methods of non-price competition.

Doing business over the internet v

After-sales service Vv

Loyalty offers to customers/clients v

Door-to-door sales v

(Accept any other correct relevant response) (2x 1)

Why is a perfect competitor unable to influence market prices?

There are many sellers selling homogeneous products at a market
price determined by the market forces, so all participants must
accept that they are price takers in the market. vv

(Accept any other correct relevant response) (1 x 2)

2.2 DATA RESPONSE

22:1

2.2.2

2.2.3

2.2.4

2.2.5

Identify the type of monopoly depicted in the above cartoon.

Artificial/legal/statutory

What is the nature of the product offered by monopolies?
Unique with no close substitutes v

Briefly describe the term patent.

The exclusive right to manufacture a product. vv

How does the slope of the monopolist's demand curve differ
from that of a monopolistic competitor in the short run?

The slope of the monopolist demand curve is relative inelastic
(steeper) compared to that of a monopolistic competitor
where it is relative elastic (flatter) vv

What benefits does the monopolist enjoy compared to perfect
market structure in the long run?

In the long run:

* amonopoly produces less output than a perfect competitor. vv

* amonopoly charges a higher price for products. vv

e¢ amonopoly does not produce at the lowest possible cost (lowest
point of the AC curve). vv

e amonopoly makes economic profit. vv (2 x 2)

(2)

(2)

(1)

(1)

(2)

(2)

(4)

### Page 4

2.3

DATA RESPONSE

2.3.1

2.3.2

2.3.3

2.3.4

2.3.5

What market structure is depicted above?

Perfect market v

Identify the price where the individual producer will make an
economic profit.

10 v

Briefly describe the term marginal cost.

It is the quantity at which total cost increases when one additional
(extra or additional) unit is produced. vv

Why is the marginal revenue curve (MR) in the perfect market
the same as the demand curve?

The marginal revenue that the firm receives is the change in total
revenue from the sale of an extra unit, which is the constant market
price. vv

Explain the effect on the market in the long run if the
businesses above make an economic profit.

e As businesses make economic profit more participants will enter
the market. vv

e The supply curve will shift to the right until economic profit
disappears and long-term equilibrium is reached as soon as
individual firms earn normal profits. vv (2 x 2)

(1)

(2)

### Page 5

2.4

2.5

Cost & Revenue

With the aid of a correctly labelled graph, use total cost (TC) and total

revenue (TR) to explain profit maximisation in a perfect market. (8)
v
Te
64--—---~-----------— a
'
SO man nnn ; '
v i
been es epmreer eestor ieme nec sone !
ag }__ Profit
maximisation vv
3----------5 a _—.
i 1 ' Allocation of marks:
od-------: A 7 i ' | « Correct positioning of TC curve = 1 mark
i i i ‘ 4 e Correct labelling of TC curve = 1 mark
' 1 i | ! * Correct positioning of TR curve = 1 mark
1g ; i \ ! ' © Correct labelling of TR curve = 1 mark
1 ! 1 | ! ¢ Correct indication of profit maximisation = 2 marks
0 1 2 3 4 5 6 (Max 4)

Quantity

The firm will make profits between points A and B where the

total revenue exceeds the total cost. vv

Profit is maximised when the gap between TR and TC is the greatest/This
occurs at 4 units of production at a cost of R40. vv

(Accept any other correct relevant response) (4)

How can differentiated products affect producers in a monopolistically
competitive market?

By differentiating its products, firms in a monopolistically competitive market

ensure that their products are imperfect substitutes for each

other. vv

As a result, a business working on its brand can raise its prices without

jeopardizing its customer base. v “

When a monopolistic competitor raises its price, consumers may choose to

buy a similar product from another firm. “¥

However it will not lose as many customers as a perfectly competitive firm

would, but it will lose more customers than a monopoly would. “~“ (4x2) (8)
[40]

### Page 6

QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 40 MARKS - 30 MINUTES

3.1

3.2

Answer the following questions.

3.1.1

Name TWO reasons why the market fails to ensure
environmental sustainability.

The market sees the environment as a common resource. v
Externalities such as pollution.

Lack of knowledge.v

Carelessness. v

(Accept any other correct relevant response) (2x 1)

How can the depreciation of the rand affect inbound tourism?

