Economics Grade 12 Paper 1 Gauteng Mock 2017 Memo

Downloaded from hlayiso.com PREPARATORY EXAMINATION 2017 MARKING GUIDELINES ECONOMICS (FIRST PAPER) (10731) 16 pages 1

Downloaded from hlayiso.com 10731 / 17 GAUTENG DEPARTMENT OF EDUCATION PREPARATORY EXAMINATION – 2017 ECONOMICS (First Paper) MARKING GUIDELINE SECTION A (COMPULSORY) QUESTION 1 1.1 MULTIPLE-CHOICE QUESTIONS 1.1.1 B injections 1.1.2 D short 1.1.3 C tax revenue 1.1.4 B exogenous 1.1.5 C Consumer Price Index figures 1.1.6 A demand-side 1.1.7 A human development 1.1.8 D wealth (8 x 2) (16) 1.2 MATCHING ITEMS 1.2.1 C An increase in the price of a currency in terms of another currency 1.2.2 G Absence of government barriers and restrictions to buy and sell goods globally 1.2.3 H A fiscal policy instrument 1.2.4 I An increase in the real GDP 1.2.5 D Deliberate government intervention to reduce the value of a country’s currency 1.2.6 F It strengthens institutional capacity and facilitates development 1.2.7 A The number of children per 1000 live births who die before their first birthday 1.2.8 E The interest that the Reserve Bank charges other banks for borrowing money (8 x 1) (8) 1.3 IDENTIFY THE CONCEPT 1.3.1 Phillips curve  1.3.2 Globalisation  1.3.3 Protectionism  1.3.4 Economic development  1.3.5 Productivity  1.3.6 Corridor  (6 x 1) (6) TOTAL SECTION A: 30 2

Downloaded from hlayiso.com 10731 / 17 SECTION B Answer TWO of the three questions from this section in the ANSWER BOOK. QUESTION 2: MACRO-ECONOMICS 2.1 2.1.1 Name TWO types of markets in the circular flow. • Factor market  • Product market  • Capital market  • Money market  • Foreign exchange market Any (2 x 1) (2) 2.1.2 How will savings be affected by an increase in the marginal propensity to consume? • Savings will decline because marginal propensity to consume will be higher.  (1 x 2) (2) 2.2 Study the graph. 2.2.1 What was the real GDP growth in 2009? -1.5%. (1) 2.2.2 Identify the period (years) when the longest business cycle can be observed in the above graph. 2003 – 2009  (1) 2.2.3 Briefly describe the term Gross Domestic Product. • The total value of all final goods and services produced within the boundaries of a country  (2) 2.2.4 Explain the underlying forces of the amplitude in 2009. • A large amplitude during the downswing demonstrates weak underlying forces.  • There were extreme changes that occurred in a short period of time.  • The economy has slumped very sharply indicating weak economic forces. • Weak economic growth has taken place during the cycle.  (Accept any other correct relevant response.) (2 x 2) (4) 3

Downloaded from hlayiso.com 10731 / 17 2.2.5 How can taxation be used to reverse the downward trend in the economy? • Taxes should be decreased. • Decreased taxation will increase the disposable income of consumers.  • This will lead to an increase in the demand of goods and services, which in turn will lead to an increase in the supply of goods and services. • Economic activities will increase and the economy will grow. (Accept any other correct relevant response.) (2 x 2) (4) 2.3 Read the extract 2.3.1 What are the TWO biggest challenges of local government according to the extract? • Appoint and retain qualified  and competent persons  (2) 2.3.2 Briefly describe the term public sector failure. • When the government fails to optimally manage the economy and the resources under its control  (2) 2.3.3 What is the effect of unauthorized and irregular expenditure on service delivery? • Unauthorised and irregular expenditure decreases the ability of the government to deliver quality and sufficient services to its citizens. (Accept any other correct relevant response.) (2) 2.3.4 How will you address the inefficiency of municipalities in South Africa? Inefficiencies of municipalities in South Africa need to be addressed by ... • improving qualifications of workers or have qualifications relevant to their job descriptions.  • in-service training which is also important to improve their skills. • motivating workers whereby they are given incentives for the good job done.  • instilling a culture of job well ethics.  (2 x 2) (4) (Accept any other correct relevant response.) 4

