Economics Grade 12 Paper 1 Gauteng Mock 2015 Memo (English)

Downloaded from hlayiso.com GAUTENG DEPARTMENT OF EDUCATION PREPARATORY EXAMINATION 2015 MEMORANDUM SUBJECT: ECONOMICS P1 (10731)

Downloaded from hlayiso.com 10731/15 GAUTENG DEPARTMENT OF EDUCATION PREPARATORY EXAMINATION ECONOMICS (First Paper) MEMORANDUM SECTION A (COMPULSORY) QUESTION 1 1.1 MULTIPLE-CHOICE QUESTIONS 1.1.1 A (capital) 1.1.2 B (recession) 1.1.3 B (1 April to 31 March)  1.1.4 C (portfolio) 1.1.5 A (government tax on imports and exports) 1.1.6 A (3%) 1.1.7 C (technology) 1.1.8 C (employment) (8 x 2) (16) 1.2 MATCHING ITEMS 1.2.1 B (Movement of goods and services between different participants in the circular flow).  1.2.2 C (Duration between 15 and 20 years).  1.2.3 D (A fully or partially state-owned corporation or government agency).  1.2.4 A (The price of one country’s monetary unit in terms of another country’s monetary unit).  1.2.5 G (A percentage reduction in the total tax payable).  1.2.6 F (Process whereby the standard of living of the majority citizens of a country improve).  1.2.7 E (A plan for South Africa to eliminate poverty and reduce inequality by 2030).  1.2.8 H (The ratio of import and export prices).  (8 x 1) (8) 1.3 IDENTIFY THE CONCEPT 1.3.1 non-excludability/free rider  1.3.2 multiplier  1.3.3 export promotion  1.3.4 dumping  1.3.5 labour productivity  1.3.6 extrapolation  (6 x 1) (6) TOTAL SECTION A: 30 1

Downloaded from hlayiso.com 10731/15 SECTION B Answer TWO of the three questions from this section in the ANSWER BOOK. QUESTION 2 2.1.1 Give any TWO arguments in favour of free trade.  Specialisation  Economies of scale  Greater consumer choice  Competition and innovation Any (2x1) (2) 2.1.2 How will a weak exchange rate (rand) influence South African exports?  Exports become cheaper (1x2) (2) 2.2 Data Response 2.2.1 Identify a cycle and an amplitude on the diagram.  Cycle: ACE   Amplitude: AB/CD/EF  (2x1) (2) 2.2.2 Describe AC on the diagram.  It respresents a downswing/decline in economic activities/Contraction (1x2) (2) 2.2.3 What is the significance of G on the diagram?  Trendline (G) indicates long-term direction of the economy.  (2) 2.2.4 How can fiscal measures be applied to increase economic activities from C to E on the diagram?  Expansionary fiscal policy is necessary.   Increase government spending  Decrease taxation  (2x2) (4) 2

Downloaded from hlayiso.com 10731/15 2.3 Data Response 2.3.1 Give TWO examples of taxes on products.  VAT  Import duties  (2x1) (2) 2.3.2 Describe the term basic prices.  Basic prices represent the amount that the producer receives from the consumer/amount paid to the providers of (2) the factors of production/the initial prices in production of final goods – before taxes and subsidies are considered.  2.3.3 Which national account method includes the calculation of basic prices?  Income method or  Production method  (1x2) (2) 2.3.4 Calculate the value of (A). Show ALL calculations. R billion Gross value added at basic prices 200 Taxes on products 30 Less subsidies on products 16 Gross Domestic Product at market prices 214 Max 2 if only answer provided (4) 2.4 Differentiate between a stable (fixed) but adjustable rate of exchange and a controlled floating exchange rate. Stable (fixed) but adjustable rate of exchange  The government determines the exchange rate.   It declares the par value of its currency in terms of gold e.g. $1=1 oz gold.  The par value refers to the price at which it would be redeemed and is seen as a specific target.   The value of the currency is free to move within a permitted band of fluctuation.   The exchange rate is maintained within a predetermined margin such as 1 percent, thus between $0.99 and $1.01 = 1 oz gold.  (Max 4) 3

