# Economics Grade 12 P1 NSC June Exemplar 2021 Memo (English)

> Grade 12 Economics Paper 1 memorandum from the NSC June Exemplar 2021 (English), 18 pages. Read online or download the free PDF.

- Page: https://www.hlayiso.com/library/economics-p1-memo-june-2021-english/e950b63c-8a27-48bb-9666-472bdc20a64a
- Updated: 2026-09-27
- Subject: Economics
- Grade: Grade 12
- Language: English
- Document type: Memorandum
- Year: 2021
- Exam period: NSC June Exemplar
- Paper: 1
- Curriculum: CAPS
- Pages: 18

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## About this document

Economics · Grade 12 · NSC June Exemplar · 2021 · English. Memorandum, 18 pages. Read online or download the PDF.

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## Matching paper and memo

- [Economics P1 QP June 2021 English](https://www.hlayiso.com/library/economics-p1-qp-june-2021-english/a9a1ed4d-12d3-41cd-b139-291224bc05ca) — QP · 2021 · Eng

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### Page 1

NATIONAL
                    SENIOR CERTIFICATE

                           GRADE 12

                           JUNE 2021

                   ECONOMICS P1
                 MARKING GUIDELINE
                    (EXEMPLAR)

MARKS:   150

               This marking guideline consists of 18 pages.

### Page 2

2                                 ECONOMICS P1                                      (EC/JUNE 2021)

    SECTION A (COMPULSORY)

    QUESTION 1

    1.1    MULTIPLE-CHOICE QUESTIONS

           1.1.1     A ✓✓     balance of payments
           1.1.2     C ✓✓     specialise in what they do best
           1.1.3     C ✓✓     tax revenue and tax rate
           1.1.4     A ✓✓     trendline
           1.1.5     D ✓✓     improving the efficiency of markets
           1.1.6     B ✓✓     G+I+X<S+T+M
           1.1.7     D ✓✓     money market
           1.1.8     B ✓✓     It takes a larger percentage of the income of low-
                              income earners than those with higher incomes
                                                                               (8 x 2)    (16)

    1.2    MATCHING ITEMS

           1.2.1     E✓      Where long-term funds are borrowed and saved by
                             consumers and business enterprises
           1.2.2     I✓      Also known as the national product at constant prices
           1.2.3     G✓      Do not change direction until after the business cycle
                             has changed its direction
           1.2.4     C✓      Allowed to respond to market forces within certain limits
           1.2.5     H✓      A form of credit that the IMF can use for a consistent
                             disequilibrium
           1.2.6     B✓      Where resources cannot be reallocated to make one
                             individual better off without making at least one
                             individual worse off
           1.2.7     F✓      Prescribed by the United Nations to compile gross
                             domestic product
           1.2.8     A✓      Includes libraries, health services, research
                             programmes and education
                                                                                (8 x 1)     (8)

    1.3    ONE WORD ITEMS

           1.3.1     Revaluation ✓
           1.3.2     Direct taxes ✓
           1.3.3     Gross National Product ✓
           1.3.4     Terms of trade ✓
           1.3.5     Real flow ✓
           1.3.6     Disinvestment ✓                                            (6 x 1)     (6)

                                                                 TOTAL SECTION A:            30

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(EC/JUNE 2021)                                 ECONOMICS P1                                         3

  SECTION B

  Answer TWO of the THREE questions in this section.