Downloaded from hlayiso.com 10731 / 17 2.4 Differentiate between the Medium Term Expenditure Framework (MTEF) and the Medium Term Budget Policy Statement (MTBPS). MTEF • The MTEF shows income and expenditure estimates for a three year period and shows how the economy will perform over these three years.  • It is a summary of the government’s goals and objectives. • It provides information about how much tax is expected to be collected, levels of government spending and government deficit.  • It also provides an explanation of how revenue will be shared between national, provincial and local government.  (Max 4) MTBPS • During the last week of October the Minister of Finance presents the MTBPS (or the medium-term budget) to parliament.  • The MTBPS is based on the MTEF.  • The Minister advises parliament on the changes in the economy since the main budget in February and shares information on public policy that will shape next and further budgets.  (Max 4) (Accept any other correct relevant response.) (8) (Allocate a maximum of 4 marks for the mere listing of facts / examples.) 2.5 How are leading indicators used in forecasting economic activities? Leading indicators are used in forecasting by ... • changing before the economy changes.  • being used to gain some sense of where the economy is headed. • investors using them to adjust their strategy to benefit from future market conditions that will affect their revenue.  • businesses using them to anticipate economic conditions.  • policy makers using them for considering adjustments to monetary policy. (8) [40] (Accept any other correct relevant answer.) (Allocate a maximum of 2 marks for the mere listing of facts / examples.) 5

Downloaded from hlayiso.com 10731 / 17 QUESTION 3: ECONOMIC PURSUITS 3.1.1 Name TWO South African growth and development policies. • Reconstruction and Development policy (RDP)  • Growth Employment and Redistribution Programme (GEAR)  • National Skills Development Strategy (NSDS)  • Accelerated and Shared Growth Initiative for South Africa (ASGISA)  • Joint Initiative on Priority Skills Acquisition (JIPSA)  • Expanded Public Works Programme (EPWP)  • The New Growth Path (NGP)  • National Development Plan (NDP)  • Small Business Development Promotion Programme  • Black Economic Empowerment Programmes  (2 x 1) (2) 3.1.2 How will the selling of securities or bonds by the Reserve Bank affect the availability of credit? • The SARB sells securities to restrict bank credit.  • When banks buy these securities, money flows from the banks to the SARB.  • The banks then have less money to lend and cannot extend credit.  Any (1 x 2) (2) 3.2 Study the chart 3.2.1 Describe the general trend of the terms of trade between 2011 and 2015. The terms of trade are decreasing or declining  (1) 3.2.2 Identify the basis year in the above graph? 2000  (1) 3.2.3 Briefly describe the term terms of trade. The terms of trade are the ratio of export and import prices. (Accept any other correct relevant response.) (2) 3.2.4 What does an improvement in the terms of trade means? • The price of exports has increased and fewer goods will have to be produced to keep export earnings constant.  • Import prices have decreased and less money is flowing out of the economy.  (Accept any other correct relevant response.) (4) 6

Downloaded from hlayiso.com 10731 / 17 3.2.5 How does a deterioration in the terms of trade impact on the balance of payments? Deteriorating trade impacts on the balance of payments by ... • decreasing export prices that lead to a decrease in export earnings.  • indicating that import prices have increased and that import payments are increasing.  • leading to a deficit on the balance of payments.  • causing the currency to depreciate.  (Accept any other correct relevant response.) (2 x 2) (4) 3.3 Read the extract 3.3.1 Identify ONE reason from the above extract why mines have an insufficient supply of resources. • Decreasing grades of supply  • Rising input costs  • Evolving fiscal regimes  • Nationalisation  • Production stoppages  • Remoteness of mineral resources  Any (1 x 1) (1) 3.3.2 Name ONE global event that had an impact on the performance of the mining industry. • Euro-zone problems  • Nuclear fallout in Japan  • Uncertain Chinese economic growth  • Economic downgrading of some countries  Any (1 x 1) (1) 3.3.3 Briefly describe the term nationalisation. The process whereby the state takes control and ownership of privately-owned assets and private enterprises.  (2 x 1) (2) 3.3.4 What is the impact of continued production stoppages on the South African economy? • Continued production stoppages lead to a loss of production.  • No production takes place during the stoppage. • This will impact on GDP and cause the economy to decline. (Accept any clear correct relevant response.) (2 x 1) (2) 7

