Economics P1 Revision Book Grade 12

ECONOMICS

2024 POST TRIAL LEARNER SUPPORT

MATERIAL

PAPER 1
(MACROECONOMICS & ECONOMIC PURSUITS)

GRADE 12

REVISION ACTIVITY BOOK

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Economics P1 Revision Book Grade 12

Dear Grade 12 economics learner

• The activities in this revision booklet have been extracted from the past examination
papers to ensure that you are exposed to the latest exam trends.
• You will be well prepared for exams if you work regularly through all the activities and
other activities you were given during the year.
• Work literally EVERY DAY on one or more activities to build your confidence and write a
test or exam after you have completed topics.

Economics exam tips that you could practice regularly and apply when you write a test
or exam:
✓ Read the instructions carefully before answering the question. ONLY do what is
required.
✓ Do not spend too much time on a question. IF the allocated time is over, move to the
next question to earn more marks. Only come back to incomplete questions later, if you
still have time.
✓ Underline certain words in the questions, so that you know exactly what the examiner
expects.
NOTE:
• In Grade 12 you should not leave your studying until days before examinations.
• Success in Grade 12 requires planning and hard work.
• You are in possession of the Final NSC timetable. Study it and start to plan how you will
approach your revision. There are days with two exams papers so you will have to be
super sharp and alert.
• Write a minimum of TWO examination practice papers after Preparatory Exams in
preparation for the Final Examinations.

Developers:
T. Nobala CES – Head Office

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Economics P1 Revision Book Grade 12

TIPS FOR ANSWERING QUESTIONS IN VARIOUS SECTIONS

Section A

• When answering Section A – these are short questions.

• It is important not to rush but to read the questions carefully and to make sure you
understand what the question is asking.
• You are looking for the MOST correct answer in the multiple-choice questions.
• There are 4 options so try to eliminate the completely wrong answer(s).
• Read carefully to identify the correct answer, identify the distractors that will also appear
correct.
• The answer will NEVER be two options.
• Only ONE option is correct.
• Your answer will immediately be marked incorrectly if you write TWO options.
• Give ONE term for each of the following descriptions, know your concepts.
• There are 6 marks for these questions in each paper (Q 1.3) and abbreviations and/or
acronyms are NOT allowed.
• Know your concepts and definitions to answer these questions.
Section B

• When answering Section B - Choose 2 of the 3 questions.

• Read through the questions to select the ones that you know best.
• Use your 10 minutes reading time to identify the questions you know best.
• The mark allocation should guide you to the length of your answers.
• Discuss, explain, why, how and what type of questions should be answered in full
sentences.
• For example: 4-mark questions must be answered with at least 2 facts, in full sentences.
• Calculations – Start off with the formula; then show all steps in the calculations.
SECTION C

• Assesses essay questions and you are required to Answer ONE of the two questions.
• The introduction should be a definition.
• Do not repeat any part of the question in your introduction in the body make use of
headings where possible-
• A maximum of 8 marks are allocated for headings and examples. These are easy marks
to collect
• Include sufficient facts to cover the 26 marks in the body.
• These facts should be written in full sentences to obtain maximum marks.
• The conclusion must not repeat any of the facts already mentioned in the body or
introduction.
• Read the table outlining the structure of the essay to ensure that you have an
appropriate conclusion.

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Economics P1 Revision Book Grade 12

CONCEPTS
NOTE: Concepts cut across all Sections and mastery thereof is essential to score better
marks.

MACROECONOMICS

CONCEPTS
Briefly describe the term recession.

• The period where there is a decline in economic activities for two consecutive quarters of
the year.
• The phase where economic activities are beginning to decline.
(Accept any other correct relevant response) (2)
Briefly describe the term circular flow.

• It is the diagram indicating the flow of production, expenditure and income in the economy.
(Accept any other correct relevant response) (2)
Briefly describe the term appreciation.

• It is the gain of value by the currency under a free-floating exchange rate.

(Accept any other correct relevant response) (2)
Briefly describe the term product market.

• The market where final consumer goods and services are traded (sold and bought)
(Accept any other correct relevant response) (2)
Briefly describe the term business cycle.

• The business cycle shows fluctuations (expansion and contraction) of economic activities.
(Accept any other correct relevant response) (2)
Briefly describe the term durable goods.

• Its goods that can be used over and over for a long period
(Accept any other correct relevant response) (2)
Briefly describe the term budget.

• A budget is a document showing anticipated revenue and estimated expenditure for a

specific period
(Accept any other correct relevant response) (2)
Briefly describe the term accountability
The government is required to make and implement policies and public servants are required to
explain their decisions and actions.
(Accept any other correct relevant response) (2)

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Economics P1 Revision Book Grade 12

Briefly describe the term trade balance.

• The difference between visible (tangible) exports and visible (tangible) imports / It is
calculated as merchandise exports plus net gold exports minus merchandise imports
(Accept any other correct relevant response) (2)
Briefly describe the term subsidy on production.

• Financial assistance or support by the government to reduce cost of production or

encourage production of certain products or influence remuneration of the factors of
production
(Accept any other correct relevant response) (2)
Briefly describe the term at constant prices.

• Constant prices represent the real value of NI-figures where inflation is excluded 
(Accept any other correct relevant response) (2)
Briefly describe the term Medium Term Expenditure Framework

• A plan of estimated revenue and expenditure which covers a period of three years
(Accept any other correct relevant response) (2)
Briefly describe the term Medium Term Budget Policy Statement.

• The MTBPS adjusts to changes in the economy since the main budget / It is based on the
MTEF and shares the developments in public policy that will shape the next and
forthcoming budgets
(Accept any other correct relevant response) (2)
Briefly describe the term balance of payments.

• It is a record of all financial transactions between one country and the rest of the world for
a specific period usually one year
(Accept any other correct relevant response) (2)
Briefly describe the term Gross National Product.

• The value of all final goods and services produced by the citizens of a country over a
particular period (2)
Briefly describe the term real (actual) business cycle.

• A real business cycle occurs when the effects of irregular events / seasonal / long-term
growth trends are removed from the time series data
(Accept any other correct relevant response) (2)
Briefly describe the term product market.

• The market where final consumer goods and services are traded (sold and bought)
(Accept any other correct relevant response) (2)
Briefly describe the term exchange rate

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Economics P1 Revision Book Grade 12

• It is the price of one country's currency in terms of another country's currency.

(Accept any other correct relevant answer) (2)
Briefly describe the term multiplier.

• An initial increase in spending (injection) produces a more than proportional increase in

national income.
(Accept any other correct relevant response.) (1 x 2) (2)
Briefly describe the term public sector failure.

• Public sector failure occurs when the public sector does not succeed in managing the
available resources effectively and optimally. / Occurs when the government’s intervention
fails to meet the desired outcome, or even makes the existing economic situation worse.
✓✓
(Accept any other correct relevant response.) (1 x 2) (2)
Briefly describe the term composite indicator.

• A composite indicator is formed when individual indicators are compiled into a single index.
(Accept any other relevant response.) (1 x 2) (2)
Briefly describe the term government policy

• Government policy refers to a government's actions, decisions, and measures taken to

address specific issues, achieve desired outcomes, and shape a country's socioeconomic
and political landscape.
(Accept any other correct relevant response.) (2)
Briefly describe the term public service provisioning.

• Public service means the activities and services done in any government capacity in the
interest of the public domain.
• A public service is a resource offered by an organisation, typically a government agency
or private business, intended to support members of a community. Public services include
health care, waste removal and transportation, and are systems and solutions that can
benefit various groups of individuals.
(Accept any other correct relevant response.) (2)
Briefly describe the term factors of production.

• Factors of production refer to the resources or inputs that are used in the production of
goods and services.
(Accept any other relevant correct response.) (2)
Briefly describe the term leakage.

• Leakage is when money leaves the Circular flow (economy) and the money is not used
for spending, e.g. savings, taxes and imports.
(Accept any other correct relevant answer) (2)

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Economics P1 Revision Book Grade 12

Briefly describe the term comparative advantage.

• A country has a comparative advantage when the opportunity cost of producing a good
or service is lower than the other country’s opportunity cost.
(Accept any other correct relevant answer) (2)
Briefly describe the term current account.

• The current account record transactions relating to production, income and expenditure.
• Refers to the balance of payments that shows the surplus or deficit in a country’s day-to-
day dealings in respect of merchandise (including gold), services, income and current
transfers.
(Accept any other correct relevant answer) (2)
Briefly describe the term fiscal policy.

• Fiscal policy is an attempt by the government to influence consumer spending through

taxes.
(Accept any other correct relevant answer) (2)
Briefly describe the term government expenditure.

• Money spent by the public sector on the acquisition of goods and provision of public
services
(Accept any other correct relevant responses) (2)
Briefly explain the term basic prices.

• Refers to the prices used when GDP is calculated according to the production method and
represents the production costs of firms / prices that includes taxes on production and
excludes subsidies on production.
(Accept any other correct relevant response)
Briefly describe the term bureaucracy.

• Tendency to be more interested in obeying the rules than the efficient delivery of goods
and services to the people.
(Accept any other correct relevant answer)
Briefly describe the term economic recovery.

• Economic recovery is the stage of a business cycle following a recession that is

characterized by a sustained period of improving economic activities.
(Accept any other correct relevant response) (2)
Briefly describe the term forecasting.