Downloaded from hlayiso.com 10731/15 Controlled floating exchange rates  The value of the exchange rate is determined by market forces.   The value is permitted to fluctuate between a predetermined limit.   Monetary authorities intervene by buying or selling foreign exchange.   Thus influencing the demand for or supply of foreign exchange.  (Max 4) (8) 2.5 How will South Africa benefit by subsidising exports to foreign countries?  An export subsidy is an incentive offered to producers to encourage exports / it is a financial assistance that is provided by government to industries that have the potential to export products.   The aim is to lower the cost of imports and to motivate industries to export more.   They will be able to compete on an international basis.   Subsidies reduce the export value and make them more attractive to overseas markets.   They also prevent surplus stock from having negative impacts on the local economy.  (4x2) (8) [40] 4

Downloaded from hlayiso.com 10731/15 QUESTION 3 3.1.1 Name any TWO considerations that are used when an economy is assessed.  Performance  Comparisons  Specifications  Purpose  Safe guards (Any 2x1) (2) 3.1.2 How will progressive personal income taxes reduce inequality in South Africa?  Higher income earners are taxed at higher rates than lower income earners.   It reduces the income gap between between different groups in society.   Taxes are also used to finance social development to provide free services to the community (Accept any other relevant answer) Any (1x2) (2) 3.2 Data Response 3.2.1 What, according to the extract, is the main contributor for the under performance in the South African economy?  Labour intensive sectors like clothing and footwear continue to underperform. (2) 3.2.2 Describe the term deindustrialisation.  Process of change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. (Accept any other relevant answer) (2) 3.2.3 Explain how South Africa can achieve similar growth like other developing countries.  South Africa must use the manufacturing sector to leverage growth in other sectors. (Accept any other relevant answer) (2) 5

Downloaded from hlayiso.com 10731/15 3.2.4 How does a growth multiplier industry differ from an employment multiplier industry?  Employment multiplier industries: some industries are very labour intensive. Jobs are created more easily in these sectors.   Growth multiplier industries: some industries focus more on production levels/output, like capital intensive industries.  (Accept any other relevant answer) (2x2) (4) 3.3 Data Response 3.3.1 Identify TWO social indicators from the table.  Life expectancy  Expected years of schooling  GNI per capita  Any (2x1) (2) 3.3.2 Describe the term human development index.  The HDI is a summary measure for assessing long-term progress in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living.  (1x2) (2) 3.3.3 What give an indication that South Africans are financially better off in 2013 than in 1980?  The GNI has increased from 9,756 to 11,788 (2) 3.3.4 How can the relationship between life expectancy and expected years of schooling influence economic growth?  A low life expectancy influences negatively, skills acquired will be lost and production levels affected.   Increased number of years at school, but life expectancy the same, more skills but shorter productive years.  (Accept any other relevant answer) (2x2) (4) 6

Downloaded from hlayiso.com 10731/15 3.4 Explain the Producer Price Index as an economic indicator.  The PPI is used to predict the CPI.   It measures price at the stage where the first trade transaction takes place.   The price of imported goods is measured at the point where goods enter the country.   The price of manufactured goods is measured when they leave the factory and is not connected to the price of sale to a consumer.   The PPI includes capital and intermediate goods and excludes services.   The PPI measures the cost of production and not the cost of living.  (4x2) (8) 3.5 Why can the term “unbalanced” be seen as the main reason for the North/South divide?  The North is seen as more developed than the South.   The North has higher living standards than the South.   The North primarily exports manufactured goods, while the South mainly exports raw materials.   Many countries of the South are dependent on the North for survival, loans etc.  (Accept any other relevant answer) (Any 4x2) (8) [40] 7