  QUESTION 2

  2.1     2.1.1      Name TWO purposes of conditional grants to municipalities.
                     • Infrastructure ✓
                     • Capacity building and restructuring ✓           (2 x 1)                (2)

          2.1.2      Why is it not possible to exclude individuals from using
                     public goods?
                     • It is not possible because once public goods have been
                        provided, they can be used by everyone. 
                     • It is impossible to prevent individuals from enjoying the
                        benefits. 
                     • E.g., once a traffic light is installed or fireworks displayed,
                        they are enjoyed by everyone. 
                        (Any other correct relevant response)           (Any 1 x 2)           (2)

  2.2     DATA RESPONSE

          2.2.1      Give the alternative term for recovery(growth) as depicted
                     from trough to peak.
                     • Expansion /upswing                                                    (1)

          2.2.2      What is measured from peak to peak or from trough to
                     trough?
                     • Length                                                                (1)

          2.2.3      Briefly describe the term real GDP.
                     • Refers to GDP figures adjusted for price changes (effect of
                        inflation has been removed). 
                        (Accept any other correct relevant response)                          (2)

          2.2.4      Explain the government policy that the central bank can use
                     in smoothing business cycles when the economy is at a
                     peak.
                     • The contractionary monetary policy is the most effective as
                         the interest rates are increased to reduce spending and lower
                         money supply in circulation. 
                         (Accept any other correct relevant response)                         (2)

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4                                     ECONOMICS P1                                    (EC/JUNE 2021)

         2.2.5       Why are endogenous factors viewed as a cause of business
                     cycles?
                     They are viewed as a cause of business cycles because:
                     • Keynesians hold the view that markets are inherently
                        stable 
                     • Level of economic activity constantly tend to be continually
                        above or below its potential 
                     • Business cycle is an inherent feature of market economy 
                     • The price mechanism fails to coordinate demand and supply in
                        markets 
                        (Accept any other correct relevant response)          (Any 2 x 2)     (4)

         2.3         DATA RESPONSE

         2.3.1       Name ONE other account of the balance of payment.
                     • Capital transfer account 
                     • Financial account                                                     (1)

         2.3.2       Give a reason why net gold exports are entered separately
                     from other exports.
                     • Because of historical importance                                      (1)

         2.3.3       Briefly describe the term current transfers.
                     • These are transfers from residents to nonresidents and vice
                        versa which require no counter performance e.g., gifts in cash,
                        social insurance.                                        (2 x 1)    (2)

         2.3.4       Explain the use of unrecorded transactions in the balance of
                     payments.
                     • Entries of unrecorded transactions attempt to correct the effects
                        of errors and omissions in international transactions. 
                     • It ensures that the balance of payments adds up. 
                         (Accept any other correct relevant response)             (2 x 2)     (4)

         2.3.5       Calculate the balance on the current account balance for 2018.
                     R1 056 bn + R77 bn ─ R1 158bn ─ R204 bn
                     = -R229 bn
                     (Award 2 marks for answer only)
                     (Mark incorrect if answer does not show a negative)                      (4)

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(EC/JUNE 2021)                                ECONOMICS P1                                       5

 2.4      Discuss the multiplier and its effects on the national income if the
          marginal propensity to consume (MPC) is 0,6 and the investment
          increases by R10 bn. Show calculations.

          •      A relatively small investment produces a proportionately large increase
                 in national income 
          •      K = 1/ 1─ mpc

          •       = 1/1─ 0,6 

                   = 2,5 
                   Multiplier effect = 2,5 x R10bn 
          •      Therefore, an investment of R10bn will produce a R25 bn increase in
                 national income

                 (If a learner gives a graphical representation of the effect, the graph
                 should indicate the change in investment of R10 bn and the change in
                 national income of R25 bn.
                 Accept if the learner explains the effect based on the principle of one
                 person’s spending becomes another person’s income.)

                 (Accept any other correct relevant response)
                 (Allocate a max of 2 marks for mere listing/examples)       (Any 4 x 2)       (8)

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6                                 ECONOMICS P1                                   (EC/JUNE 2021)

 2.5   How is the South African economy influenced by the effects of
       international trade?

       POSITIVE INFLUENCE
       • The living standard of South Africans will improve through specialisation
          in the production of certain goods. 
       • The increase in technology leads to mass production e.g., the use of
          cellphones. 
       • Increasing production efficiency e.g., resources are used more effectively
          ─ less waste. 
       • More choice of goods and services from all over the world – not only
          domestically. 
       • Increased competition leads to innovation and high standards in
          economic capacity. 
       • Globalisation brings the countries of the world together and share
          knowledge. 

