Ecs1601 Assessment 2 quiz

South African firms purchase more US capital goods. The ____________ for dollars
increases and rand ______________ against the dollar.



a.
supply; depreciates

b.
demand; depreciates

c.
supply; appreciates

d.
demand; appreciates

e.
demand; decreases

Feedback
If South African purchases and thus imports more capital goods, like machinery etc., from
the US, South African firms have to pay for the imports in dollars. The demand for
dollars on the South African foreign exchange market will increase, ceteris paribus,
and therefore the Rand will depreciate relative against to the dollar, ceteris paribus.
Refer toSee pages 71 to 76, and Figure 4-3, and Tables 4-1 and 4-2 in the prescribed
textbook

Question 2
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Suppose that the price of Brent Crude oil rises, which is a critical import in South Africa. At the
same time, there is an increase in the number of American tourists coming to South Africa.
What would be the impact on the US Dollar/Rand exchange rate?
a.
The Rand will appreciate against the Dollar and the quantity of Dollars will increase.
b.
The Rand will depreciate against the Dollar and the quantity of Dollars will decrease.
c.
The effect on the Rand is indeterminate and the quantity of Dollars will rise.
d.
The Rand will depreciate against the Dollar and the quantity of Dollars will rise.

, Feedback| The correct answer is C
Brent Crude oil is a critical input in the production process and consequently the increase in the
price of the good will raise the demand for US Dollars in the South African market ceteris
paribus. The increase in the number of American tourists coming to South Africa will increase
the supply in the US Dollar. Consequently, the supply and demand curves will both shift to the
right. As a consequence, the quantity of US Dollars in the market will rise, but there is no
determined impact in the exchange rate. See Section 4.3 of the prescribed book.

Question 3
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Suppose Katlego owns a jewellery import business. Katlego imports necklaces and other
jewellery from the United States. If there is a depreciation in the Rand against the Dollar, which
of the following is correct about Katlego’s business?
a.
Katlego would need more Rands to purchase the jewellery and this will cause her to reduce her
prices.
b.
Katlego would need less Rands to purchase the jewellery and will reduce her prices.
c.
Katlego would need less Rands to purchase the jewellery and this will raise her prices.
d.
Katlego would need more Rands to purchase the jewellery and will raise her prices.
Feedback The correct answer is C
When the domestic exchange rate depreciates, it implies that more Rands are needed to
purchase US-denominated goods and services. As a consequence, the cost of inputs and final
goods in the importing country (assuming the importing country experiences the depreciation)
will increase and this will increase the price of the goods supplied in the domestic market.


Question 4
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What impact is the increase in the supply of Dollars on price and the supply curve’s direction?
(a) The price of the Dollar becomes relatively lower.
(b) The Rand appreciates against the Dollar.