Downloaded from hlayiso.com 10731 / 17 3.3.5 How do high energy costs affect the struggling mining sector in South Africa? High energy costs affect the struggling mining sector in South Africa by ... • adding to the cost of production. • causing an erratic supply of electricity, leading to most businesses relying on generators to supply electricity which adds to increasing costs.  • leading to erratic fuel prices that might add to the cost.  • adding to the struggling economy and potential buyers looking elsewhere to buy.  • leading to mine closures. (Accept any other correct relevant response.) (2 x 2) (4) 3.4 Briefly discuss poverty and trade as challenges of globalisation. • Poverty - Most countries in the Southern hemisphere are poverty stricken.  - There is a growing gap between developed (countries of the North) and developing countries (countries of the South).  • Trade - Developed countries continue to subsidise production of their agricultural goods, making it difficult for developing countries to compete while insisting that developing countries eliminate their tariffs on manufactured products.  - However, some developing countries like China, India and South Korea use their comparative advantages to dominate trade in certain aspects.  (Accept any other correct relevant response.) (2 x 4) (8) (Allocate a maximum of 4 marks for the mere listing of facts / examples.) 3.5 Evaluate the importance of life expectancy as social indicators. The importance of life expectancy as social indicators should be: • Referring to the number of years that a new-born infant is expected to live  • Governments knowing what the average life expectancy is because working people require a range of social services.  • People becoming a tax base for government revenue. A growing or improved life expectancy can sustain government income more accurately.  • A growing life expectancy also improving the level of productivity in a country  • Expecting of trained people to contribute much longer in terms of production  (2 x 4) (8) (Accept any other correct relevant response.) [40] (Allocate a maximum of 4 marks for the mere listing of facts / examples.) 8

Downloaded from hlayiso.com 10731 / 17 QUESTION 4: MACRO-ECONOMICS & ECONOMIC PURSUITS 4.1 Answer the following questions. 4.1.1 Name TWO types of exchange rate systems. • Free floating exchange rates  • Managed floating exchange rates  • Fixed exchange rates  Any (2 x 1) (2) 4.1.2 What will be the effect on inflation if the increase in labour productivity is lower than the increase in wages? Inflation will increase because the aggregate demand will be higher than the aggregate supply.  (1 x 2) (2) 4.2 Data response 4.2.1 Who is responsible for the publication of the above information? South African Reserve Bank / SARB  (1) 4.2.2 How many sub-accounts are in the balance of payment 3 (1) 4.2.3 Briefly describe the term balance of payment. The balance of payment refers to a country’s trade and financial transactions with the rest of the world over a particular time period.  (2) 4.2.4 Briefly analyse the balance on the current account as indicated in the table above? • Negative balance because imports exceed exports  • Unfavourable balance due to payments exceeding income  Any (1 x 2) (2) (Accept any other correct relevant answer.) 4.2.5 Calculate the trade balance (A) for 2016. Show all calculations. Merchandise exports: 973 776 Net gold exports: 67 662 Less: merchandise imports 1 075 850 Trade balance -34 412 (4) (2 Marks if only the answer is provided.) 9

Downloaded from hlayiso.com 10731 / 17 4.3 Study the cartoon. 4.3.1 Identify TWO possible solutions that can prevent the economy from sinking. • Investment in South Africa • The National Development Plan (1 x 2) (2) 4.3.2 What is the National Development Plan? • It is a national strategy to develop the economy with an outlook towards 2030.  (1 x 2) (Accept any other correct relevant response.) (2) 4.3.3 What are the main aims of the NDP? The NDP aims to eliminate poverty and reduce inequality by 2030.  (2) 4.3.4 How can the private sector assist in the development policies of the government? • Formation of Public Private Partnerships (PPPs)  • Social responsibility of the private sector, e.g. help build infrastructure  • Invest more in the country.  (2 x 2) (4) (Accept any other correct relevant response.) 4.4 Discuss the multiplier effect on the national income. • The multiplier relates to how much the national income changes as a result of an injection or withdrawal  • An increase in injections into the economy (investment, government spending or exports), which would lead to a proportionate increase in national income  • Extra spending would have a knock-on effect and create even more spending.  • The size of the multiplier also depend on the level of leakages. • The size of the multiplier is directly proportional to the level of national income created.  (4 x 2) (8) (Accept any other relevant correct response.) 10