       NEGATIVE INFLUENCE
       • Less developed countries might not be able to compete with developed
          countries. 
       • Specialisation causes more producers to close down their
          businesses. 
       • Globalisation let people to forget their culture and indigenous knowledge
          systems disintegrate. 
       • Mass production leads to local people buying inferior quality goods from
          other countries at the expense of local producers. 
          (Accept any other correct relevant response)                      ( 4 x 2)    (8)
                                                                                       [40]

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(EC/JUNE 2021)                             ECONOMICS P1                                          7

 QUESTION 3

 3.1 3.1.1       Name TWO items involved in the conversion of GDP at factor
                 cost to GDP at basic prices.
                 • Other taxes on production 
                 • Other subsidies on production                      (2 x 1)             (2)

       3.1.2     What effect will the depreciation of the Rand have on the
                 demand for foreign goods?
                 • The demand for imported goods will decrease because it will be
                   expensive to import. ✓✓
                 • However, exports will increase and there will be a capital
                    inflow. ✓✓                                           (Any 1 x 2)       (2)

 3.2 DATA RESPONSE

       3.2.1     What is depicted in the diagram above?
                 • Circular flow model/Two sector model ✓                                  (1)

       3.2.2     Name an example of money flow.
                 • Expenditure on domestic products/ total expenditure 
                 • Factor payments 
                 • Income/ domestic income                                                (1)

       3.2.3     Briefly describe the term factor market.
                 • Market where factors of production are traded, for example,
                    labour market ✓✓
                    Accept any other correct relevant response)                            (2)

       3.2.4     Briefly explain the role of firms in the economy.
                 • Firms purchase the factors of production from the household in
                    the factor market. 
                 • Firms use the factors of production to produce goods and
                    services. 
                 • Businesses sell goods and services to households, government
                    and the foreign sector.                                 (1 x 2)      (2)

       3.2.5     How can Foreign Direct Investment influence the national
                 income?
                 • FDI as an injection in the economy increases production. 
                 • This boosts employment opportunities. 
                 • The result will be an increase in income and spending in the
                    economy.                                                             (4)

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8                                 ECONOMICS P1                                   (EC/JUNE 2021)

 3.3 DATA RESPONSE

       3.3.1    Name any ONE budget plan that the government supervises.
                • Main budget 
                • Medium Term Expenditure Framework (MTEF) 
                • Medium Term Budget Policy Statement (MTBPS)    (Any 1x1)            (1)

       3.3.2    What challenge is the government facing as depicted?
                • Poor spending of public funds 
                • Ineffective governance 
                • Corruption 
                  (Accept any other correct relevant response)                         (1)

       3.3.3    Briefly describe the term budget.
                • A document containing details about the expected revenue and
                   projected expenditure 
                   (Accept any other correct relevant response)                        (2)

       3.3.4    Why will an increase in the tax rate not necessarily increase
                government revenue?
       .        • Instead of paying more tax, individuals may avoid tax 
                • Many will decide to stop working 
                  (Accept any other correct relevant response)                         (2)

       3.3.5    How can the government effectively reduce management
                failure?
                Government can effectively reduce management failure by:
                • Employing people according to their skills, competence and
                   qualification levels 
                • Providing leadership, training and workshops 
                • Ensuring that no one’s welfare is improved at the expense of
                   someone else
                   (Accept any other correct relevant response)
                                                                                       (4)

 3.4 Discuss free-floating exchange rates.
      • They work automatically 
      • If imports increase, the demand for foreign exchange increases 
      • The currency depreciates because of the working of market forces 
      • Depreciation makes imports more expensive in the depreciating country
         and exports cheaper in the foreign country 
      • Imports decrease and exports increase and the currency
         appreciates 
         (Accept any other correct relevant response)                                  (8)