More foreign tourists will visit the country as it will be cheaper
for them to buy goods and services in South Africa. vv
(Accept any other correct relevant response) (1x 2)

DATA RESPONSE

3.2.1

3.2.2

3.2.3

3.2.4

Identify an environmentally sustainable solution to South
Africa's electricity crisis in the information above.

Use of renewable energy sources ¥

Name the international measure that deals with the control of
chemical waste.

Stockholm Protocol v
Briefly describe the term environmental sustainability.

The ability of the environment to survive its use for economic
activity/The environment is not an unlimited resource and it is
important that we sustain the environment so that it can be used by
future generations. vv

Explain the role of education in maintaining a sustainable
environment.

Innovative approaches have been tried in the developing countries
to educate people and changing their attitudes towards the
environment, e.g. setting up community wildlife reserves. vv

(2)

(2)

(1)

(1)

(2)

### Page 7

3.3

3.2.5

What are the benefits of using technology in sustaining the
environment?

e Technology can facilitate a solution to environmental problems
by providing alternative production techniques. v “

e The development of clean technology can have lower levels of
toxic emissions and stop the existence of high-risk chemical
waste in the environment. vv

e This makes it possible for developing countries to meet emission
targets/Substitution of products that are more environmentally
analy e.g. paper bags instead of plastic bags; unleaded petrol.

e Technology facilitates the development of new techniques or
equipment to save energy and replace coal and oil with greener
energy sources such as wind or sun. vv

e This enables the recycling of waste materials such as bottles,
cans, cardboard to ensure a cleaner environment. vv

e The on-site treatment and controlled disposal of waste can be

achieved using technology. vv (2 x 2)
DATA RESPONSE
3.3.1 Identify the year that showed the most decline in international
tourist arrivals.
2021 v
3:3:2 Give ONE industry that depends on tourism.
transportationY accommodation” ,entertainment and attractionsv,
food servicesY ,and trade associations and regulators“.
(Accept any other correct relevant response)
3.353 Briefly describe the term tourism.
Tourism can be defined as activities of people travelling to places
outside their usual environment for less than one year for business,
leisure or other purposes without any remuneration. v~
3.3.4 Explain the basic guidelines for effective levying of tourism tax.

Guidelines for levying taxes are:

e Equity: Taxes must be fair, e.g. taxes on air tickets. vv

e Efficiency: Nature and game reserves charge entry taxes to
regulate tourist flows. vv

e Simplicity: A flat tax rate is used to ensure taxes are easy to pay
and administer. vv

(4)

(1)

(1)

(2)

(2)

### Page 8

3.4

3.5

3.3.5 How does an increase in tourism activities impact on rural

communities?

e People in rural areas will have more job opportunities thereby
decreasing poverty levels v ¥

e People in surrounding areas may be forced to migrate to rural
areas in search for jobs leading to an increase in the population
density vv

e Investment in tourism-related activities (restaurants, hotels) will
increase due to increased demand for goods and services v Vv
(Accept any other correct relevant response) (2 x 2)

Briefly discuss biodiversity loss and climate change as environmental
problems affecting countries worldwide.

Biodiversity loss:

If species become extinct (die out completely), this cannot be reversed. vv
Modern techniques such as gene transplants can limit the loss of

species. vv

The Convention on International Trade in Endangered Species (CITES)
sets many policies to deal with species loss. vv

Climate change:

Global warming primarily causes climate change. v “

Climate change can be reversed through widespread international co-
operation, e.g. sharing weather information and weather patterns; agreeing
to limit pollution; and banning chemical products such as greenhouse gases
that damage the ozone layer. v“

The Kyoto Protocol of 1997 is an international agreement to limit the
production of greenhouse gases, because voluntary reductions of carbon
dioxide levels did not succeed. vv (2x 4)

Analyse the benefits that the tourism industry brings to South African
businesses.

Tourism has many benefits for the business sector:

The economic and basic services infrastructure required for tourism is
provided by the public sector. vv

Tourism needs superstructure, which consists of businesses that provide
accommodation, transport, built attractions, retailing and recreation
services. vv

Superstructure is normally supplied by the private sector, and the building
and running of the superstructure make profits. vv

Public and private sector partnerships (PPPs) are used to develop tourist
destinations. vv

Other work opportunities become available for the previously
disadvantaged.