Downloaded from hlayiso.com 10731/15 QUESTION 4 4.1.1 Name any TWO members of G8 countries.  Russia  Canada  France  Italy  USA  England  Germany  Japan Any (2x1) (2) 4.1.2 What effect will prolonged load-shedding have on foreign investments in South Africa?  It will deter foreign investment from South Africa.  (Accept any other relevant answer) (2) 4.2 Data Response 4.2.1 Name the TWO participants that are not included in the diagram.  Government  Foreign sector (2x1) (2) 4.2.2 Describe the term leakages. Outflows of money out of the economy (2) 4.2.3 Identify TWO leakages in a closed economy.  Savings  Taxes  (2) 4.2.4 Explain the multiplier effect if a large investment is made in the economy.  An injection effectively means an inflow of money into the economy.   It will increase the welfare of the country.   Demand for goods and services will be higher and this will stimulate the supply of goods and services  An increased supply will stimulate the demand for more factors of production  This could lead to an increase in economic activities, employment etc.  (2x2) (4) 8

Downloaded from hlayiso.com 10731/15 4.3 Data Response 4.3.1 List TWO reasons for the industrial action in the platinum industry according to the cartoon.  Low wages   No proper houses, sanitation (2x1) (2) 4.3.2 Describe TWO effects of industrial action on businesses in the short term?  Businesses lose profits   Decreased sales (Accept any other relevant answer) (2x2) (4) 4.3.3 What is the positive social impact of industrial action in the long term?  The plight of workers might be attended to.   Workers might get an increase in salary and in return increase their living standards  Socio-economic circumstances could change: housing provided by the government etc.  (Accept any other relevant answer) Any (2x2) (4) 4.4 Briefly discuss the increase in disposable income and international tourism as demand reasons for international trade.  Increase in disposable income - Whenever disposable income increases, consumers tend to increase their demand for goods and services.  - If the domestic market cannot fulfil their needs, they look abroad for these goods and services.  - If the social status of people increases, they tend to change their demand from locally produced goods to imported goods.  Max 4  International tourism and migration - As people move to or visit other countries, they are introduced to new technologies and tastes.  - New needs arise and such articles are import from abroad.  Max 4 (2x4) (8) 9

Downloaded from hlayiso.com 10731/15 4.5 How effective was the use of incentives in establishing new businesses into the Industrial Development Zones (IDZ’s)? Substantiate your answer. Incentives to invest in the IDZs  Duty-free incentives – duty-free import of raw materials or intermediate goods.   Skills support programme – tax-free grants for skill development.   Critical infrastructure programme – cash grant to build or expand physical infrastructure.   Foreign investment grants – cash grant to foreign companies that want to invest in new manufacturing businesses.   IDZs – growth has been very slow. The incentives offered were not attractive enough.   Investors have not been attracted to Gauteng and Saldanha Bay as expected.   Coega and Richards Bay have been the more successful.  (Max 4 if incentives are listed and max 4 if success rate is discussed) (Any 4x2) (8) [40] TOTAL SECTION B: 80 10

Downloaded from hlayiso.com 10731/15 SECTION C Answer ONE question from this section in the ANSWER BOOK. STRUCTURE OF ESSAY: MARK ALLOCATION: Introduction Max. 2 Body:  Main part: Discuss in detail/In-depth discussion/ Max. 26 Examine/Critically discuss /Analyse /Compare/ Evaluate/Distinguish /Differentiate/Explain /Assess/Debate  Additional part: Give own opinion/Critically Max. 10 discuss/Evaluate/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/How/Suggest/Use the information and argue, debate, evaluate Conclusion Max. 2 TOTAL 40 QUESTION 5 Service delivery by the public sector plays an important part in our daily lives.  Discuss in detail the reasons for public sector failure. (26 marks)  In your opinion, how can the government solve the electricity crises in South Africa? (10 marks) Introduction Public sector failure means that the economy and the country’s resources are not well managed so that the welfare of all people does not improve and the delivery of services is ineffective and inefficient. (Accept any other relevant answer) (Max. 2) 11