• Forecasting consists of techniques available that help economists predict business cycles
such as economic indicators✓✓
• Forecasting is the process of making predictions about changing conditions of future
events that can significantly affect the economy✓✓
(Accept any other correct relevant answer.)

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Economics P1 Revision Book Grade 12

Briefly describe the term budget deficit.

• When the government's tax revenue is less than its spending for a particular year.
(Accept any other correct relevant response)
Briefly describe the term new economic paradigm.

• These are policies that are embedded (rooted) in both demand and supply-side policies
to influence the economy
(Accept any other correct relevant response) (2)
Briefly describe the term factor cost.

• This is the cost of the factors of production (labour, capital, entrepreneurship and natural
resources) used to produce goods and services.
(Accept any other correct relevant response) (2)
Briefly describe the term autonomous consumption.

• The spending that does not depend on income

• The expenditure that takes place irrespective of the level of income
(Accept any other correct relevant responses)
Briefly describe the term amplitude.

• The oscillation from the trend line upwards and/or downwards.

(Accept any other correct relevant answer) (2)
Briefly describe the term price stability.

• Refers to the general prices of goods and services remaining relatively constant over time.
(Accept any other correct relevant answer)
Briefly describe the term induced consumption.

• Induced consumption is consumption that depends on the level of income.

(Accept any other correct response)
Briefly describe the term extrapolation.

• Extrapolation refers to a technique that economists use to predict the future by using past
data
(Accept any other relevant and correct response)
Briefly describe the term direct subsidies.

• Direct subsidies refer to the direct financial support that is provided by the government to
support domestic producers who export goods abroad.
(Accept any other relevant and correct response)

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Economics P1 Revision Book Grade 12

Briefly describe the term monetary policy.

• The approach taken by a country’s central bank to influence spending in an economy by

controlling the interest rates and the money supply. ✓✓
(Accept any other correct relevant response.) (2)
Briefly describe the term foreign exchange control.

• Foreign exchange control governs the measures taken by the South African Reserve bank
regarding the purchase of foreign currency. ✓✓
• Restrictions applied by some governments to ban or limit the sale or purchase of foreign
currencies by nationals and/or the sale or purchase of the local currency by foreigner✓✓
(Accept any other correct relevant response.) (2)

ECONOMIC PURSUITS

Briefly describe the term embargo.

• It is a complete ban imposed on the import of certain goods from a particular country.
(Accept any other correct relevant response) (2)
Briefly describe the term Spatial Development Initiatives.

• Refers to the programmes of government aimed at unlocking the inherent and

underutilized economic potential of specific areas or regions.
(Accept any other correct relevant response) (2)
Briefly describe the term employment.

• The number of people in an economy who provide services for pay under a contract as
well as the self-employed / The number of employed persons as percentage of the EAP /
Someone working and able to add value to their community or country and contribute to
the economy
(Accept any other correct relevant response) (2)
Briefly describe the term industrial development.

• The extensive development of organised economic activity for the purpose of creating
manufacturing, mining, agricultural and services industries
(Accept any other correct relevant response) (2)
Briefly describe the term economic development.

• The improvement in the standard of living for a country's population over a period of time
(Accept any other correct relevant response) (2)
Briefly describe the term life expectancy.

• The number of years a new born is expected to live

(Accept any other correct relevant response) (2)

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Economics P1 Revision Book Grade 12

Briefly describe the term economic growth.

• An increase in the productive capacity / goods and services of the economy over a period
of time / increase in real GDP
(Accept any other correct relevant response) (2)
Briefly describe the term corridor.

• Spatial area that offers particular advantage to mining, manufacturing tourism and other
businesses / a gateway that links two areas
(Accept any other correct relevant response) (2)
Briefly describe the term globalisation.

• Interaction between countries with trade as the center.

• Refers to the worldwide interaction of economies with trade as an important element and
is made possible by information and computer technology (ICT).
(Accept any other correct relevant answer) (2)
Briefly describe the term social indicator

• Social indicators are a measure that economists and governments use to evaluate the
performance of the economy with reference to the social well-being of the inhabitants✓✓
(Accept any other correct relevant answer.) (2)
Briefly describe the term north-south divide.

• It is a non-geographic line that divides countries according to their wealth and

development. / Countries in the north are rich while those in the south are poor
(Accept any other correct relevant answer) (2)
Briefly describe the term trade protocol.

• Trade protocol is the rule or guideline that applies to member countries.

(Accept any other correct relevant response.) (1 x 2) (2)
Briefly describe the term unemployment rate.

• The unemployment rate is defined as the percentage of unemployed workers in the total
labour force.
(Accept any other correct relevant response.) (1 x 2) (2)
Briefly describe the term bilateral trade.

• Bilateral trade refers to the exchange of goods, services, or investments between two
countries.
(Accept any other correct relevant response.) (2)

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Economics P1 Revision Book Grade 12

Briefly describe the term productivity

• Productivity is a measure of economic performance that compares the amount of goods

and services produced (output) with the number of inputs used to produce those goods
and services.
(Accept any other relevant correct response.) (2)
Briefly describe the term import substitution. (2)

• Import substitution occurs when locally produced goods replace goods that had previously
been imported.
(Accept any relevant answer)
Briefly describe the term urbanisation. (2)

• Urbanisation is the movement of people from rural areas to urban areas to seek for
employment.
(Accept any relevant answer)
Briefly describe the term census

• The counting of all the people in a country including economic and social indicators by the
Department of Statistics South Africa
(Accept any other correct relevant response). (2)
Briefly describe the term protectionism.

• A policy that governments impose to protect local producers against the unfair effects of
foreign competition / Involves measures to protect local industries against imported goods
and services
(Accept any other correct relevant response) (2)
Briefly describe the term National Development Plan (NDP)

• It sets out to expand economic opportunities through investment in infrastructure, more

innovation, private investment and entrepreneurship.
Briefly describe the term inflation.

• Inflation is a sustained and significant increase in the general price level over a period of
time / refers to the decline in the purchasing power of money.
(Accept any other correct relevant response) (2)
Briefly describe the term poverty line.

• Poverty line refers to the absolute minimum amount that a person must earn in order to
survive.✓✓
(Accept any other correct relevant answer.
Briefly describe the term economic activities.

• Occurs when resources such as capital goods, labour, manufacturing techniques or

intermediate products are combined to produce specific goods or services.✓✓

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Economics P1 Revision Book Grade 12

• Activity of making, supplying, buying or selling goods or services.✓✓

• Any action involving the production, distribution or consumption of products or services is
an economic activity.✓✓

Briefly describe the term public-private partnerships.

• It is an agreement between the government and private enterprises to develop certain

areas for the benefit of both parties.✓✓
(Accept any other correct relevant answer.)
Briefly describe the term free trade.

• Is a policy where goods, services, labour, entrepreneurship and capital can move freely
between countries without government intervention through tariffs, quotas and subsidies.
(Accept any other correct relevant response) (2)
Briefly describe the term regional development.

• Refers to the promotion of economic development in areas where poverty, unemployment

and income inequality are high, in order to uplift these areas.
(Accept any other correct relevant response) (2)
Briefly describe the term economic indicator.

• Statistics used to assess the performance of an economy

(Accept any other correct relevant responses) (2)
Briefly describe the term free trade zones.

• Free trade zones refer to duty-free areas offering storage and distribution facilities for
value-adding activities within the Special Economic Zone.
(Accept any other relevant and correct response)
Briefly describe the term trading bloc.

• Trading blocs are groups of countries that establish rules for trade among all participating
countries. ✓✓
(Accept any other correct relevant response.) (2)
Briefly describe the term global market.

• The market in which goods and services of one country are traded (purchased or sold) to
people of other countries. ✓✓
(Accept any other correct relevant response.) (2)
Briefly describe the term infant mortality.

Refers to the measure of the number of infants who die before the age of 1 year per
1000 live births in a given year. PP
(Accept any other correct relevant response) (2)

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Economics P1 Revision Book Grade 12

Briefly describe the term export promotion.

• Export promotion refers to measures undertaken by the government in order to encourage

local producers to produce more to sell to other countries.
(Accept any other correct relevant response.) (2)

SECTION B

Circular Flow

The open-economy circular-flow model, National account aggregates & The Multiplier
Name any TWO examples of leakages in the circular flow. (2x1) (2)

• Taxes✓, savings✓, import expenditure✓ (2 x 1) (2)

Name any TWO factors of production.

• Labour / Human resources✓, Capital✓, Land / Natural resources✓, Entrepreneurship

(2 x 1) (2)
Name TWO examples of injections in the economy. (2x1) (2)

• Government spending✓, Investment spending✓, Revenue from exports✓ (2x1) (2)

Name TWO examples of capital goods sold in the product market. (2 x 1) (2)

• Building/land✓, Machinery✓, Vehicles✓, Tools✓

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

Name any TWO types of consumer goods.

• Non-durable goods✓, Semi-durable goods✓, Durable goods✓, Services✓

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

Name any TWO participants in a closed economy. (2x1) (2)

• Household✓, business✓, state✓ (2X1) (2)

Name TWO examples of real flows within the four-sector model. (2 x 1) (2)

• Goods and services ✓, Imports of goods and services ✓, Export of goods and services ✓,
Factors of production ✓, Public goods and services ✓ (2 x 1) (2)

Name any TWO markets that operate within the financial market. (2 x 1) (2)

• Money market✓, Capital market✓, Foreign exchange market✓

(Accept any other correct relevant answer) (2 x 1) (2)
Name any TWO methods of calculating National Income figures.