(8)
[40]

### Page 9

QUESTION 4:

41

4.2

These include:

°

°

Employment opportunities in entertainment, laundry and transporta-
tion. vv

Business opportunities in car rental, arts, craft and curio sales. vv
(Accept any other correct relevant response) (4x 2)

MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES
40 MARKS -— 30 MINUTES

Answer the following questions.

4.1.1 Name TWO examples of variable costs.
e electricity v
e telephone v
(Accept any other correct relevant response) (2 x 1)
4.1.2 How can countries stop the global warming trend?
Reduce the emission of greenhouse gases into the atmosphere by
using environmentally friendly technology such as solar energy. vv
Planting of trees that produces oxygen which is important for cleaner
air. vv
(Accept any other correct relevant response) (1 x 2)
DATA RESPONSE
4.2.1 Name the institution that authorise or prohibit large mergers
and adjudicate if any misconduct takes place.
The Competition Tribunal “
4.2.2 Name the type of collusion referred to in the extract above.
Tacit collusion. v
4.2.3 Briefly describe the term price leadership.
In an oligopoly market, a dominant firm will increase the price of a
product in the hope that its rivals will see this as a signal to do the
same. vv
4.24 What is implied by the mutual dependence of businesses in this

market structure?

That the decision of one firm will influence and will be influenced by
the decisions of the other firms and that there may be possible
collusion in determining prices. vv

(8)
[40]

(2)

(2)

(2)

(2)

### Page 10

4.3

4.2.5

What is the negative impact of collusion on the economy.

Collusion will impact the economy negatively by:

e reducing competitiveness in the long run by decreasing GDP and
employment. vv

¢ allowing price fixing, market sharing and output control by cartels
and price leadership. vv

e creating scarcity in order to increase prices while also protecting
inefficient suppliers.

e forcing community, consumers, businesses and even
governments to pay higher prices for goods and services. vv

e distorting economic markets and slowing down innovation
because there is little incentive to spend money on research and
development. vv
(Accept any other correct relevant response) (2 x 2)

DATA RESPONSE

4.3.1

4.3.2

4.3.3

4.3.4

Identify the type of tourism depicted by the cartoon.
Culture tourism ¥

Name a campaign used by the department of tourism to
promote domestic tourism.

Shot left v
Briefly describe the term indigenous knowledge systems.

Refers to understandings, skills, and philosophies developed by
local communities with long histories and experiences of interaction
with their natural surroundings. vv

(Accept any other correct relevant response)

How can the tourism industry benefit the poor rural
communities of South Africa?

e Tourism is a fast and effective mechanism for distributing
resources to rural areas to develop them as tourist sites as many
prime tourist attractions are located in rural areas.v Vv

e Tourist developmenis in rural areas increase the number of
available jobs in areas where there aren't many jobs. vv

e People are able to earn a living in their home areas, resulting in
a reduction in urbanisation and a more balanced population
distribution. vv
(Accept any other correct relevant response)

(4)

(1)

(1)

(2)

### Page 11

4.3.5 What is the impact of indigenous knowledge within the South
African context on tourism?

e Indigenous knowledge systems of tourism promote sustainable
development by incorporating traditional ecological knowledge
and indigenous practices into tourism activities. vv

e By incorporating traditional knowledge and practices,
communities can generate income through cultural tourism
experiences and the sale of traditional crafts and products. vv

e Indigenous knowledge systems of tourism offer tourists
authentic and immersive cultural experiences that allows
tourists to gain a deeper understanding of South Africa’s
indigenous cultures and fosters cross-cultural exchange and
understanding. vv
(Accept any other correct relevant response) (2 x 2) (4)

44 With the aid of a correctly labelled graph, explain shutdown-point in a
perfect market.

Cost, Revenue, Price

MC
AC
v
Allocation of marks:
| 225 Spek el AVC Correct drawing and labelling of cost
curves = 1 mark
Correct labelling of axes = 1 mark
weeee eS _ Correct labelling on axes = 1 mark
Pa Correctly indicating shutdown point =
4 mark
VPS (Max 4)
, ao Shutdown point
Qi G2 Qs Quantity v