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(EC/JUNE 2021)                            ECONOMICS P1                                     9

 3.5     Evaluate the impact of the downgrading of South Africa’ s credit rating
         on the economy.

         NEGATIVE IMPACT
         • Government has to pay a higher interest rate on its debt. 
         • Less money to use for building the economy, important infrastructure and
           welfare programmes. 
         • Many international investments portfolios are not allowed to invest in sub
           investment graded economies (junk status) as debt/bond repayments are
           costly. 
         • The downgrading of a country creates a lack of foreign investments with
           a weaker rand/inflation then increases as the cost of all imported goods
           also increase.
         • The South African government will find it difficult to get international
           loans to fund the budget and balance of payment of deficit. 
         • Fewer multi-national companies will be allowed to do business in South
           Africa as some of them have strict mandates not to open businesses in
           junk status countries. 

         POSITIVE IMPACT
         • Consumers/firms are forced to save more 
         • Government is prompted to encourage / fast track economic growth. 
         • Job creation 
           (Accept any other correct relevant response)
           (Allocate a max of 2 marks for mere listing/examples)                         (8)
                                                                                        [40]

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10                                   ECONOMICS P1                                    (EC/JUNE 2021)

  QUESTION 4

  4.1     4.1.1      Name TWO demand factors for foreign exchange.
                     • Importing of goods ✓
                     • The payment for services from foreign countries ✓
                     • The repayment of a foreign loan borrowed from a foreign country
                     • Tourists spending money overseas
                     • The buying of shares or assets in another country ✓
                       (Accept any other correct relevant response)         (Any 2 x 1)        (2)

          4.1.2      Why are households regarded as an important participant in the
                     circular flow?
                     • They are the owners of the factors of production ✓✓
                     • They are the primary participants in the circular flow ✓✓
                         (Accept any other correct relevant response)
                                                                               (Any 1 x 2)     (2)

  4.2     DATA RESPONSE

          4.2.1      What is the original equilibrium exchange rate in the above
                     graph?
                     • R17                                                                    (1)

          4.2.2      What happens to the value of the Rand when prices change from
                     R17 to R18?
                     • Depreciation ✓ / decline✓ / decrease✓                                   (1)

          4.2.3      Describe the term depreciation of a currency.
                     • Depreciation of a currency is a decrease in the price of the
                       currency in terms of another country’s currency due to market
                       forces                                                       (1 x 2)    (2)

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(EC/JUNE 2021)                                ECONOMICS P1                                     11

           4.2.4     Explain how managed exchange rates correct disequilibria in
                     the balance of payments.
                     • Central banks use their reserves to effect depreciations and
                        appreciations. ✓✓
                     • Over the long-term currencies have to find their equilibrium
                        levels. ✓✓                                                  (1 x 2)    (2)

           4.2.5     How will the depreciation in the value of a currency affect
           .         businesses?
                     • Depreciation will increase the production costs for businesses as
                        they will require more money to buy from other currencies. ✓✓
                     • Exporting businesses can sell more to foreign countries as their
                        products will become cheaper. ✓✓
                       (Accept any other correct relevant response)                (2 x 2)     (4)

  4.3      DATA RESPONSE

           4.3.1     Which year is currently used by the Reserve Bank as a base
                     year?
                     • 2010 ✓                                                                  (1)

           4.3.2     Name any institution that compiles the data in the above table.
                     • Statistics South Africa (Stats SA) ✓
                     • South African Reserve Bank (SARB)                                      (1)

           4.3.3     Briefly describe the term constant prices.
                     • Constant prices are prices where inflation is excluded 
                        (Accept any other correct relevant response)             (1 x 2)       (2)

           4.3.4     Explain the difference between nominal GDP and real GDP.
                     • Nominal GDP is GDP at current prices while real GDP is GDP at
                       constant prices  / Nominal GDP figures do not reflect
                       changes in economic activity while real GDP figures are adjusted
                       for price changes. 
                        (Accept any other correct relevant response)
                                                                            (Any 1 x 2 )       (2)