• Income Method✓, Product Method✓, Expenditure Method / Expenditures✓ (2 x 1) (2)

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Economics P1 Revision Book Grade 12

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✓ (2x1) (2)

Name the TWO factors that determine the size of multiplier in a two-sector model.

• Marginal Propensity to Consume (MPC)

• Marginal Propensity to Save (MPS) (2x1) (2)

What is the relationship between real flows and money flows in the economy?
(1 x 2) (2)
Money flows provide remunerations and funding to the to the real variables. ✓✓
(Accept any other correct relevant answer)
How do price changes impact monetary flows in the circular flow? (2 x 1) (2)

• A decrease in the prices of goods and services will lead to an increase in demand, which
increases money flowing in the circular flow as payment for goods and services and
expenditure between the participants. ✓✓
• An increase in the prices of goods and services will reduce the money flowing between
the participants (payment for goods and services), as demand for goods and services
decreases ✓✓
• If the price of labour (wages) increases, this will increase the flow of money in the circular
flow as demand increases due to increased income ✓✓
(Accept any other correct relevant response.) (Any 1 x 2) (2)
Why are injections important in the South African economy? (1 x 2) (2)

• They add more money in the circular flow, which will increase the quantity of money in the
economy ✓✓
• Injections are additional money into the economy which result to an increase in the GDP
(economic growth) and more profits ✓✓
• They lead to an increase in output, income and employment opportunities ✓✓
(Accept any other correct relevant response) (1 x 2) (2)
What is the importance of the factor market on the circular flow? (1 x 2) (2)

• This is the market for the factors of production that are combined to produce goods and
services on the economy. ✓✓
• The factor market provides a platform where households can sell factors of production
that they own. ✓✓
(Accept any other relevant correct response) (1x2) (2)

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Economics P1 Revision Book Grade 12

Why are real figures used instead of nominal figures to measure Gross Domestic
Products? (1x2) (2)

• Real values of production are the nominal values of national products adjusted for price
increases. ✓✓
(Accept any other correct relevant response) (1 x 2) (2)
Why are taxes on products added to basic prices to obtain the market price? (1x2) (2) Taxes
are paid by the consumer / they are part of the price payable to obtain the product ✓✓ (Accept
any other correct relevant responses) (1 x 2) (2)
How can double counting be avoided when calculating the GDP? (2 x 1) (2)

• Double counting can be avoided by subtracting the value of intermediate goods in the
final market price of goods. ✓✓
• Double counting can also be avoided by taking into account only productions made in
each sector of production. ✓✓ (1x2) (2)
(Accept any relevant answer)
Why are the values of imports deducted when calculating the expenditure on GDP?(1 x2)(2)

• Imports are produced in foreign countries, therefore they are not part of the GDP ✓✓
(Accept any other correct relevant responses)
What is the purpose of the residual item when the expenditure method is used to calculate
national income? (1 x 2) (2)

• The residual item takes into account errors and omissions that may have occurred in order
to balance the GDP and GDI equation ✓✓
(Accept any other correct relevant response) (1 x 2) (2)
Why are real figures used instead of nominal figures to measure Gross Domestic Product?
(1x2) (2)

• Real values of production are the nominal values of national products adjusted for price
increases. ✓✓
(Accept any other correct relevant response) (1 x 2) (2)
Why are subsidies on products subtracted when converting gross domestic product (GDP)
at basic prices to GDP at market prices? (1 x 2) (2)

• A subsidy on a product is a financial assistance that helps to reduce the price paid by
consumers hence it is subtracted. / A subsidy is an expenditure to the government which
is not paid by the consumers hence it is subtracted from the market prices. ✓✓
(Accept any other correct relevant response) (1 x 2) (2)

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Economics P1 Revision Book Grade 12

Why is the value of a multiplier in a four-sector model smaller than that of a two-sector
model? (2)

• The size of the multiplier will be smaller as there will be more leakages (taxes and imports)
in the economy. ✓✓
(Accept any other correct relevant response.) (1x2) (2)
What effect will there be on the multiplier if there is an increase in welfare grants? (1x2=2)

• Government is increasing their spending and this is seen as an inflow of money and the
increase will result in a proportionately bigger increase in income in the economy.✓✓
(Accept any other correct relevant answer.)
How can an increase in the marginal propensity to save (MPS) affect the size of the
multiplier?

• As the marginal propensity to save is increased, the size of the multiplier will decrease.
✓✓
• The size of the multiplier is inversely proportional to the marginal propensity to save. ✓✓
(Accept any other correct relevant response) (1 x 2) (2)

Business cycles

Name any TWO types of business cycle. (1 x 2) (2)

• Kitchen, Jugler, Kuznets, Kondratieff

Name the TWO approaches to business cycles. (2x1=2)

Endogenous/Keynesian approach/Sunspot theory✓ Exogenous/Monetarist approach✓

Name any TWO examples of exogenous factors for business cycles.

• Natural disasters / Weather✓, Shocks✓, Structural change✓, Inappropriate government policy✓,

Money supply✓ (2 x 1)

(Accept any other correct relevant answer)

Name the TWO turning points in the business cycle. (2 x 1) (2)

• Peak✓, Trough ✓ (2 x 1) (2)

Name any TWO periods of business cycles. (2 x 1) (2)

• Contraction/downswing ✓ and Expansion/upswing ✓

Name any TWO features of the fiscal policy.

• Demand biased✓, Goal bound ✓ and Cyclical✓ (2x1) (2)

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Economics P1 Revision Book Grade 12

Name any TWO instruments of the monetary policy. (2x1) (2)

• Interest rates✓, Open market transactions Cash✓, reserve requirement✓, Moral

suasion/persuasion✓ (2 x 1) (2)

Name any TWO features of the fiscal policy. (2x1) (2)

• Goal bound✓, Demand based✓, Cyclical✓ (2 x 1) (2)

Why is extrapolation important in the forecasting of business cycles? (1x2) (2)

• Economists use past data such as trends and assume that these trends will continue, and
then they make predictions about the future ✓✓
• Economists also make economic predictions in other settings e.g. the prediction of future
share prices✓✓
(Accept any other correct relevant response). (1 x 2) (2)
How are leading indicators used in the forecasting of business cycles? (1 x 2) (2)

• Leading indicators are used by economists to get an idea of what to expect in the near
future as they change before a business cycle changes✓✓
• They give consumers, businesses and the state a glimpse of the direction in which the
economy might be heading✓✓
(Accept any other correct relevant response) (1 x 2) (2)
Why is it important to use moving averages to forecast business cycles? (1 x 2) (2)
It removes fluctuation in economic data which makes it easier to predict business cycles (a
particular trend)
(Accept any other correct relevant response) (1 x 2) (2)
What is the purpose of a trend line in a business cycle? (1 x 2) (2)

• The trend indicates the general direction in which indexes move, that were used in the
business cycle✓✓
(Accept any other correct relevant response) (1 x 2) (2)
Why does the endogenous school of thought encourage government intervention in the
economy? (2)

• Markets are unstable, therefore government should intervene in the economic processes
to stabilise the economy (to smooth out peaks and troughs)
• The price mechanism fails to coordinate supply and demand in the product and factor
market
(Accept any other correct relevant response) (2)

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Why is the inflation rate high during the prosperity phase of a business cycle?

• Demand is very high in relation to the supply of goods and services which results in higher
prices ✓✓
• The amount of money in circulation is very high which result in too much money chasing
few goods ✓✓
(Accept any other correct relevant response) (1 x 2) (2)

PUBLIC SECTOR

Name any TWO examples of indirect tax. (2 x 1) (2)

• Value-added tax (VAT) ✓, Excise duties/sin tax✓, Custom duties/import duties/tariffs✓,

Fuel levy✓

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

Name any TWO types of direct taxes. (2x1=2)

• Income tax / Individual income tax / Pay as You Earn✓, Company tax / Profit tax /
Corporate income tax✓, Transfer tax / Estate tax ✓, Entitlement tax✓, Property tax✓,
Capital gains tax✓

(Accept any relevant correct answer) (Any 2 x1)

Name any TWO monetary policy instruments used by the South African Reserve Bank.