« Above Q1, the firm will continue to produce because the price is greater
than AVC, which means the business can pay for all its variable costs vv
e Below Q1, the firm will stop to produce because the price is less than AVC,
which means the firm is no longer able to pay all variable costs vv
e Therefore, point A where price (AR) is equal to AVC, is the shutdown
point vv
(Accept any other correct relevant response) (Max 4) (8)

### Page 12

4.5

How can public sector intervention achieve social efficiency and a
sustainable environment?

e By granting property rights/The conservationist effect: People care for
things that belong to them. vv
To prevent fauna and flora species from becoming extinct, people are
granted property rights if they agree to preserve the flora and fauna. vv
e By charging for the use of the environment / Price the environment:
The government levies fees for waste produced and dumped in the
environment. v¥
e By imposing environmental taxes on the output of goods that generate
external environmental costs (pollution). These are called green taxes. v¥
e By granting environmental subsidies to businesses to reduce
environmental damage, e.g. the government subsidises new technology
that saves energy, such as energy-saving light bulbs or solar geysers. vv
e Marketable permits: The government gives each business a licence to
pollute to a certain degree. vv
(Accept any other correct relevant response) (4 x 2) (8)
[40]

### Page 13

SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK.

QUESTION 5: MICROECONOMICS 40 MARKS - 40 MINUTES
e Discuss, in detail, without drawing graphs, state intervention as a

consequence of market failures. {26 marks)
e How can market inefficiency be reduced by global markets? (10 marks)
INTRODUCTION

When market failure occurs, consequences such as inefficiencies, spill-over effects,
imperfect competition and government intervention are likely to prevail v“
(Accept any other correct relevant introduction) (Max 2)

BODY: MAIN PART

State intervention as a consequence of market failure

Direct control v

e The state can pass laws or use existing legislative frameworks to control businesses
and industries, individuals who generate negative externalities vv

e Thus in South Africa, emissions of potentially dangerous chemicals, air and scenic
pollution, environmental preservation are controlled through carious Acts
regulations vv

e Advertising by the tobacco industry is prohibited and alcohol may not be sold on
Sundays or to persons under the age of 18 years vv

Imperfect markets v

The government can deal with imperfect competition by:

e Formulating or implementing a competition policy to increase the level of
competition v v

« Using laws on competition to prevent exorbitant prices charged by firms, to ensure
that entry to the market is free, prevent harmful collusion and encourage foreign
competition which helps to keep prices low vv

« Granting ticences to more business in the case of state monopolies v v

e imposing price controls to decrease prices of goods and services vv

### Page 14

Levying of taxes v

The government will intervene in the market by levying taxes to recover external
costs vv

These taxes will increase the price and will result in a decrease in production of a
certain good vv

Levying taxes could be used as a strategy of reducing production and consumption
of demerit goods as well as generating revenue for the state vv

Firms and consumers will then be allocating resources in a more efficient way vv

Providing producer subsidies v

The government provides subsidies to producers to encourage them to produce
more goods and services vv

Subsidies increase supply of specific goods and services such as milk, wheat and
maize vv

Subsidies lower the cost of producing goods and thus the market price of these goods
is lowered, increasing consumption vv

Minimum wages ¥

A minimum wage is the lowest remuneration that employers are required by law to
pay their workers vv

Income for the workers will increase and as a result their standard of living will
improve (improve welfare and ensure basic needs are met) vv

If a minimum wage is set above the equilibrium market wage, supply of labour will
exceed the demand for labour vv

This will increase the cost of labour, resulting in higher cost of production for
businesses vv

Some workers may be retrenched and increase unemployment and while production
decreases Vv

Minimum wages will lead to more bargaining power of workers vv

Minimum prices “

The government is obliged to intervene to ensure sufficient supplies of staple food in
the market VY

The approach of setting minimum prices or price floors will be used so that it will be
worthwhile for producers (to make a comfortable profit) to produce essential goods
in desired quantities vv

These are prices that are set above the market price by the government vv
Minimum prices however have unwanted side-effects as they cause a surplus in the
market vv

Surplus products become a challenge to dispose as they should rather be sold at
lower costs, dumped to other countries which is prohibited by the WTO or be
destroyed vv

Maximum prices v

The government will set a maximum price if the price is deemed to be too high for
essential goods (basic goods) vv

The maximum price that is set by the government below the market price is known
as a price ceiling or maximum price v ¥