Downloaded from hlayiso.com 10731/15 Body MAIN PART REASONS FOR PUBLIC SECTOR FAILURE  Lack of capacity - Many managers lack the ability to manage projects, spend allocated funds, and control and inspire employees - Poor training and little experience  - Poor management  - Examples: lack of capacity: all budget allocations are not spent, inadequate school buildings, communities still using bucket toilets and pre-school education is not universal.   Apathy of officials - Officials need to be accountable for what they are employed to do.  - Lack of motivation to produce excellent service.  - Workers do not know how to give good service.   Corruption - There are many reported instances of corruption taking place in the public service.  - This reduces the state’s ability to use its available resources to achieve the improvement in living standards because national resources land in the pockets of public officials.   Rapid urbanisation - It is the movement of people from the rural to urban areas.  - Poverty in rural areas has lead to a rapid rate of urbanisation.  - This has mainly affected the four largest urban areas where it is difficult to keep up with the supply of housing, schools and other community services.   Rent seeking  - Rent seeking occurs when the welfare of one person is improved at the expense of the welfare of others.  - When there are a few proper controls, this results in funds which should be used to improve the welfare of the poor being misappropriated by officials.  (Max. 26) 12

Downloaded from hlayiso.com 10731/15 ADDITIONAL PART In your opinion, how can the government solve the electricity crisis in South Africa?  Make funds available to build new power stations.   Make use of renewable energy resources.   Use of alternative sources of energy: solar energy.   Use less coal to generate electricity.  Educate people in conserving energy.  (Accept any alternative relevant answer) (Max.10) Conclusion Public service failure can lead to the down fall of our economy, which can lead to dissatisfaction of the citizens of our country.  (Any other relevant conclusion) (Max. 2) 13

Downloaded from hlayiso.com 10731/15 QUESTION 6 ECONOMIC PURSUITS 40 MARKS – 20 MINUTES The supply-side approach emphasises an increase in supply through the expansion of the production capacity of the economy.  Discuss the supply-side approach used in South Africa to promote growth and development in detail under the following headings: (1) Effectiveness and efficiency of markets (2) Business efficiency (3) Cost of doing business (26 marks)  Evaluate competitiveness as a development policy in South Africa. Introduction The supply-side approach to economic growth and economic development deals with the country’s capacity to produce goods and services.  (Max. 2) (Accept any other relevant introduction) Body MAIN PART PRODUCING GROWTH AND DEVELOPMENT  Supply-side maintains that government intervention in the economy is only warranted if it improves the smooth operations of markets.   Supply in the economy is fairly fixed particularly in the short term. For the economy to produce more, workers need to be trained, more machines need to be built and installed, more electricity needs to be produced and better roads need to provided.  14

Downloaded from hlayiso.com 10731/15 Price AD1 AS AS1 AD P1 Price P2 AD1 AD  0 Y Y1 Output Output  The curve is vertical at Y in the short term. If AD is increased from AD to AD1, prices rise without an increase in output. Inflation without growth is the result.   The supply-side approach implies that the potential AS1 curve is established to the right of the AS curve, so that AD increases, output can be increased without a rise in the general level of prices (that is without inflation)  (Max for the graph 2 and explanation 4) THE SOUTH AFRICAN APPROACH 1. THE EFFECTIVENESS AND EFFICIENCY OF MARKETS - If a business achieves it’s aims (profitability and growth), the business is effective.  - In South Africa, the government imposes aims on markets by law.  Effectiveness Government demands that markets operate in a manner where more black people are absorbed into the mainstream economy because they were deliberately excluded previously.  Two acts were promulgated to enforce the preference of black workers and the businesses of black people: (i) The Employment Equity Act - prohibits discrimination and requires that the workforce reflects the racial and gender profile of the population at large.  - Enterprises have to file an employment equity plan with the Department of Labour and inspectors from the department visit business sites to ensure compliance.  15