• Interest rates
• Cash reserve requirements
• Open market transactions
• Moral suasion
• Foreign exchange control (2 x 1) (2)
Why does the government strive to keep public debt to at least 60% of GDP? (1x2) (2)

• Reduce the burden on the taxpayer as the repayment on interest and loan comes from
tax revenue.
• Limiting public debt will mean that more money would be allocated to other functional
needs of the government
(Accept any other correct relevant response)
Name any TWO macroeconomic objectives of the public sector. (2 x 1) (2)

• Economic growth
• Full employment
• Price stability
• Exchange rate stability
• Balance of payments equilibrium
• Economic equity / Equal distribution of income and wealth
(Accept any other correct relevant response) (2 x 1) (2)

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Economics P1 Revision Book Grade 12

Name any TWO sources of state revenue. (2 x 1) (2)

• Tax (Personal income tax / Capital gains tax / Value Added Tax / Customs duties / Fuel
levy / Excise duties)
• Income from property rental
• Income from privatisation of state assets
• Profits from SOEs
• Donations
• Loans
(Accept any other correct relevant response) (2 x 1) (2)
Name any TWO problems of public sector provisioning. (2x1) (2)

• Accountability
• Efficiency
• Assessing Needs
• Pricing policy
• Parastatals
• Privatisation/nationalization
(Accept any other correct relevant response) (2 x 1) (2)
Name any TWO pricing policy options used in the public sector. (2x1) (2)

• Free of charge
• Charging a small fee
• Subsidies (2 x 1) (2)
Name TWO variables illustrated in the Phillips Curve graph. (2 x 1) (2)
• Inflation rate
• Unemployment rate
Name TWO main variable illustrated in the Laffer Curve graph. (2x1) (2)

• Tax rates
• Tax revenue
Why does the free rider problem cause the government to provide public goods and
services? (1 x 2) (2)

• The free-rider problem forces the government to provide the public goods and services
because private businesses cannot produce them and offer them for sale in the market
like private commodities.
• Once the government produces public goods, people can consume them without having
thereby eliminated the incentive for private businesses to supply these goods to pay.
(Accept any other correct relevant response.) (1 x 2) (2)

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Economics P1 Revision Book Grade 12

Why does public sector failure lead to social instability?

• The lives of people are destabilised, and their human rights compromised
• The community becomes disgruntled and starts making their demands through protesting
(Accept any other correct relevant response) (1 x 2) (2)

FOREIGN EXCHANGE MARKETS

Name any TWO effects of international trade.

• Specialisation
• Mass production
• Efficiency
• Globalisation
• Dumping
Why is foreign exchange market important to tourists. (1x2) (2)

• Tourists need to exchange their own currency to buy goods and services in other
countries✓✓/allow currency conversions to facilitate trade between countries/settle
payments/purchase goods and services✓✓
(Accept any other correct relevant response). (1 x 2) (2)
Why are liabilities added when calculating net direct investments on the financial account
of the balance of payments?
Liabilities represent a capital inflow or money flow from the foreign sector into South Africa
(1 x 2) (2)
What effect will the depreciation of the Rand have on the demand for foreign goods?
Less goods will be imported because the price of these goods will rise due to a decrease in the
value of the domestic currency. (1 x 2) (2)
How can interest rates be used to correct the deficit on the balance of payment?

• Increased interest rate can reduce spending which includes spending on imports
• Increased interest rates may lead to increases in investment in a country resulting in
money inflow
(1 x 2) (Accept any other correct relevant responses) (2)
What effect will a decrease in income levels have on international trade?

• A decrease in income levels implies less money to spend on goods and services
internationally
• decrease in demand domestically and internationally which will reduce international trade
(Accept any other correct relevant response) (1 x 2) (2)

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Economics P1 Revision Book Grade 12

Why is it necessary to dampen an overheating economy (excessive growth)?

• An overheated economy causes a shortage in the supply of goods and services and leads
to inflation.
• The value of the rand may become too strong and lead to a decrease in exports.
• Resources may get depleted if firms try and increase production in response to demand.
(Accept any other correct relevant response.) (Any 1 x 2) (2)
Explain the impact of an appreciation of the rand on imports. (1 x 2) (2)

• Imports will increase as stronger rand reduces the price of imported goods.
• The demand for foreign goods and services will increase.
(Accept any other correct relevant response.) (Any 1 x 2) (2)
What is the effect of the depreciation of the rand on imports?

• Less goods will be imported because the price of these goods will rise. (1 x 2)
(Accept any other correct relevant answer) (2)
How does comparative advantage encourage the production of specialised goods?
(1 x 2) (2)

• Countries will specialise in goods where they have comparative advantages, therefore
channel all resources and research to improve the product and enjoy economies of scale.
✓✓
(Accept any other correct relevant response.) (1 x 2) (2)
How does mass production influence international trade? (1 x 2) (2)

• Mass production means the production of a good on a large scale, can facilitate surplus
trade of goods between countries and allow consumers to buy a variety of goods at lower
prices. ✓✓
(Accept any other correct relevant response.) (1 x 2) (2)

What impact does access to capital have on countries globally? (1x2)

• Having access to capital ensures that developed countries have an advantage in terms of
being more self-sufficient, whereas developing countries are more dependent on imports.
✓✓
(Accept any other correct relevant response) (1 x 2) (2)
Why does international trade lead to mass production?

• World markets are much bigger than domestic market which encourages production of
goods at a large scale
• Exporting requires the use of new technologies (capital intensive industries) which leads
to production on a large scale.
• International trade requires specialisation which leads to the production of goods in large
quantities

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Economics P1 Revision Book Grade 12

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

4.1.2 What is the purpose of current transfers on the Balance of Payments? (1 x 2) (2)

• Current transfers record all money that has come into or left the country, but no buying or
selling has taken place. (1 x 2)
(Accept any other correct relevant answer) (2)

PARAGRAPHS

CIRCULAR FLOW

Briefly discuss the relationship between the financial sector and other participants in the
circular-flow model. (8)

• The financial sector provides borrowing and lending services to other participants in the
circular flow model.
• Commercial banks accept deposits of money from households as savings.
• The financial sector lends money in the form of loans to producers that need to expand
their operations.
• Households may borrow money from financial institutions to purchase goods and services.
• Government institutions such as state-owned businesses and local municipalities may
save or invest their surplus funds with financial institutions.
• Financial institutions such as commercial banks and insurance companies pay taxes to
the government. ✓✓
• The government may borrow funds from different financial institutions.
(Accept any other correct relevant response.) (Any 4 x 2) (8)
Discuss injections and leakages in the circular flow. (2 x 4) (8)
Injections

• Injections refer to an inflow of money into the economy.

• When injections increase, this can lead to an increase in employment opportunities.
• The following are injections (additions to) the circular flow: Investment (I), Government
expenditure (G) ,Payments for exports (X)
Leakages

• Leakages refer to the outflow of money from the economy.

• An increase in leakages has a negative impact on economic growth.
• The following are leakages or withdrawals from the circular flow: Savings (S), Taxation
(T), Payment for Imports (M).

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Economics P1 Revision Book Grade 12

Differentiate between money flows and real flows in the circular flow model.
Money flow:

• Factor remuneration represents the expenditure of producers

• And the income of households e.g. wages, rent, interest and profit
• Consumption expenditure represents the expenditure of households and the income of
producers
• Government and foreign sector payments
• Import payments (expenditure) and export earnings (income) (Max 4)
Real flow:

• Factors of production flow from the owners (households) to producers via the factor
markets
• Goods and services flow from the producers via the goods markets to households and
other users of goods and services
• Factors of production and goods and services flow from foreign countries to South Africa
(imports)
• Factors of production and goods and services flow from South Africa to foreign countries
(exports)
(Allocate a maximum of 4 marks for mere listing of facts/examples) (Accept any
other correct relevant response) (Accept tabular format or a diagram of the circular
flow model) (Max 4) (8)
4.5 How can injections positively contribute to the economy

• Increase in investments will expand the tax base thereby increasing tax revenue for the
government
• The government's capacity to develop infrastructure such as energy and transport will
increase
• Establishment of new businesses and infrastructure development projects will create
more employment
• Consumer spending may increase as households receive more income leading to an
increase in aggregate demand
• Increase in government expenditure on welfare payments and social development
improves the standard of living, especially for the poor people
• Increase in government spending in the form of providing subsidies and incentives to
businesses will encourage production of more goods and services
• Increase in subsidies may reduce the cost of production which will reduce inflation in the
economy
• Increase in South African exports may result in the appreciation of the rand which will
reduce the cost of importing production inputs such as oil
• Increase in export production contributes to an increase in the real GDP of the country
• Balance of payments problems may decrease as the trade balance increases due to an
increase in exports
• Through the multiplier process, the country's national income will increase by a bigger
margin

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Economics P1 Revision Book Grade 12

(Accept any other correct relevant response) (Max 10)

(Allocate a maximum of 2 marks for a mere listing of facts/ examples)
Why are financial markets important for economic growth?
Financial markets are important for economic growth because they:

• providing for the households to save their share of income and for business to borrow an
amount of money.
• direct the flow of savings and investment in the economy which facilitates the
accumulation of capital,
• the increase in capital accumulation for the economy contributes to increased production
of goods and services
• bridging the gap between those who have excess money and those who need money
through the money and capital markets
• opportunities to increase wealth by investing in the stock market
• provides a mechanism for the government to control inflation and money supply through
the bond market
• to regulate the allocation of credit in the economy which also facilitates the production of
goods and services
(Accept any other correct relevant answer.) (Award a maximum of 4 marks for mere
mention of facts/examples) (8)

BUSINESS CYCLES

Explain how the amplitude and trend line can be used in the forecasting of business cycles
Amplitude:
• The power of the underlying forces – for example interest rates, exports or consumer
spending
• A large amplitude during upswing demonstrates strong underlying forces
• The duration of a cycle with a large amplitude is usually longer than one with a smaller
amplitude
• The extend of change – the larger the amplitude the more extreme the changes that may
occur
• For example, during an upswing unemployment may decrease from 20% to 10% (a
decrease of 50%) inflation may increase from 3% to 6% (by 100%) or a surplus on the
current account (of the balance of payments) can change from surplus to a deficit

Trend line:
• The trend line that rises gradually will be positively sloped in the long run, the rising line
indicates a growing economy
• The trend indicates the general direction in which indexes that were used in the business
cycle move
• The trend will change when the time series data change their behaviour patterns of the
past