The government will intervene in the market by passing law that suppliers may not
charge more than a maximum price vv

### Page 15

e The immediate effect of maximum prices in the market is that the quantity supplied
drops thus causing shortages vv

e Shortages in supply for certain goods in the market will result to the establishment of
the 'black markets’ vv

Redistribution of wealth

e The South African government uses a progressive income tax system to redistribute
income and wealth vv

e Traditional methods such as levying various taxes, provisioning of free services,
benefits in kind and cash benefits, are used to reduce the income gap vv

e The government can also implement redress methods such as BBBEE, affirmative
action, land restitution, land redistribution and property subsidies to redistribute
wealth among the population vv

Government involvement in production v

e Subsidising merit goods to increase production vv

e Imposing taxes on demerit goods to reduce production vv

e Levying income taxes, indirect taxes and wealth taxes to provide community goods
free of charge vv

e Providing collective goods such as refuse removal, waste disposal and sewerage
drainage for a user fee vv

(Accept any other correct relevant response) (Max 26)

(A maximum of 8 marks may be allocated for mere listing of facts/examples)

MAIN PART: ADDITIONAL PART
How can market inefficiency be reduced by global markets (globalization)?

e allowing foreign direct investment in the economy to increase supply of goods and
services. vv

e increasing competition in local market and reducing the existence of monopolies vv

e increasing the accessibility of information to both consumers and producers for them
to make rational or informed decision. vv

e ensuring efficiency allocation of resources by allowing countries to specialize in
production of goods that they have comparative advantage in.vv

e increasing mobility of factors of production between different countries. vv

e encouraging businesses to be innovative and produce goods and services of better
quality for consumers. v ¥

e increasing consumers’ choice on goods and services vv

(Accept any other relevant and correct higher order response) (Max 10)

(A maximum of 2 marks will be allocated for mere listing of facts)

CONCLUSION
Market failure may also result in inefficiencies in the way resources are allocated and

used in producing goods and services. vv
(Accept any other correct relevant higher order conclusion) (Max 2)

[40]

### Page 16

QUESTION 6: CONTEMPORARY ECONOMIC ISSUES 40 MARKS - 40 MINUTES

e Discuss the consequences of inflation.
e How does foreign direct investment influence inflation in the economy?

INTRODUCTION

Inflation refers to a sustained and significant increase in the general level of prices over
a period of time vv
(Accept any other correct relevant response) (Max. 2)

BODY: MAIN PART

Creditors v

e Creditors (lenders) suffer due to price increases because they get money back which
has a lower purchasing power, especially if the interest rate has been below the
inflation rate / inflation harm creditors as they lose due to a fall in the real value of
money vv

e Changes in price levels affect debtors and creditors differently at different time
periods vv

Debtors v

e Debtors (borrowers) receive money with a high buying power and pay back with
money with a lower buying power v ¥

e Borrowers benefit from price increases vv

e During periods of rising prices, debtors gain in real terms because the contract was
signed in advance and cannot be changed vv

e Debtors receive the money with a relatively high purchasing power and repay their
loans with low purchasing power, unless interest rates are sufficient to prevent the
situation vv

Salary and wage earners v

e Price increases affect people negatively because their incomes are relatively fixedv v

e Real wages fall sharply during period of high inflation as a result of a decline in capital
stock and a shift in relative prices vv

e Inflation can impoverish large segments of the population by eroding the real
wagesv v

e Relative wages are the important component of wealth; they constitute the main
source of income for many households, especially for the less well-off vv

e The behaviour of real wages therefore has a direct bearing on income distribution
and the level of poverty vv

e This group includes retired people, pensioners and the poor, that will experience the
erosion of spending power and eventually earn too little to survive vv

e Wage increases are lower than the inflation rate increase vv

(26)
(10)
[40]

### Page 17

Investors and savers Vv

Assets with a fixed nominal value have a fixed return and lower purchasing power as
prices increase vv

Purchasing power is reduced unless the interest rate is above the inflation rate vv
People who invest in negotiable instruments such as shares, often benefit from
inflation, because during periods of inflation, interest rates are increased to
encourage savings Vv

Investors in assets with flexible market value gain when prices increase, because
their assets with a flexible market value increase at least proportionately to the rate
of inflation vv