Downloaded from hlayiso.com 10731 / 17 4.5 How can investment spending be utilised efficiently to stimulate economic development? Investment spending can be utilised efficiently to stimulate economic development by ... • involving spending on capital goods such as machinery, tools and factory building, aiming to produce more goods and services as part of investment spending.  • provisioning of more capital goods leading to the employment or more workers, who in turn earn income.  • increasing the demand for goods and services.  • stimulating investments by government, using monetary and fiscal policies.  • government using financial incentives such as subsidies and tax allowances for new businesses to get loans cheaper.  (8) (Accept any other relevant correct response.) [40] (Allocate a maximum of 2 marks for examples / listing.) TOTAL SECTION B: 80 SECTION C Answer ONE of the two questions from this section in the ANSWER BOOK. MARK STRUCTURE OF ESSAY ALLOCATION Introduction The introduction is a lower-order response. • A good starting point would be to determine the main concept related to the Max. 2 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 what you are going to discuss in the body. Body: • Main part: Discuss in detail / In depth discussion / Examine / Critically discuss / Analyse / Compare / Evaluate / Distinguish / Explain / Max. 26 Assess / Debate. • Additional part: Give own opinion / Critically discuss / Evaluate / Critically evaluate / Draw a graph and explain / Use the graph given and explain / Complete the given graph / Calculate / Deduce / Compare / Explain / Max. 10 Distinguish / Interpret / Briefly debate / How? / Suggest / Use the information and argue / Debate / Evaluate 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 judgement on the facts discussed Max. 2 • Additional support information to strengthen the discussion / analysis • A contradictory viewpoint with motivation, if required • Recommendations TOTAL 40 11

Downloaded from hlayiso.com 10731 / 17 QUESTION 5: MACROECONOMICS “Economic growth depends on trade, of which one of the strategies is the outward-looking policy of exports and international competitiveness.” • Discuss import substitution as part of South Africa's international trade policy. (26 marks) • Advise the Minister of Trade and Industry whether the South African government should adopt a policy of free trade. (10 marks) INTRODUCTION Import substitution is the replacement of previously imported goods by the domestic production of goods. (Accept any other relevant introduction.) (Max. 2) [40] BODY: MAIN PART Aims - To develop local industries  - Increase employment opportunities  - Improve South Africa's balance of payments  STAGES OF IMPLEMENTATION • Imports of simple consumer goods, e.g. textiles and shoes, are replaced with domestic production.  • Domestic industries are created to replace a wider range of more sophisticated manufactured items.  FORMS OF IMPORT SUBSTITUTION • Voluntary import substitution  – attempts by countries to develop their own industries as part of an economic development strategy  e.g. Iscor  • Forced import substitution  – certain countries are forced to produce certain goods because they are excluded from taking part in international trade through trade sanctions, boycotts and disinvestment.  REASONS FOR IMPORT SUBSTITUTION • Diversification  is known as the expansion of manufacturing that will make countries less dependent on foreign countries and give them more control over their economies. • Protection of infant industry  – Small and medium industries need to be protected against well-established foreign companies that enjoy the full scale of economies of scale. 12

Downloaded from hlayiso.com 10731 / 17 • Trade  – Developing countries rely on natural resources as the basis for economic growth and development and export mainly minerals and agricultural produce. Growth could however accelerate if developing countries produce manufactured goods themselves.  METHODS OF IMPORT SUBSTITUTION • Tariffs are customs duties / taxes on imported goods that may be ad valorem (percentage)  or specific (an amount per unit).  • The prices of imported goods will rise and shift the local demand to domestic production.  • Quotas  limit the supply of a good or service, it places a restriction on imports and reduces supply (prices go up)  • Subsidies  to protect domestic enterprises that export goods  • Exchange control – governments or free trade areas may limit the amount of foreign exchange made available for imports, investment or travelling abroad  • Physical control in the form of a complete ban or embargo on the imports of certain goods e.g. arms and drugs  • Diverting trade – measures that make it difficult to import from abroad are import deposits, time consuming customs procedures and quality standards  ADVANTAGES OF IMPORT SUBSTITUTION • Easy to implement through the imposition of tariffs and quotas  • Industrial development is encouraged  • Employment opportunities increase  • A decrease in imports has a positive effect on the balance of payments DISADVANTAGES OF IMPORT SUBSTITUTION • It does not necessarily lead to an overall reduction in imports. • South Africa had to import capital and intermediate goods to manufacture consumer goods. • Inefficient local production because local producers are shielded from international competition.  • Domestic consumers are forced to buy goods at higher prices on the international market, e.g. cellular phones, calculators, etc.. • Costly and uneconomical projects are established. e.g. Mossgas  REASONS FOR IMPORT SUBSTITUTION • Protection means high profits to protected industries, isolating them from competition and lowering their efficiency and development  • Protection does not advance industrialisation – backward linkages do not materialize  • Consumers often have to pay higher prices for goods of inferior quality from non- essential industries  (Max. 26) 13

