ECS1601 ASSIGNMENT 7 SEMESTER 2 2024
Question 1 (100 words)
Purchasing Proudly South African products supports the circular flow of income,
keeping money within the local economy. When households buy local products, they
stimulate demand for goods and services, which supports South African firms and
jobs, generating income that circulates back through spending on further goods, taxes,
and government services. This fosters economic growth and reduces dependence on
foreign imports. The opportunity cost of buying international brands includes the lost
benefits of supporting local industry, reduced local job creation, and a possible
increase in the trade deficit, as more funds leave the country rather than fueling
domestic economic activity. 0717513144
Circular flow of income is an economics concepts which suggests that expenditure of
one sector of the economy is income to another. As such, when South African
households consume goods from local firms, they create income for South African
firms, which will in-turn spend on factor market in South Africa buying factors of
production which is income to South Africa Households. However, when Households
buy foreign goods, this represent leakage as income is externalized to foreign sector
thereby reducing income in circulation in South Africa and reduce total output/income
in the economy. It is better therefore to buy South African.
Question 2 (10 marks)
2.1
In 2023, as Mauritius’ economic growth moderates to around 5%, the demand for
money may also decrease compared to the peak tourism rebound. A slowdown in
GDP growth typically signals lower overall spending and investment, leading to a
reduced demand for money in the economy. In a money market diagram, this effect
can be represented by a leftward shift in the demand curve for money, leading to a
potential decrease in interest rates as the supply of money outpaces demand. This
adjustment helps stabilize economic activity as spending and investment align with the
moderated growth rate.
, ECS1601 ASSIGNMENT 7 SEMESTER 2 2024
2.2
An increase in copper prices, as demand from China grows, would positively affect
Zambia's foreign exchange market, strengthening the Zambian kwacha. Higher prices
for copper exports mean that the same quantity sold yields more revenue, increasing
foreign currency inflows. This would lead to an appreciation of the kwacha, assuming
other factors remain constant. In the foreign exchange market diagram, this effect can
be shown as a rightward shift in the supply curve for foreign currency, indicating a
higher availability of foreign currency relative to the demand for it, which supports the
kwacha’s value.0717513144
Question 1 (100 words)
Purchasing Proudly South African products supports the circular flow of income,
keeping money within the local economy. When households buy local products, they
stimulate demand for goods and services, which supports South African firms and
jobs, generating income that circulates back through spending on further goods, taxes,
and government services. This fosters economic growth and reduces dependence on
foreign imports. The opportunity cost of buying international brands includes the lost
benefits of supporting local industry, reduced local job creation, and a possible
increase in the trade deficit, as more funds leave the country rather than fueling
domestic economic activity. 0717513144
Circular flow of income is an economics concepts which suggests that expenditure of
one sector of the economy is income to another. As such, when South African
households consume goods from local firms, they create income for South African
firms, which will in-turn spend on factor market in South Africa buying factors of
production which is income to South Africa Households. However, when Households
buy foreign goods, this represent leakage as income is externalized to foreign sector
thereby reducing income in circulation in South Africa and reduce total output/income
in the economy. It is better therefore to buy South African.
Question 2 (10 marks)
2.1
In 2023, as Mauritius’ economic growth moderates to around 5%, the demand for
money may also decrease compared to the peak tourism rebound. A slowdown in
GDP growth typically signals lower overall spending and investment, leading to a
reduced demand for money in the economy. In a money market diagram, this effect
can be represented by a leftward shift in the demand curve for money, leading to a
potential decrease in interest rates as the supply of money outpaces demand. This
adjustment helps stabilize economic activity as spending and investment align with the
moderated growth rate.
, ECS1601 ASSIGNMENT 7 SEMESTER 2 2024
2.2
An increase in copper prices, as demand from China grows, would positively affect
Zambia's foreign exchange market, strengthening the Zambian kwacha. Higher prices
for copper exports mean that the same quantity sold yields more revenue, increasing
foreign currency inflows. This would lead to an appreciation of the kwacha, assuming
other factors remain constant. In the foreign exchange market diagram, this effect can
be shown as a rightward shift in the supply curve for foreign currency, indicating a
higher availability of foreign currency relative to the demand for it, which supports the
kwacha’s value.0717513144