           4.3.5     Calculate the GDP deflator for 2016. Show ALL your
                     calculations.

                     Deflator          = Nominal GDP /Real GDP X 100

                     Deflator for 2016 = 4 336 988 /3 009 860 x 100 

                                       = 144 

                     (Award 2 marks for answer only)                           (Any 2 x 2)     (4)

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12                               ECONOMICS P1                                   (EC/JUNE 2021)

  4.4.    Discuss production and expenditure as methods to determine Gross
          Domestic Product (GDP).

         4PRODUCTION METHOD
         4• Using this method to calculate GDP yields GDP at basic prices. 
         4• Gross Domestic Product at basic prices is determined by adding the
         4 final values of all goods and services produced in the primary,
         .   secondary and tertiary sectors. 
         4• In the national accounts Gross Domestic Product at basic prices is
         .   usually referred to as Gross Value Added (GVA) at basic prices. 
         4• Also known as GDP(P)                                             (2 x 2)
         .
         4EXPENDITURE METHOD
          • Using this method to calculate GDP yields GDP at market prices 
          • GDP at market prices is determined by adding the spending of the four
             main sectors of the economy – households (C), government (G),
             businesses (I) and foreign sector (X – M). 
          • There is a difference between GDE and Expenditure on GDP:
          • GDE = C + I + G while Expenditure on GDP = C + I + G + (X – M) 
          • Also known as GDP(E)                                             (2 x 2)     (8)

  4.5     How can free trade contribute to a more efficient economy?

          It can contribute by:
           • Allowing the inflow and outflow of goods and services into the
               economy 
           • Stimulating demand for goods and services hence creating job
               opportunities 
           • Improving the trade balance by making it more favourable 
           • Earning the country foreign capital and accelerating economic growth
               and economic development 
           • Improving international relations and stimulating economic
               integrations                                                            (8)
                                                                                        [40]

                                                               TOTAL SECTION B:           80

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(EC/JUNE 2021)                          ECONOMICS P1                                    13

SECTION C

Answer ONE of the TWO questions in this section.

                      STRUCTURE OF ESSAY                                     MARK
                                                                          ALLOCATION
Introduction
The introduction is a lower order response:
• A good starting point would be to define the main concept related to
    the question topic
• Do not include any part of the question in your introduction.
• Do not repeat any part of the introduction in the body.
• Avoid saying in the introduction that you are going to discuss in the
    body.                                                                    Max. 2
Body
• Main part: Discuss in detail/In-depth discussion/Examine/
Critically discuss/Analyse/Compare/Evaluate/Distinguish/
Differentiate/Explain/Assess/Debate
• Additional part :Give own opinion/Critically discuss/Evaluate/            Max. 26
Critically evaluate/Draw a graph and explain/ Use the graph given and
explain/ Complete the given graph/Calculate/
Deduce/Compare/Explain/Distinguish/Interpret/Briefly debate/                Max. 10
How? / Suggest
Conclusion
Any relevant higher order conclusion that should include:
• A brief summary of what has been discussed / analysed without
     repeating facts already mentioned in the body
• An opinion or valued judgment on the facts discussed
• Additional support information to strengthen the discussion /
     analysis
• A contradictory viewpoint with motivation, if so required                  Max. 2
• Recommendations
                                                                 TOTAL                 40

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14                               ECONOMICS P1                                    (EC/JUNE 2021)

 QUESTION 5

 •   Discuss in detail the objectives of the government in the economy.
                                                                  (26 marks)

 •   How can privatisation be used to address the challenge of a slow service
     delivery in South Africa?                                  (10 marks)             [40]

 INTRODUCTION

 • The main objectives of the state are to serve the citizens of the country and
   bring about the systematic development for all of them 
   (Accept any other correct relevant introduction)                          Max. 2    (2)