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• However, some forces have to be overcome for that to happen e.g. Resistance points and
Channels
(Accept any other relevant facts) (Any 2 x 4) (8)
Discuss the exogenous explanations for business cycles

• Monetarists Economists believe that markets are inherently (naturally) stable

• Any expansion or contraction in economic activities is due to factors coming out of the
market system
• They believe that when disequilibrium exist in the economy, Market forces (supply and
demand) bring the economy back to its natural state or equilibrium route
• Government interferences (policy) are not part of the normal forces operating in the
market (i.e. Government policy is regarded as external factor)
• Changes in weather patterns influence mainly agriculture and affect the level of
economic activity in general
• Technological innovation can lead to an expansion of the level of production of goods
and services.
(Accept any other correct relevant responses)
(Allocate a maximum of 4 marks for the mere listing of facts) (8)

Briefly discuss improving the efficiency of inputs and improving the efficiency of markets
as supply-side policies to smooth out business cycles. (2 x 4) (8)
Improving the efficiency of inputs

• Tax rates: low tax rates can serve as an incentive to workers. It will improve the productivity
and output.
• Capital consumption: replacing capital goods regularly creates opportunities for
businesses to keep up with technological developments and better outputs.
• Human resource development: to improve the quality of manpower by improving health
care, education and training.
• Free advisory service: these promote opportunities to export.
(Accept any other relevant correct response.) Maxs 2 x 2
Improving the efficiency of markets

• Deregulation: removal of laws, regulations and by-laws and other forms of government
controls which make the market free.
• Competition: encourages the establishment of new businesses.
• Leveling the playing field: private businesses cannot compete with public enterprises.
(Accept any other relevant correct response.) Maxs 2 x 2 (8)

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Economics P1 Revision Book Grade 12

Explain how moving averages can be used in forecasting business cycles.

• It is also known as the judgmental method

• The averages are used to analyze changes that occur in a series of data to enable
economists to make predictions about the future.✓✓
• Moving averages can be calculated for the past 3 months to smooth out any minor
fluctuations✓✓
• To enable economists to iron out small fluctuations and reveal long-term trends in the
business cycle✓✓ It is calculated to iron out small fluctuations and reveal trends in the
business cycles
• The quantitative method does forecasting based on mathematical models, statistics and
historical time series data
• These can be the GDP figures over the past five years
• This method is accurate when used for short-term to medium-term forecasting
• Moving averages are calculated over a certain time (e.g. a few months) to smooth out
minor fluctuations in the data
• By using moving averages determined from the given data, economists get a clearer
picture of the general trends in the business cycle
• The qualitative method does forecasting based on intuitive judgement, own opinions,
market research and subjective probability estimates
(Accept any other correct relevant response). (4)
How can exogenous factors cause economic fluctuations (business cycles)? (8)

• Expansionary policies such as reduction in taxation and interest rates stimulate aggregate
demand which will increase the production of goods and services.
• An increase in money supply and government expenditure may stimulate spending which
will cause an expansion in economic activity
• Structural changes such as an increase in the contribution of the secondary or tertiary
sector to the GDP may change production patterns and expand the level of economic
activity
• Technological innovations lead to large investments in the production of new products
causing an expansion in economic activity
• Random shocks such as change in the ruling party or civil war may cause businesses and
households to be pessimistic thereby reducing the level of activity
• A drastic increase in international oil prices may increase the cost of production which will
shrink the level of economic activity
• Natural disasters such as droughts and floods may destroy infrastructure causing a
contraction in economic activity
• Climate change and global warming reduce primary sector production, slowing down
economic growth the economy which also facilitates the production of goods and services
(Accept any other correct relevant response.) NOTE: Allocate a maximum of 2
marks for a mere listing of facts. (Any 4 x 2) (8)

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Economics P1 Revision Book Grade 12

How can aggregate supply be stimulated by improving the efficiency of inputs?

(4 x 2) (8)

Aggregate supply can be stimulated by:

• Lowering taxes as an incentive to produce more.

• Raising the depreciation rate to encourage firms to use the latest technology.
• Improving the quality and movement of human resources through education, training
courses and improved healthcare.
• Providing free advisory services to Small, Medium and Micro Enterprises (SMMEs.)
(Accept any other correct relevant response) (Allocate a maximum of 2 marks for
mere listing of facts or examples) (4 x 2)

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Economics P1 Revision Book Grade 12

Why is price stability important to prevent extreme fluctuations in business cycles? (10
marks)

• contributes to high levels of economic activity and employment

• improves the transparency of the price mechanism so that people can recognise changes
in relative prices without being confused by changes in the overall price
• allows people to make well-informed consumption decisions
• encourages foreign investment to promote growth
• helps to allocate resources more efficiently
• avoids unproductive activities that are sometimes used to protect one against the impact
of high inflation
• avoids the risk of deflation which makes it more difficult implement policies guarding
against it
• implements inflation targeting, by reducing distortion of inflation or deflation which
exacerbates the distortionary impact on the economic behaviour of tax and social security

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• prevents an arbitrary redistribution of wealth and income as a result of unexpected

fluctuations
• keeps interest rates unchanged to ensure continued growth in the economy without big
fluctuations
• adapts the cash reserve requirements which will compel banks to limit credit/money in
circulation
(Accept any other correct relevant higher order response) (Max.10)
Analyze the importance of price stability in preventing extreme fluctuations in business
cycles. (4x2) (8)

• Price stability controls speculative behaviour among businesses and consumers thereby
reducing supply-side and demand-side influences on economic fluctuations ✓✓
• Positive consumer confidence is encouraged, which enables businesses to maintain
steady growth in production levels.✓✓
• Stable prices result in longer business cycles which show strength of the economy, and
the economic growth path will have an upward trend✓✓
• Maintains positive investor confidence, allowing the economy to follow a stable economic
growth path.✓✓
• Larger amplitudes in the business cycles are avoided through stable prices and create
more certainty in the economy.✓✓
• Stable prices enable the SARB to keep interest rates unchanged to ensure continued
growth in the economy without big fluctuations✓✓
• SARB can use the inflation target of 3-6% to keep prices stable in the interest of sustained
and balanced economic growth✓✓
(Accept any other correct relevant response). (4 x 2) (Allocate a maximum of 2
marks for mere listing of facts/examples). (8)

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Economics P1 Revision Book Grade 12

PUBLIC SECTOR

Differentiate between the Medium-Term Expenditure Framework (MTEF) and the Medium-
Term Budget Policy Statement (MTBPS).
MTEF

• A plan of estimated revenue and expenditure which covers a period of three years
• It serves to increase the level of transparency on matters of the government’s budget
It facilitates long-term planning so that departments can be certain of policy and funding
issues every three years (Max. 4)
MTBPS

• The statement that is presented in October of each year to give a picture of the following
year’s annual budget in February
• It provides the government’s assessment of the state of the economy, the budget
priorities, and the division of revenue
• It is based on the Medium-Term Expenditure Framework
(Accept any other correct relevant responses.) (Accept a maximum of 4 marks for
mere listing of facts.) (Max. 4) (4 + 4) (8)
Briefly discuss exchange rate stability and price stability as macroeconomic objectives of
the state. (2 x 4) (8)
Exchange rate stability

• Depreciation and appreciation of a currency create uncertainty for producers and traders
and should therefore be limited.
• The government should manage the economy through monetary and fiscal policies so
that the exchange rate remains relatively stable for as long as possible.
• South Africa pursues stable exchange rates to attract foreign capital.
Price stability

• In a mixed economy, prices fluctuate as demand and supply change.

• Frequent and dramatic changes in prices affect economic growth and employment.
• The government attempts to guard against price instability.
• In South Africa, price stability means an inflation rate of between 3% and 6%.
• Stable prices enable firms and households to predict income and expenditure.
• Investor confidence is boosted by stable prices and attracts foreign direct investment.
(2 x 4) (Accept any other correct relevant answer) (8)

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Economics P1 Revision Book Grade 12

Evaluate the role of the public sector in the economy with special reference to its economic
responsibility in the South African context. (8)
Positive role of the public sector:

• The SA economy is the most industrialised, technologically advanced, and diversified

economy in Africa.
• Steady progression towards the services sector results in diversification of the economy
• Well established financial sector compared to other African countries
• The South Africa government implemented the basic income grant in addressing the
poverty rate.
• These services ensure basic rights, promote social inclusion, and contribute to human
development.
• The SARB manages to keep the inflation target rate within 3 – 6%.
• Regulatory frameworks help to ensure fair competition, consumer protection, and
environmental sustainability.
• The National Development Plan was implemented to eliminate poverty and reduce
inequality by 2030.
Negative aspects of the public sector:

• The government failed in its mandate to provide satisfactory levels of employment in the
economy. Unemployment has been consistently above 30% in the last few years.
• The economy is growing marginally at a rate lower than 3% in the last few years.
• The South African government (public sector) has suffered from inefficiency, bureaucracy,
and corruption.
• Inefficient delivery of public services, mismanagement of resources, and corrupt practices
have hindered socio-economic development, eroded public trust, and diverted resources
from their intended purposes.
• Excessive public spending, fiscal deficits, and high levels of public debt have strained the
economy, leading to reduced investment, increased borrowing costs, and limited fiscal
flexibility.
• Inconsistency and uncertainty in policy formulation and implementation have hindered
private sector confidence and investment which have caused unstable business
environments and impeded long-term socio-economic development.
• Budget deficit currently 6%, international benchmark is 3%.
• GDP debt ratio is 73.9% of nominal GDP, international benchmark is 60%.
(Accept any other correct relevant response.) (A maximum of 2 marks will be
allocated for a mere listing of facts.) (8)

