ECS3701 MONETARY ECONOMICS (PDF) | 2026 EXAM
QUESTIONS AND ANSWERS + RATIONALES | STUDY GUIDE |
100% CORRECT
1. What is the primary purpose of the ECS3701 module?
A) To explain the functioning of the South African financial system from a
microeconomic perspective
B) To apply integrated knowledge of monetary economics to critically explain the
functioning of the South African economy
C) To analyse individual consumer behaviour in financial markets
D) To focus exclusively on the history of the South African Reserve Bank
Correct Answer: B) To apply integrated knowledge of monetary economics to critically explain
the functioning of the South African economy
Rationale: The purpose of ECS3701 is to enable students to apply integrated knowledge of key
concepts in monetary economics to critically explain the functioning of the South African
economy . Students analyse the role of money, financial markets, interest rates and central banks
from a theoretical perspective and apply these insights to real-life situations .
2. At what NQF level and credit value is ECS3701 registered?
A) NQF level 6 with 8 credits
B) NQF level 7 with 12 credits
C) NQF level 8 with 18 credits
D) NQF level 5 with 10 credits
Correct Answer: B) NQF level 7 with 12 credits
Rationale: ECS3701 is registered as an undergraduate degree module at NQF level 7 with 12
credits . It is a semester module presented in English and offered online .
3. Which module is a prerequisite for ECS3701?
A) ECS2601
B) ECS2602
C) ECS1601
D) ECS1501
Correct Answer: B) ECS2602
Rationale: The module description lists ECS2602 as a prerequisite for ECS3701 . This ensures
students have a foundation in intermediate macroeconomics before studying monetary
economics.
4. What is the definition of money in economics?
A) Anything that has intrinsic value
B) Anything that is generally accepted in payment for goods or services or in the
repayment of debts
, C) Only coins and banknotes issued by the central bank
D) Only demand deposits at commercial banks
Correct Answer: B) Anything that is generally accepted in payment for goods or services or in
the repayment of debts
Rationale: Money is defined as anything that is generally accepted in payment for goods or
services or in the repayment of debts . This definition is broader than currency alone and
includes various forms of financial assets that serve as a medium of exchange.
5. Which of the following is NOT a primary function of money?
A) Medium of exchange
B) Unit of account
C) Store of value
D) Store of wealth
Correct Answer: D) Store of wealth
Rationale: The three primary functions of money are medium of exchange, unit of account, and
store of value . While money can serve as a store of value, "store of wealth" is not one of the
standard primary functions.
6. How does money facilitate exchange in an economy?
A) By eliminating the need for double coincidence of wants
B) By increasing transaction costs
C) By making barter more efficient
D) By reducing the need for financial intermediaries
Correct Answer: A) By eliminating the need for double coincidence of wants
Rationale: Money facilitates exchange by serving as a medium of exchange, which eliminates the
need for a double coincidence of wants, a major inefficiency of barter economies . This reduces
transaction costs and makes trade more efficient.
7. What is a barter economy?
A) An economy where money is used as a medium of exchange
B) An economic system in which goods and services must be exchanged directly for
other goods and services
C) An economy where all transactions are conducted through financial intermediaries
D) An economy where gold is the primary medium of exchange
Correct Answer: B) An economic system in which goods and services must be exchanged
directly for other goods and services
Rationale: A barter economy is one where goods and services are exchanged directly for other
goods and services, without the use of money . This requires a double coincidence of wants,
which is inefficient.
, 8. What is the double coincidence of wants?
A) The situation where both parties in a transaction want the same good
B) A situation where two parties each hold a good that the other wants
C) The requirement that two people must have the same level of wealth to trade
D) The need for two people to agree on a price for a good
Correct Answer: B) A situation where two parties each hold a good that the other wants
Rationale: The double coincidence of wants is the situation in a barter economy where two
parties must each want what the other has to offer for a trade to occur . Money eliminates this
problem by serving as a common medium of exchange.
9. The Consumer Price Index (CPI) is:
A) A measure of the average level of prices for intermediate goods
B) A measure of the average level of prices for goods and services purchased by the
average urban household
C) A measure of the average level of prices for all goods and services produced in the
economy
D) A measure of the average level of wages in the economy
Correct Answer: B) A measure of the average level of prices for goods and services purchased
by the average urban household
Rationale: The CPI is the most recognizable measure of the average level of prices in the
economy, computed by the Bureau of Labor Statistics (or in South Africa, Statistics SA) based
on a basket of goods and services representative of what the average urban household purchases .
10. What is the GDP deflator?
A) A measure of the average level of prices for consumer goods only
B) A measure of the overall level of prices, based on the goods and services produced in
the economy
C) A measure of the average level of prices for intermediate goods
D) A measure of the average level of wages in the economy
Correct Answer: B) A measure of the overall level of prices, based on the goods and services
produced in the economy
Rationale: The GDP deflator is the broadest measure of the price level available . The "basket" of
goods and services for the GDP deflator in year T is the goods and services produced in year T .