Downloaded from hlayiso.com 10731 / 17 Note: Allocate a maximum of 8 marks for the mere listing of headings/ facts and examples. ADDITIONAL PART Advise the Minister of Trade and Industry whether the SA government should adopt a policy of free trade. South Africa should adopt a policy of free trade by ... - applying a completely free trade policy. - competing with industrialised countries as an emerging economy.  - competing with well-established industries to produce goods at a much lower cost than before.  - adopting subsidies and other incentives applied by foreign developed countries, to ensure more attractive exports.  - ensuring a decrease in the dumping of products from developed countries on developing economies like South Africa.  - adopting a protection policy to safeguard our local industries.  - adapting a protection policy that does not restrict trade.  (Accept any other correct relevant fact.) (Max. 10) (Allocate maximum of TWO marks for listing of facts / examples) CONCLUSION Import substitution implies that countries try to become more self-supporting and independent. (Accept any other relevant conclusion.) (Max. 2) [40] QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES “A range of programmes give effect to the government’s commitment to support regional economic development.” • Discuss regional development in South Africa in terms of the best practise benchmark. (26 marks) • Why were Industrial Development Zones (IDZs) not very successful since their inception in South Africa? (10 marks) INTRODUCTION Regional development is an important part of the industrial policy in South Africa and is aimed at promoting development in underdeveloped areas.  (Max. 2) BODY MAIN PART Free market orientation  • Government intervention in markets should be kept to a minimum so that the forces of supply and demand, as well as profit motives can allow for efficient allocation of resources.  14

Downloaded from hlayiso.com 10731 / 17 • The government must support entrepreneurship on a larger scale, as well as small business development.  Competiveness  • Industries or businesses established as a result of regional policies should be competitive and not need ongoing financial aid from government.  • Development should not only be limited to labour-intensive production methods, but must also focus on access to technology and the transfer of skills.  Sustainability  • The capacity of a region to support its own development and the natural resources and human resources of the region should be harnessed so that employment and sustainable development is achieved.  • The use of local resources will also offer the most cost-effective solutions.  • The people from a specific region should strive to be independent and allow development to take place from within.  Good governance  • Regional development strategies should be managed effectively and be free of corruption.  • Principles of accountability and transparency should be applied to ensure financial control.  • Projects should be correctly programmed, monitored and evaluated.  Provision of resources  • Sufficient resources should be provided in resource-poor areas, such as the development of infrastructure.  • The interaction of all aspects of a community such as health, education and nutrition must be considered.  Investing in social capital  • Governments need to improve the quality of education and healthcare in a region.  • Development for people involves providing essential services and goods that improve the living standard of people in a region.  • Examples include food, housing and security.  Integration  • An integrated approach should be followed, ensuring that benefits on one part of a region spill over to other industries and areas.  (Examples of an integrated approach should focus on tourism, agriculture, etc.) 15

Downloaded from hlayiso.com 10731 / 17 Partnerships  • Partnerships should be built between central government, local authorities, civil society, special interest groups, NGO’s and the private sector.  • The private sector, the public sector and local communities must cooperate with one another to achieve the best possible regional development.  • The private sector provides investment, expertise and goods in the development process.  (Max. 26) (Allocate a maximum of 8 marks for mere listing / headings / and examples.) ADDITIONAL PART Why were Industrial Development Zones (IDZs) not very successful since their inception in South Africa? (10 marks) • The initial financial incentives were not honoured by government.  • The Customs Free Incentives were obstructed by SARS.  • The Small Business Support Programme no longer exists.  - This programme was designed for small businesses with assets of R100 million or less.  - This incentive was intended to be a tax free cash grant for investment in industries.  - Grants would have been available to new and expanding businesses.  - Grants would been given for three years after which the company was expected to become self-sustaining.  • The Skills Support Programme no longer exists.  - This would have been a cash incentive to encourage greater investment in skills training and to introduce new, advanced skills to the SA labour force.  - A maximum of 50% of a company’s trading costs would have been covered.  • The Strategic Investment Programme is no longer in place.  (Max. 10) (Accept any other relevant answer) (Allocate a maximum of 2 marks for listing of facts / examples) CONCLUSION The South African government has entered into several agreements and projects that support development in Southern Africa for the benefit of South Africa.  (Max. 2) (Accept any other correct conclusion) TOTAL SECTION C: 40 TOTAL: 150 16