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How can the South African government improve the quality of public sector provisioning?
The South African government can improve the quality of public sector provisioning by:

• awarding government contracts for service delivery to companies with a positive track
record
• allocating adequate resources to different departments to ensure service delivery without
failure
• eliminating unnecessary rules and procedures (bureaucracy) to ensure efficient service
delivery
• eliminating corruption among government officials by implementing whistle blowing
channels such direct telephone lines to report corruption
• employing government officials based on qualifications, skills and experience to ensure
a high competence level in the public sector
• offering incentives such as performance bonuses to civil servants to motivate them to
perform their tasks successfully
• improving or upgrading the aging infrastructure to ensure reliable service delivery
• avoiding nepotism, favouritism, bribery and cadre deployment in recruitment procedures
in the public sector
• privatizing some government assets to improve efficiency in service delivery, e.g. If Eskom
could be privatized electricity supply could improve
• holding government officials accountable for their decisions and actions.
• implementing strict measures to reduce mismanagement of taxpayers' money, e.g.
Intensifying the implementation of the Public Financial Management Act (PFMA)
• forming Private Public Partnerships to enable a faster, more efficient delivery of goods
and services
• encouraging a competitive work culture by hiring and retaining talented individuals
through competitive compensation packages
• developing a framework for the appointment and payment of members to the Board of
state-owned companies
• focusing on scarce resources for highest financial impact
• setting clear costing and development mandates with financial implications clearly set out
(Accept any other correct relevant response) (4 x 2) (Allocate a maximum of 2 marks
for a mere listing of facts/examples)

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Economics P1 Revision Book Grade 12

FOREIGN EXCHANGE MARKETS

Differentiate between managed floating and free-floating exchange rates system. (8)
Managed-floating

• The exchange rate can fluctuate between certain limits as set by the central banks.
• Central banks intervene if the exchange rate moves outside the set limits.
• They buy and sell foreign exchange – to smooth out short term fluctuations in the
exchange rate.
• Huge forex supplies (reserves) are required for such interventions.
(Max 4)
Free floating

• The forces of demand and supply determine the exchange rate.

• Central banks do not intervene in the foreign exchange market on behalf of government
authorities33
• The exchange rate fluctuates as market conditions change.
(Max 4) (Max 4) (2x4) (8)
Differentiate between appreciation and revaluation. (8)
Appreciation

• When the value of the currency goes up as compared to other currency.

• Appreciation of a currency associated with a floating or managed floating exchange rate
system.
• It is bound to market forces.
(Max 4)
Revaluation

• It is the increase in the price of the currency within a fixed exchange rate system.
• Revaluation of a currency is associated with the fixed exchange rate regime.
• It is usually determined by the government. (Max 4) (2 x 4) (8)
Evaluate the impact of a weaker currency on the SA economy.
A weaker rand will positively affect the South African economy in the following ways:

• exports will become relatively cheaper thus leading to increased demand for South African
goods
• improving the Balance of Payment if the country earns more money from its exports than
what it pays for its imports
• Demand for South African exports such as base metals and mineral products will
increase as they become relatively cheaper.
• Foreign tourist arrivals will increase because it will be cheaper for them to spend money
in South Africa.
• Improvement in the trade balance as exports will be greater than imports.

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A depreciating rand will negatively affect the South African economy in the following ways:

• Imported production inputs such as crude oil and vehicle parts will become expensive,
fueling cost-push inflation.
• Higher cost of imported production inputs will decrease domestic production and
economic growth.
• creating a deficit on the balance of payment if the amount of money paid on imports is
more than the one received from exports
(Accept any other correct relevant response)
(A maximum of 2 marks may be allocated for the mere listing of facts / examples)
How does the manipulation of the rand affect the foreign exchange market?

• When authorities or market participants actively intervene in the foreign exchange market
to manipulate the rand's value, it can lead to sudden and unpredictable fluctuations in the
exchange rate.
• This volatility can make it challenging for businesses and investors to plan and make
informed decisions.
• Depreciating the rand through manipulation can make exports more competitive in
foreign markets, as they become relatively cheaper.
• These fluctuations in the exchange rate resulting from manipulation can impact on a
country's balance of trade and its export-oriented industries.
• Manipulation of the rand can affect investor confidence and foreign investment flows.
• Investors generally prefer stable and predictable exchange rates to make long-term
investment decisions.
• When authorities intervene in the foreign exchange market to manipulate the currency,
they may need to use foreign exchange reserves to buy or sell the currency.
• Frequent intervention and manipulation can deplete a country's foreign exchange
reserves, limiting its ability to address external imbalances or respond to economic
shocks.
(Accept any other relevant correct response.) (A maximum of 2 marks will be
allocated for the mere listing of facts.) (Max. 10)
How can the free-floating exchange rate system impact on an economy? (8)
Free-floating exchange rates can impact the economy by:

• increasing the value of a currency when such a currency’s demand in the foreign
exchange market increases
• making imported products cheaper and potentially increasing in the local market as a
result of the currency appreciation
• reducing the quantity of local goods exported as they become expensive in foreign
markets
• leading to a deficit in the balance of payment when imports are sustainably higher than
exports
• decreasing the value of a currency when the demand of such currency declines
• making local exports cheaper in foreign markets and potentially increasing as a result of
currency depreciation

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• resulting in a surplus on the Balance of Payment when the amount earned from exports
is sustainably higher than the amount paid for imports
(accept any other correct relevant responses) (Allocate a maximum of 2 marks for
the mere listing of facts) (8)

ECONOMIC PURSUITS

Briefly discuss the economic indicators that relate to productivity

Labour productivity is watched, particularly in relation to real wage increases.
a) Labour productivity:
• Labour productivity is measured by dividing the real GDP by the number of workers
employed.
• In South Africa labour productivity increases at a lower rate than the increase in
labour remuneration.

b) Remuneration per worker:

• When productivity increases are lower than the real wage increases, inflationary
pressures will occur.
• The relationship between productivity and wages is crucial for employers and
workers and they are therefore important indicators.
Briefly discuss the benefits of import substitution. (8)

• Increased employment ✓ – local workers, rather than foreign workers are employed to
produce the goods and services that substitute foreign goods.
• More choice ✓– because goods are no longer imported but locally produced, the foreign
exchange that becomes available can be used for other imports, thereby increasing the
choices made available to consumers.
• Diversification – by producing more goods locally, the range of available goods
increases.
• The country is less vulnerable to foreign actions and conditions.
• Encourages industrial growth and development.
• Fewer imports have a positive effect on the balance of payments.
(Accept any other correct relevant response.) NOTE: Allocate a maximum of 4
marks for a mere listing of facts. (8)
4.4 Discuss spatial development initiatives (SDIs) as South Africa's endeavors (efforts) in
regional development. (4 x 2) (8)

• Spatial development initiative can be defined as a link between important economic hubs
and regions in a country.
• SDIs promote sustainable industrial development in areas where poverty and
unemployment are at their highest.
• The intention of the government was to grow the SDIs mostly through private sector
investments through the granting of incentives.
• SDIs promote the establishment of Public Private Partnership (PPP) to increase the
economic potential of underdeveloped areas.

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• In a PPP private business may provide the capital to build the factory, to buy raw materials
and employ labour, while the government provides capital for the infrastructure e.g. roads
and water
• The SDI involves an interdepartmental investment strategy that the Department of Trade,
Industry and Competition (DTIC) and the Department of Transport (DOT) lead
• SDIs focus on high-level support in areas where socio-economic conditions require
concentrated government assistance and inherent economic potential exists
• SDIs attract private sector and foreign direct investments and maximize collaboration
between various types of investments
• Financial incentives to promote SDIs include duty-free incentives, Small and Medium
Enterprise Development, Skills support programme, Critical infrastructure programme and
Foreign investment grants
• The government develops physical infrastructure such as roads and harbours, and finance
them with loans and private sector investments
• Economic activity in underdeveloped areas is stimulated thereby promoting economic
growth and development
• Spatial development initiatives (SDIs) ensure rapid planning and development
• SDIs restructure the effects of the Apartheid economy through the development of
previously underdeveloped areas
• Examples of SDIs in South Africa include KwaZulu-Natal SDI, Wild Coast SDI, Fish River
SDI, Platinum SDI, Phalaborwa SDI, Gauteng Special Economic Zone, Lubombo SDI,
Richards Bay Initiative
(Accept any other correct relevant response) (4 x 2) (Allocate a maximum of 4 marks
for a mere listing of facts/examples)
Briefly discuss Special Economic Zones (SEZs) and Industrial Development Zones (IDZs)
as part of South Africa’s initiatives (endeavors) in regional development. (2x4) (8)
Special Economic Zones (SEZs)