11. What is the formula for the GDP deflator?
A) (Real GDP / Nominal GDP) × 100
B) (Nominal GDP / Real GDP) × 100
C) (CPI / PPI) × 100
D) (Nominal GDP / Population) × 100
Correct Answer: B) (Nominal GDP / Real GDP) × 100
QUESTIONS AND ANSWERS + RATIONALES | STUDY GUIDE |
100% CORRECT
1. What is the primary purpose of the ECS3701 module?
A) To explain the functioning of the South African financial system from a
microeconomic perspective
B) To apply integrated knowledge of monetary economics to critically explain the
functioning of the South African economy
C) To analyse individual consumer behaviour in financial markets
D) To focus exclusively on the history of the South African Reserve Bank
Correct Answer: B) To apply integrated knowledge of monetary economics to critically explain
the functioning of the South African economy
Rationale: The purpose of ECS3701 is to enable students to apply integrated knowledge of key
concepts in monetary economics to critically explain the functioning of the South African
economy . Students analyse the role of money, financial markets, interest rates and central banks
from a theoretical perspective and apply these insights to real-life situations .
2. At what NQF level and credit value is ECS3701 registered?
A) NQF level 6 with 8 credits
B) NQF level 7 with 12 credits
C) NQF level 8 with 18 credits
D) NQF level 5 with 10 credits
Correct Answer: B) NQF level 7 with 12 credits
Rationale: ECS3701 is registered as an undergraduate degree module at NQF level 7 with 12
credits . It is a semester module presented in English and offered online .
3. Which module is a prerequisite for ECS3701?
A) ECS2601
B) ECS2602
C) ECS1601
D) ECS1501
Correct Answer: B) ECS2602
Rationale: The module description lists ECS2602 as a prerequisite for ECS3701 . This ensures
students have a foundation in intermediate macroeconomics before studying monetary
economics.
4. What is the definition of money in economics?
A) Anything that has intrinsic value
B) Anything that is generally accepted in payment for goods or services or in the
repayment of debts
, C) Only coins and banknotes issued by the central bank
D) Only demand deposits at commercial banks
Correct Answer: B) Anything that is generally accepted in payment for goods or services or in
the repayment of debts
Rationale: Money is defined as anything that is generally accepted in payment for goods or
services or in the repayment of debts . This definition is broader than currency alone and
includes various forms of financial assets that serve as a medium of exchange.
5. Which of the following is NOT a primary function of money?
A) Medium of exchange
B) Unit of account
C) Store of value
D) Store of wealth
Correct Answer: D) Store of wealth
Rationale: The three primary functions of money are medium of exchange, unit of account, and
store of value . While money can serve as a store of value, "store of wealth" is not one of the
standard primary functions.
6. How does money facilitate exchange in an economy?
A) By eliminating the need for double coincidence of wants
B) By increasing transaction costs
C) By making barter more efficient
D) By reducing the need for financial intermediaries
Correct Answer: A) By eliminating the need for double coincidence of wants
Rationale: Money facilitates exchange by serving as a medium of exchange, which eliminates the
need for a double coincidence of wants, a major inefficiency of barter economies . This reduces
transaction costs and makes trade more efficient.
7. What is a barter economy?
A) An economy where money is used as a medium of exchange
B) An economic system in which goods and services must be exchanged directly for
other goods and services
C) An economy where all transactions are conducted through financial intermediaries
D) An economy where gold is the primary medium of exchange
Correct Answer: B) An economic system in which goods and services must be exchanged
directly for other goods and services
Rationale: A barter economy is one where goods and services are exchanged directly for other
goods and services, without the use of money . This requires a double coincidence of wants,
which is inefficient.
, 8. What is the double coincidence of wants?
A) The situation where both parties in a transaction want the same good
B) A situation where two parties each hold a good that the other wants
C) The requirement that two people must have the same level of wealth to trade
D) The need for two people to agree on a price for a good
Correct Answer: B) A situation where two parties each hold a good that the other wants
Rationale: The double coincidence of wants is the situation in a barter economy where two
parties must each want what the other has to offer for a trade to occur . Money eliminates this
problem by serving as a common medium of exchange.
9. The Consumer Price Index (CPI) is:
A) A measure of the average level of prices for intermediate goods
B) A measure of the average level of prices for goods and services purchased by the
average urban household
C) A measure of the average level of prices for all goods and services produced in the
economy
D) A measure of the average level of wages in the economy
Correct Answer: B) A measure of the average level of prices for goods and services purchased
by the average urban household
Rationale: The CPI is the most recognizable measure of the average level of prices in the
economy, computed by the Bureau of Labor Statistics (or in South Africa, Statistics SA) based
on a basket of goods and services representative of what the average urban household purchases .
10. What is the GDP deflator?
A) A measure of the average level of prices for consumer goods only
B) A measure of the overall level of prices, based on the goods and services produced in
the economy
C) A measure of the average level of prices for intermediate goods
D) A measure of the average level of wages in the economy
Correct Answer: B) A measure of the overall level of prices, based on the goods and services
produced in the economy
Rationale: The GDP deflator is the broadest measure of the price level available . The "basket" of
goods and services for the GDP deflator in year T is the goods and services produced in year T .
11. What is the formula for the GDP deflator?
A) (Real GDP / Nominal GDP) × 100
B) (Nominal GDP / Real GDP) × 100
C) (CPI / PPI) × 100
D) (Nominal GDP / Population) × 100
Correct Answer: B) (Nominal GDP / Real GDP) × 100
