EXAM PACK
MODULE
ECS 1601
1
, DATE
2017
2
,ECS 1601
OCTOBER/NOVEMBER 2016 SOLUTIONS.
SECTION A COMPULSORY ESSAY QUESTIONS
QUESTION 1:
1(a) BRIEFLY EXPLAIN DEMAND MANAGEMENT POLICIES
AND HOW THEY CAN BE USED IN THE ECONOMY (3)
There are two policies that can be used to manage the demand for goods and
services
(i) The Fiscal policy (Government): The two main instruments that the government
can use to manage the demand for goods and services are government spending
the taxes
Expansionary/Stimulatory policy: Increase Government spending and/or
decrease taxes
Restrictive/contractionary policy: Decrease government spending and/or
increase taxes.
(ii) The monetary policy (SARB): The main instrument used by the Reserve bank is
the interest rate.
Expansionary/Stimulatory policy: Decrease the interest rate.
Restrictive/contractionary policy: Increase the interest rate.
1(b) DISTINGUISH BETWEEN A FLOW VARIABLE AND A
STOCK VARIABLE. GIVE ONE EXAMPLE OF EACH (4)
Flow variable: This type of variable is measured over a period. E.g
On 25th April 2014 the inflow into Gariep dam was measured at
88cubic meters per second.
Stock variable: This particular variable can only be measured
exactly at a particular point in time. At 0.00 on 25 th April 2014 the
level at the Gariep dam was at 95.8%
3
, 1(c) USE A DIAGRAM TO EXPLAIN HOW A DECREASE IN THE
INTEREST RATE WILL AFFECT THE QUANTITY OF
MONEY. (4)
i
L
i0 E0
INTEREST RATE
i1 E1
L
0
M0 M1
QUANTITY OF MONEY
With an decrease in the interest rate from i0 to ii the quantity of money demanded will
increase from M0 to M1 and the equilibrium has decreased from E0 to E1
1(d) LIST THREE WAYS IN WHICH GOVERNMENT SPENDING
CAN BE FINANCED. (3)
(i) Income from property
(ii) Taxes
(iii) Borrowing
QUESTION 2
2(a) USE A DIAGRAM TO EXPLAIN HOW A DECREASE IN
GOVERNMENT SPENDING WILL AFFECT THE LEVEL OF
INCOME IN THE KEYNESIAN MODEL. (5)
4
MODULE
ECS 1601
1
, DATE
2017
2
,ECS 1601
OCTOBER/NOVEMBER 2016 SOLUTIONS.
SECTION A COMPULSORY ESSAY QUESTIONS
QUESTION 1:
1(a) BRIEFLY EXPLAIN DEMAND MANAGEMENT POLICIES
AND HOW THEY CAN BE USED IN THE ECONOMY (3)
There are two policies that can be used to manage the demand for goods and
services
(i) The Fiscal policy (Government): The two main instruments that the government
can use to manage the demand for goods and services are government spending
the taxes
Expansionary/Stimulatory policy: Increase Government spending and/or
decrease taxes
Restrictive/contractionary policy: Decrease government spending and/or
increase taxes.
(ii) The monetary policy (SARB): The main instrument used by the Reserve bank is
the interest rate.
Expansionary/Stimulatory policy: Decrease the interest rate.
Restrictive/contractionary policy: Increase the interest rate.
1(b) DISTINGUISH BETWEEN A FLOW VARIABLE AND A
STOCK VARIABLE. GIVE ONE EXAMPLE OF EACH (4)
Flow variable: This type of variable is measured over a period. E.g
On 25th April 2014 the inflow into Gariep dam was measured at
88cubic meters per second.
Stock variable: This particular variable can only be measured
exactly at a particular point in time. At 0.00 on 25 th April 2014 the
level at the Gariep dam was at 95.8%
3
, 1(c) USE A DIAGRAM TO EXPLAIN HOW A DECREASE IN THE
INTEREST RATE WILL AFFECT THE QUANTITY OF
MONEY. (4)
i
L
i0 E0
INTEREST RATE
i1 E1
L
0
M0 M1
QUANTITY OF MONEY
With an decrease in the interest rate from i0 to ii the quantity of money demanded will
increase from M0 to M1 and the equilibrium has decreased from E0 to E1
1(d) LIST THREE WAYS IN WHICH GOVERNMENT SPENDING
CAN BE FINANCED. (3)
(i) Income from property
(ii) Taxes
(iii) Borrowing
QUESTION 2
2(a) USE A DIAGRAM TO EXPLAIN HOW A DECREASE IN
GOVERNMENT SPENDING WILL AFFECT THE LEVEL OF
INCOME IN THE KEYNESIAN MODEL. (5)
4