• These are geographical areas of a country set aside for specially targeted economic
activities✓✓
• It creates a basis for a broader range of industrial parks and provide infrastructure to
promote employment✓✓
• These areas may enjoy incentives such as tax relief and support systems to promote
industrial development. ✓✓
• There are plans to reduce tax to 15% as an incentive to attract new industries✓✓
• The DTI has indicated that the existing IDZs where special tax incentives do not apply,
would be graduated into SEZs✓✓
• They are meant to expand the manufacturing sector✓✓
• Create additional industrial hubs so that the national industry base will be regionally
diversified✓✓
• The aim of the SEZ is to attract only new businesses✓✓
• Businesses which will be expanding their volumes✓✓
• Businesses which are developing a new product line✓✓ (2 x 2)
(Accept any other correct relevant response). (4)

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Industrial Development Zones (IDZs)

• They are purpose-built industrial estates, physically enclosed and linked to a port or
airport✓✓
• They are duty-free import areas✓✓
• This strategy was aimed at making exports internationally competitive✓✓
• The IDZ policy is designed to boost exports and job creation✓✓
• Goods produced in these zones should be exported to foreign countries✓✓
• The IDZ offers a world-class infrastructure, enjoys a zero-rate of VAT on supplies from
South African sources and reduced taxation on some products✓✓
• The IDZ strengthen and stimulate economies in their immediate environment ✓✓
• IDZs fall outside domestic customs zones and therefore are able to import items free of
customs and trade restrictions, add value and then export their goods✓✓
• The development and management of zones will be done by the private sector ✓✓
• Examples of IDZs are Coega, East London IDZ✓, and Richards Bay IDZ✓

Describe how the monetary policy is used in the demand side approach to promote Growth
and development in South Africa. (8)
The South African monetary policy implements the demand–side approach by:
Controlling the repo rate

• To affect the interests rates that commercial banks can offer for two purposes:
✓ Influence credit creation by making credit more expensive or cheaper
✓ Stabilise the exchange rates by encouraging capital inflows and outflows in order to take
care of a deficit or a surplus on the current account of the balance of payments
Conducting open market transactions

• To restrict bank credit, the SARB sells securities and when the banks buy these securities,
money flows from the banks to SARB
• The banks then have less money to lend and cannot extend as much credit as before
• To encourage credit creation, SARB buys securities in the open market. Money then flows
into the banking system
• Banks use money to create money
Moral suasion

• The SARB consults with banks and persuades them to act in a manner that is desirable
in terms of the economic conditions that prevail at the time
• The persuasion is often linked to the transactions by SARB in the money market e.g. the
buying and selling of bills and bonds
• If the banks are generous in extending credit, the SARB can call on them to be less
lenient. However, simultaneously it can sell paper in the market and drain excess liquidity
so that banks have less money to lend

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Evaluate the effectiveness or success of the Expanded Public Works Programme (EPWP)
in promoting growth and development in the country.
The EPWP has been effective or successful in promoting growth and development:

• Providing income relief through temporary work.

• Alleviating poverty and addressing unemployment through labour-intensive activities
• Innovative due to its large-scale nature, inter-ministerial coordination, expansion beyond
the infrastructure sector to include non-state, social, environmental and cultural sectors,
and the fact that it is directly targeted to youth and vulnerable groups.
• Has successfully included vulnerable groups such as women, youth and persons with
disabilities to its pool of participants.
• Phase 1 achieved a significant increase in income levels and the percentage of
households who were able to save increased.
• Improving economic efficiency and productivity through skills development.
• Creating decent employment creation, promoting labour standards and fundamental
rights at work.
The EPWP has been ineffective or unsuccessful in promoting growth and development
due to these major challenges:

• low wages that could not cover people’s basic needs

• lack of discipline among participants who cannot complete the training
• limited duration of the training left participants still incompetent
• delay in payment of stipends to participants, lead to inability to provide for basic needs
• lack of coordination, management and administration among programme officials that
lead to corruption and demotivation
• lack of adequate funding
(Accept any other correct relevant response)

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How can the fiscal policy as a demand-side approach be used to stimulate the economy of
South Africa?

• When the level of economic activity is low the Minister of Finance can use the
expansionary fiscal measures to stimulate growth and reduce unemployment✓✓
• An increase in government expenditure will increase aggregate demand✓✓
• When there is an increase in injections in the economy, production will result in a higher
employment of factors of production.✓✓
• The result is higher income and higher expenditure✓✓
• Taxes can be reduced, which will lead to an increase in disposable income✓✓
• This will increase consumer spending and investments, stimulating aggregate demand✓✓
• Cash benefits✓ such as old age pensions✓, disability grants are all sources of income
and assist with increased spending in the economy and increased production ✓✓
• Land distribution✓ focusses on land for residential(town) and production (farm) for
previously disadvantaged groups✓ will lead to an increase in labour and production. ✓✓
• Land restitution✓ is the return of land to those that have lost it due to discriminatory laws
in the past✓ will help farmers to produce more and increase agricultural production ✓✓
(4 x 2)
(Accept any other correct relevant response). (Allocate a maximum of 2 marks for
mere listing of facts/examples). (8)
(Accept any other correct relevant response). (2 x 2) (Allocate a maximum of 4
marks for mere listing of facts/examples). (4)

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Why are special economic zones important to the economy? (8)

The establishment of Special Economic Zones is important because:

• they are in geographically designated areas of a country, set aside for specifically targeted
economic activities, which are then supported through special arrangements, and which
may include laws and support systems to promote industrial development
• SEZs are used by many economies to promote economic growth and industrialisation
• SEZs are used as instruments for attracting foreign direct investment, alleviating large-
scale unemployment, developing and diversifying exports and experimenting with new
policies
• the DTI through this policy strives to create employment and economic growth by
establishing a strong industrial base in South Africa
• most outcomes of SEZs are expanding the manufacturing sector and creation of more
industries

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• the draft legislation sets the basis for the SEZs for a broader range of industrial parks
and economic infrastructure
• of the provisioning of effective clustering of value-adding processes where employment
creation is taking place and a wide variety of skills are needed in manufacturing (labour
intensive)
• SEZ act as a magnet for rapid development and investments in key growth areas
• SEZ leads to the development of new industrial regions through establishing new
industrial hubs in underdeveloped regions
• SEZ are used for aspects such as export promotion, enterprise development, urban
renewal, rural development and regional production
• SEZ supports the governments strategic objectives of industrialisation and employment
creation
• SEZ programmes are also crucial for domestic investment due to incentives
(Accept any other correct relevant response) (Allocate maximum of 2 marks for
examples or mere listing of facts) (8)

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MACROECONOMICS

DATA RESPONSE QUESTIONS

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2.3.1 Identify ONE parastatal from the extract above.

• Eskom
• Transnet (Any 1 x 1) (1)
2.3.2 Name a feature of public sector failure.
• Inefficiency
• Ineffectiveness (Any 1 x 1) (1)
2.3.3 Briefly describe the term public sector failure.
• Public sector failure occurs when the public sector does not succeed in managing the
available resources effectively and optimally. / Occurs when the government’s

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intervention fails to meet the desired outcome, or even makes the existing economic
situation worse. ✓✓
(Accept any other correct relevant response.) (1 x 2) (2)
2.3.4 Explain the impact of corruption on full employment as a macroeconomic objective.
• Corruption reduces the effectiveness of public investments, leading to a decrease in job
creation.
• As companies experience losses due to corruption and fraud, some workers may be
retrenched.
(Accept any other correct relevant response.) (Any 1 x 2) (2)
2.3.5 How can incompetence in state-owned enterprises affect service delivery?
• Incompetence by SOEs slows down service delivery and leads to irregular service
delivery (SAA and ESKOM).
• Funds allocated for service delivery are not spent wisely, due to a lack of capacity.
• SOEs’ employees may have insufficient training and experience which leads to wrong
decisions and low productivity.
• This can lead to less profits earned thus slowing down service delivery.
(Accept any correct relevant response.) (Any 2 x 2) (4)

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2.3 DATA RESPONSE

2.3.1 Which parastatal produces electricity in South Africa?

• Eskom (1)
2.3.2 Name the level of government that focuses on the provision of services at the
community level.
• Municipality/ Local government (1)
2.3.3 Briefly describe the term public sector failure.
When government intervention in the economy results in a more inefficient and ineffective
allocation of resources
(Accept any other correct relevant responses) (2)
2.3.4 Why is it difficult for the government to correctly assess the needs of the citizens
for public goods?
• Public goods have no market price to guide production (2)
2.3.5 How can public sector failure affect South Africans?
• The country can experience macro-economic problems such as low economic growth
and high unemployment
• Social instability can happen as a result of government failure to provide services
• Poor implementation of progressive taxation can result in growth in unequal income
distribution (2 x 2)
(Accept any other correct relevant responses) (4)

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2.3.1 Name ONE reason for public sector failure associated with workers.
• Incompetent management
• Lack of skills
• Lack of motivation
• Apathy
(Accept any other correct relevant response.) (1)

2.3.2 Give ONE state-owned-enterprise (SOE) in South Africa.

• SAA, ESKOM, PRASA, SABC, ACSA, Development Bank of Southern Africa (DBSA),
GEMS, GEPF, SABS
(Accept any other correct relevant response.) (1)

2.3.3 Briefly describe the term public service provisioning.

• Public service means the activities and services done in any government capacity in the
interest of the public domain.
• A public service is a resource offered by an organisation, typically a government agency
or private business, intended to support members of a community. Public services

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include health care, waste removal and transportation, and are systems and solutions
that can benefit various groups of individuals.
(Accept any other correct relevant response.) (2)