Downloaded from hlayiso.com 10731/15 (ii) Broad Based Economic Empowerment Act - it requires redress so that the number of black people who own, manage and control businesses in the country can increase and income inequality can be decreased.  Efficiency - Pareto efficiency means that given the constraints of effectiveness parameters, it is not possible to change the allocation of resources in such a way that someone is made better off without making someone else worse off.   Competition  It increased in three ways : (1) Establishing new businesses (2) Recruiting FDI direct investments (3) Reduction or removal of import restrictions - The Competitions Act (1998) provides regulatory network. Was created to enforce competitive practices among domestic businesses.  - It aims at anti-competition practices, eliminating the abuse of dominant positions and the strengthening of merger controls.  - The Competitions Act (1998) provides for the operation of a Competition Commission, a Competition tribunal and a Competition Appeal Court.   Deregulation  - Private sector power imbalances that inhibit the free operation of markets have been revised and some were even abolished.  - Government maintains it is committed to improving the ease of doing business in South Africa.  (2) BUSINESS EFFICIENCY - Some measures serve as incentives to increase effort and efficiency and others establish relationships that improve efficiency.   Taxes  - Corporate tax rate is 28%, small business pay a lower rate as long as their income is less than R350 000. For micro-enterprises the turnover level is R750 000 .  - Individual income tax starts at 18% and increases on a sliding scale to 40%.  - Capital Gains Tax (CGT) was increased substantially, for individuals increased to 33%.  - VAT has remained fixed at 14% - The level of taxation is reasonable compared to developed countries, however, as a developing country, lower rates would be helpful to promote growth and development.  16

Downloaded from hlayiso.com 10731/15  Capital formation  - Depreciation of capital goods used by businesses is designed to encourage investment.  - New machinery may be depreciated over four years, 40% in the first year and computers and electronic equipment over three years.  - Government also provides capital and loans to SMMEs and bigger businesses.  Human resources  - Sectoral Education and Training Authorities (SETAs) have to facilitate post school, work related training.  - The Labour Relations Act states that it promotes economic development, social justice and peaceful labour relations.   Free advisory services  - Includes the development of export markets, managing and running SMMEs, agricultural production, weather forecasts and preventing and curing animal diseases.  (3) COST OF DOING BUSINESS - The availability and cost of infrastructure services play an important role in the financial viability and profitability of the business.   Transport costs  - Transport options are air, road, rail and sea transport.  - The government has committed itself to improve efficiency and reliability of its rail transport service and to making it more affordable.   Communication costs  - Communication options are cable, signal and mail.  - Cable communication in South Africa is among the most expensive in the world but reasonably efficient.  - The high cost makes IT services for businesses and individuals expensive and inhibits global competitiveness.   Energy costs  - The two main forms of energy in South Africa are electricity and liquid fuels.  - High liquid energy prices undermines the efficiency of the economy.  (Max. 26) 17

Downloaded from hlayiso.com 10731/15 ADDITIONAL PART Evaluate competitiveness as a development policy in South Africa.  Competitiveness enhances market efficiencies.   Businesses are more focused, innovative if strong competition is present.  This improves the overall quality of the manufactured product.   High quality products can more easily be exported and compete on an international level.   In South Africa, there is still a problem of some markets being overshadowed by monopolies which cause dramatic price increases, or cartels which keep prices high.   The Competition Commission is very instrumental in addressing these issues of unfair business practices.   Examples: cement industry, banks, cellphone companies, Tigerbrands etc.   South Africa has established a well developed manufacturing industry and has the potential to compete on the international market.   The Department of Trade and Industry is committed in increasing South Africa’s access to international markets.  (Accept any other relevant answer.) (Max. 10) Conclusion Supply-side policies are designed to create an environment where businesses, industries and markets can function optimally.  (Any other relevant conclusion) (Max. 2) TOTAL SECTION C: 40 GRAND TOTAL 150 18