 BODY

 MAIN PART

 Economic growth
 • Economic growth refers to an increase in the production of goods and services
   in the economy. ✓✓
 • The state must ensure that there is sustainable growth as it leads to an
   improvement in the standard of living. ✓✓
 • For economic development to take place, economic growth rate must be
   higher than the population rate. ✓✓

 Exchange rate stability
 • Depreciation and appreciation create uncertainty for producers and investors
   and should therefore be limited. ✓✓
 • The state tries to protect the country’s currency from excess fluctuations. ✓✓
 • Monetary and fiscal policies are used to ensure that exchange rate remains
   relatively stable for longer periods. ✓✓

 Full employment
 • This means that all persons who would like to work and who are looking for
    work should be able to find work or be self-employed. ✓✓
 • High levels of employment is one of the crucial economic objectives for all
    governments. ✓✓

 Economic equity
 • In South Africa the government uses a progressive tax system to provide for
   free services to all its deserving people. ✓✓
 • Free social services such as basic education, primary health care, basic
   economic services and paying cash grants to the poor and other vulnerable
   people. ✓✓
 • A redistribution of income and wealth is important in market economies. ✓✓

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(EC/JUNE 2021)                            ECONOMICS P1                                      15

 Price stability
 • In South Africa the relative price stability means maintaining an inflation rate of
    between 3% and 6%. ✓✓
 • A market economy performs better when prices are stable ✓✓
 • Any country strives for its prices not to fluctuate ✓✓
    (Accept any other correct relevant response)
    (Mark subheadings and examples to a maximum of 8 marks)
                                                                               Max.26

 ADDITIONAL PART
 How can privatisation be used to address the challenge of a slow service
 delivery in South Africa?

 Privatisation can be used to address the challenges by:
 • Improving the overall effectiveness and efficiency of state-owned enterprises,
    thus fast-tracking efficiency. ✓✓
 • Attracting foreign direct investment who can provide wanted capital for those
    state organs and improve service delivery. 
 • Stimulating economic growth and performance of these enterprises by
    introducing innovative methods by private experts 
 • Providing additional funds to the government through taxes which can make
    funds readily available for the provision of services. 
 • Promoting community economic participation rate while accelerating service
    delivery. 
 • Relieving the government from the financial burden placed by SOE’S like SAA
    thus leaving the state with more funds to invest in service delivery. 
    (Accept any other relevant correct higher order response)
    (A maximum of 2 marks for mere listing of facts)                                     (10)

 CONCLUSION

 • The state uses the national budget to try and achieve all its objectives using
   taxes, a major source of income ✓✓
   (Accept any other correct relevant response)                                           (2)
                                                                                         [40]

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16                                 ECONOMICS P1                                   (EC/JUNE 2021)

  QUESTION 6

     • Discuss in detail the demand-side policies in smoothing of business
       cycles.                                                     (26 marks)
     • How could the Monetarist’s viewpoint on government policies cause a
       contraction in the business cycle?                          (10 marks)
                                                                                       [40]

  INTRODUCTION
  Smoothing of business cycles is when policy is used to prevent dramatic peaks
  and troughs ✓✓
  (Accept any other correct relevant introduction)                                       (2)
  BODY

  MAIN PART

     • Government’s aim with business cycle policies is to achieve the best possible
       growth rates ✓✓
     • They need to apply policies to smooth out cyclical movements, so that peaks
       do not end up in high inflation and troughs do not result in high
       unemployment. ✓✓
     • Government uses monetary and fiscal policies to achieve this. ✓✓
     • Fiscal policy is instrumental in stimulating a depressed economy. ✓✓
     • Monetary policy is more effective when dampening an overheated economy
       that has rising inflation. ✓✓