Often, the prices of these assets increase more rapidly than increases in the general
price level vv

People save money for long periods with the aim of using these funds to meet future
expectations, these savings may be invested as fixed deposits, in the money market,
as life policies or in pension funds vv

Tax payers v

With inflation taxpayers' nominal income rise although their real income remain
unchanged, because taxes are levied on the nominal income but not on real income,
and this affects the purchasing power of tax payers vv

Taxes are levied on nominal income and not on real income vv

If the income tax brackets remain unchanged, inflation increases the average rate of
personal income tax vv

Individuals will have to pay higher taxes even if they are actually no better off than
before — bracket creep leads to a redistribution of income from taxpayers to the
government vv

Industrial peace Vv

Wage bargaining is accompanied by strikes and mass action Vv

These actions can sometimes spill over into violence which affects society at
largev ¥

Inflation leads to demands for increased wages as trade unions put increasing
pressure on employers to raise wages and salaries v Vv

In extreme situations, in the presence of exceptionally high inflation together with a
government that is determined not to yield to wage increase demands (which can
push inflation to even higher levels) widespread civil unrest would follow Vv“

Inflation has an adverse effect on a country's balance of payments v

If a country's rate of inflation is higher than that of its trading partner, the prices of
exported goods increase while the prices of imported goods decrease v ¥

This leads to loss of competitiveness in the export market leading to a decrease in
exports Vv

Cheaper imports have a negative effect on a country's balance of payments vv
The loss of competitiveness can be a result of increased unemployment v ¥

### Page 18

Unemployment and poverty v

The effects of inflation are uneven, because it does not benefit anyone and harms
most — some less than others vv

Inflation also tends to redistribute income from low income groups to higher income
groups vv

This is because people in the low income groups do not have assets than can rise in
value faster than the rate of inflation to help them overcome the effects of inflationv “
Powerful groups such as trade unions, large companies and the wealthy people, are
able to increase their share of national income at the expense of disadvantaged
people such as pensioners, the unemployed and the welfare recipients v “

Psychological influence Vv

Low inflation expectations:

limit excessive wage demands by different labour unions because workers do not
expect increases in cost of living in the future vv

allow consumers to postpone consumption expenditure thereby reducing pressure
on price increases. vv

give households confidence that inflation rate will be low in future and encourage
them to save more from the income, thereby controlling excess demand vv

reduce panic buying by consumers when they expect that prices will be stable in the
future Vv

boost real interest rates which will encourage savings. Vv ¥

increase the burden on debtors which discourages them from borrowing money, due
to the real interest rate vv

High inflation expectations

Excessive wage demands by different labour unions because workers anticipate
increases in cost of living in the future will lead to producers increasing prices in order
to recover extra costs of production vv

Prompts consumers to engage in panic buying when they expect prices to rise and
thereby increasing pressure on price to rise.v ¥

Make households to save less, thereby leading to excess demand for goods and
services vv

Decreases real interest rates which will discourage savings. vv

Reduce the burden on creditors as they will receive their money at higher interest
rates Vv

(Accept any other correct relevant response) (Max 26)
(A maximum of 8 marks may be allocated for headings/examples)

[40]

### Page 19

BODY: ADDITIONAL PART

Foreign direct investment influences inflation in the economy by:

increasing the production of goods and services which will increase aggregate supply
thus stabilizing prices vv

bringing more efficient production techniques that will reduce production costs,
slowing down cost push inflation vv

increasing competition in local markets which will keep local prices low v“
strengthening the rand through higher export volumes which helps to reduce the cost
of importing production inputs such as crude oil vv

improving technology in production which increases productivity thereby reducing
cost push inflation vv

creating more employment opportunities thereby stimulating consumer spending
which contributes to demand pull inflation vv

increasing expenditure on capital goods such as machinery and equipment resulting
in increased aggregate demand vv

increasing real wages more than domestic investment, leading to cost push

inflation vv

(Accept any other correct relevant higher order response.) (Max 10)
(A maximum of 2 marks may be allocated for mere listing of facts)

CONCLUSION

Unacceptably high inflation rates cause hardships among the poor, the unemployed,
low-income earners; proper measures to control it have to be put in place vv

(Accept any other correct relevant higher order response) (Max 2)

TOTAL SECTION C:
GRAND TOTAL

40
150

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