2.3.4 What are the benefits of SOEs being incorporated into a single unit?
• It can eliminate duplication of functions and streamline operations.
• A single entity can achieve economies of scale and scope, leading to improved financial
performance.
• A single entity can improve accountability and transparency compared to a fragmented
SOE landscape.
• A single entity can have a clearer strategic focus and direction for the SOEs. It enables
the government to align the objectives of the SOEs with national priorities and economic
goals.
• Consolidating SOEs can lead to better financial performance. By pooling resources,
optimising asset utilisation, and implementing standardised financial management
practices, the single entity can achieve economies of scale.
• This can result in improved profitability, enhanced creditworthiness, and reduced
reliance on government subsidies or bailouts.
(Accept any other correct relevant response.) (2)

2.3.5 How does lack of funds in the private sector impact infrastructure provisioning in
South Africa?
• The lack of private sector funds can contribute to existing infrastructure backlogs in South
Africa.
• The country faces significant infrastructure challenges, including inadequate
transportation networks, energy shortages, water scarcity, and limited access to basic
services in some areas.
• The government may need to allocate a larger share of its resources to fund
infrastructure projects, which can strain public finances
• The lack of modern and reliable infrastructure can deter foreign direct investment and
negatively impact investor confidence in the country's economic prospects.
(Accept any other correct relevant response.) (2 x 2) (4)

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4.2 Data response

4.2.1 Identify the state owned enterprise shown above

• ESKOM (1)
4.2.2 Name the institution that regulates the pricing of electricity in South Africa.
• National Energy Regulator of South Africa✔/NERSA (1)
4.2.3 Briefly describe the term budget
• A budget refers to the document detailing anticipated revenue and estimated
expenditure. (2)
(Accept any other relevant and correct response)

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4.2.4 Explain the impact of high state debt on the provisioning of public goods and
services. (2)
• A high state debt hinders the ability of the government to provide public goods but instead
focus on repaying the debt.
• With the existing debt, the government is unable to borrow from the same institution to
provide social services.
(Accept any other relevant and correct response)

4.2.5 How can the South African government improve accountability from public
servants? (4)
• Accountability can be upheld by holding accountability session where public servants
account for their actions.
• Reporting to the auditor general can improve accountability and promote service
delivery.
• Control by departmental heads can make public servants to focus on improving their
level of competency.
• Putting into place a quality management system where public servants are rated
according to their performance.

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2.3.1 Identify, from the above cartoon, the reason for public sector failure.

• Corruption✓ (1)

2.3.2 Which level of government is responsible for the control and management of the
country?

• The national government / central government✓ (1)

2.3.3 Briefly describe the term public sector failure.

• Public sector failure occurs when the public sector fails to optimally manage the economy
and resources under its control.✓✓
(Accept any relevant correct relevant answer.) (2)
2.3.4 Explain the impact of public sector failure on economic growth.

• Inefficient allocation of resources by the public sector can lead to a misallocation of capital
and labour, reducing overall productivity and economic growth potential.✓✓
• When the public sector becomes too large, it can crowd out private investment and
entrepreneurship, diminishing the innovation and investment needed for economic
expansion.✓✓
• Public sector failures can result in the provision of low-quality public goods and services,
hindering human capital development and overall productivity.✓✓
• High levels of public sector inefficiency can lead to unsustainable fiscal deficits, which
may require increased taxation or borrowing, placing a burden on the private sector and
impeding growth.✓✓
• An inefficient public sector may be plagued by bureaucracy and corruption, deterring
foreign investment and domestic business development.✓✓
• Public sector failure can undermine economic growth by distorting resource allocation,
crowding out the private sector, providing inefficient services, imposing fiscal burdens,
and fostering an unfavourable business environment.✓✓
(Accept any relevant correct relevant answer.)
2.3.5 How does corruption affect service delivery?

• Corruption creates fiscal distortions and diverts the money allocated to income grants into
housing or pensions and weakens service delivery; it is usually the poor who suffer the
most.✓✓
• Income inequality has increased in most provinces which are experiencing high levels of
corruption.✓✓
• (Accept any relevant correct relevant answer.)

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4.2.1 Identify the value of marginal propensity to save (mps) from the above diagram.

• 0.2 (1)
4.2.2 Name the leakage that relates to the foreign sector.

• Imports/payments for imports (1)

4.2.3 Briefly describe the term autonomous consumption.

• The level of spending that is independent of the level of income or changes in income.
(Accept any other correct relevant response) (2)
4.2.4 Explain the importance of savings in the economy.

• Savings ensure the availability of loanable funds in financial institutions for investments
(capital formation)
• Consumers will have access to loans which will increase spending on durable goods
• Savings help to control excess demand in the economy, thereby reducing demand-pull
inflation
• Households will enjoy financial freedom as they will be able to pay for their future needs
using their savings
(Accept any other correct relevant response) (2)
4.2.5 Use the marginal propensity to consume (mpc) in the above diagram to determine
the value of the multiplier. Write the formula and show ALL the calculations.
Multiplier (K) = 1/(1-mpc)
= 1/(1-0.8)
= 1/0.2
=5
(A maximum of 3 marks may be allocated for correct calculation without the formula) (4)

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2.2.1 Identify an example of a leakage in the above extract.

• Savings (1)
2.2.2 Name any ONE participant in a two-sector economy.

• Households/consumers
• Businesses/firms/producers (1)
2.2.3 Briefly describe the term autonomous consumption.

• The spending in the economy that takes place irrespective of the level of income/Level of
expenditure that exists when income is zero
(Accept any other correct relevant response) (2)
2.2.4 Why is the value of the multiplier in a four-sector model smaller than that of a two-
sector model?

• The size of the multiplier will be smaller as there will be more leakages (taxes and imports)
in the economy

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(Accept any other correct relevant response) (2)

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4.2.1 Name the leakage that is possible in a two-sector economy.

• Saving (1)
4.2.2 Which participant spend money on goods and services in the above economy?

• Household/ consumer (1)

4.2.3 Briefly describe the term autonomous consumption.

• The spending that does not depend on income

• The expenditure that takes place irrespective of the level of income
(Accept any other correct relevant responses) (2)
4.2.4 Use the following formula to calculate the multiplier. Show all calculations.
= 1/MPS
= 1/0,4
= 2,5

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2.3 DATA RESPONSE

2.3.1 Identify autonomous consumption in the original consumption function.

• 10 ✓ (1)

2.3.2 Name any ONE participant that is involved in deriving the macro-economic multiplier.

• Households/Consumers✓
• Businesses/Producers✓ (1)

2.3.3 Briefly describe the term multiplier.

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• Shows how an increase in spending (injection) produces a more than proportional

increase in national income/A small initial increase in spending produces a proportionately
larger increase in aggregate national income
(Accept any other correct relevant response). (2)
2.3.4 What is the relationship between the mpc (marginal propensity to consume) and the
multiplier?

• The larger the mpc the bigger the multiplier and the smaller the mpc the smaller the
multiplier. ✓✓ (Accept any other correct relevant response). (2)

2.3.5 With reference to the graph above, calculate the change in aggregate income when
the mpc is 0.6. Show ALL calculations.
M = 1/ 1- mpc
= 1 /(1- 0,6)
= 1/ 0.4

= 2.5✓

= 2.5 X 20bn ✓

= 50 bn✓ (Accept any other correct calculation). (4)

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2.2.1 Identify the original consumption function on the graph.

• E0=10+0.5y (1)
2.2.2 Give the marginal propensity to consume (mpc) from the above graph

• 0.5 (1)
2.2.3 Briefly describe the term induced consumption.

• Induced consumption is consumption that depends on the level of income.

(Accept any other correct response) (2)
2.2.4 How does an increase in marginal rate of taxation (mrt) influence the value of the
multiplier?
It will decrease the value of the multiplier due to a decrease in the marginal propensity to
consume.  (Accept any other correct response)

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2.3.1 Identify the monetary instrument that is mainly used in South Africa

• Repo rate/ repurchase rate (1)

2.3.2 Name the institution that is responsible for the formulation of monetary policy.

• South African Reserve Bank / SARB (1)

2.3.3 Briefly describe the term extrapolation.

• Extrapolation refers to a technique that economists use to predict the future by using past
data
(Accept any other relevant and correct response) (2)
2.3.4 What is the negative impact of excessive access to credit on the economy?

• When people borrow more than what they really need, high inflation rate can be
experienced.
• Uncontrolled borrowing can make it difficult to determine expenditure.
(Accept any other relevant and correct response)
2.3.5 How can moral suasion be used as a tool to dampen the overheated economy?

• When the South African Reserve Bank persuade banks to be more careful when they
grant credit, excessive spending is curbed therefore business cycles are stabilized.
• By exerting moral pressure on banks, they encourage their clients to save rather than
spending thereby reducing inflationary pressure.
• Strict measures applied by banks when lending money reduce unnecessary borrowing
thereby curbing demand pull inflation.
(Accept any other relevant and correct response)

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ECONOMIC PURSUITS

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3.2 Study the cartoon below and answer the questions that follow.

[Source: cartoonstock.com]

3.2.1 Which method of import substitution is related to sanctions and

embargoes? (1)

3.2.2 Give ONE reason for the application of import substitution. (1)

3.2.3 Briefly describe the term embargo. (2)

3.2.4 Why are sanctions imposed internationally? (2)

3.2.5 What effects do imposed tariffs have on the economy of the country?
(2 x 2) (4)

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