  MONETARY POLICY
  • When the level of economic activity changes the SARB can use expansionary
    and contractionary measures to reduce fluctuation of such economic
    activities. ✓✓
  • An expansionary monetary policy is implemented when the economy is in
    recession in order to stimulate economic activities. ✓✓
  • Interest rates can be reduced to encourage spending. ✓✓
  • Households and firms can therefore borrow spend more.✓✓
  • The increased spending increases the level of economic activity, investment
    will increase and more factors of production will be employed. ✓✓
  • Higher levels of production and income and expenditure will be achieved. ✓✓
  • The demand will be greater than supply if the supply of goods and services
    does not increase in line with the increase in demand and inflation will
    increase.✓✓
  • In the case of contractionary monetary policy, inflation can be curbed by
    reducing money supply and availability of credit. ✓✓
  • To dampen demand at the peak the government will be able to reduce money
    supply by increasing interest rate. ✓✓
  • Selling government bonds and securities (open market transactions)
  • Reduce the supply of money in circulation ✓✓
  • Increase the cash reserve requirement to manipulate money creation
    activities of banks ✓✓
  • Persuade banks to decrease lending (moral suasion) and to devalue the
    exchange rate (exchange rate policy) ✓✓

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(EC/JUNE 2021)                           ECONOMICS P1                                     17

  FISCAL POLICY
  • When the level of economic activity changes, the Minister of Finance can use
     expansionary and contractionary measures to reduce fluctuation of such
     economic activities. ✓✓
  • An expansionary fiscal policy can be implemented when the economy is in
     recession in order to stimulate economic activities. ✓✓
  • An increase in government expenditure will increase aggregate demand. ✓✓
  • This serves as an injection into the economy as production will increase,
     more factors of production will be employed. ✓✓
  • This will lead to higher income and higher expenditure. ✓✓
  • Taxes will be reduced, which will lead to an increase in disposable
     Income. ✓✓
  • This serves as an injection into the economy and eventually aggregate
     demand will increase. ✓✓
  • In the case of contractionary fiscal policy, when the economy grows too fast
     government can reduce its spending and increase taxes. ✓✓
  • This will lead to a decrease in aggregate demand which will reduce
     production as fewer goods and services will be needed. ✓✓

  DEMAND-SIDE POLICIES

   • Traditional monetary and fiscal policies focus on aggregate demand. ✓✓
   • A demand side approach only does not render ideal results. ✓✓
   • Often growth has to be cut due to problems in inflation, balance of payments
     and shortage of skilled labour. ✓✓

  ADDITIONAL PART

  MONETARISTS VIEWPOINTS
  • Markets are inherently stable and that a disequilibrium in the markets are
    caused by faulty policies. ✓✓
  • The most important cause of economic fluctuations is inappropriate
    government policies. ✓✓
  • The monetarist’s feel that state intervention will cause distortion of
    equilibrium. ✓✓
  • Equilibrium is caused by supply and demand. ✓✓
  • If any imbalance occurs, the market forces of supply and demand will always
    bring the market back to equilibrium. ✓✓
  • The bigger the government intervention, the greater the distortion will be. ✓✓
  • An undesirable increase in the money supply will lead to a contraction. ✓✓
  • An undesirable decrease in the money supply will lead to a decrease in
    production processes. ✓✓
  • Government should carefully control the stock of money in the economy so
    that it does not distort the equilibrium that markets forces will automatically
    establish. ✓✓
    (Accept any other relevant argument)
    (A maximum of 2 marks may be allocated for mere listing of facts/example)

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### Page 18

18                                ECONOMICS P1                                 (EC/JUNE 2021)

        CONCLUSION

        • It remains critical that business cycles must be clearly monitored
          through indicators available. ✓✓
        • Policy makers must act quickly by using monetary and fiscal instruments
          in order to prevent instability in the economy. ✓✓

            (Accept any other correct relevant response)                (Max. 2)      (2)
                                                                                     [40]

                                                            TOTAL SECTION C:          40
                                                              GRAND TOTAL:           150

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