JOHANNESBURG SOUTH

MACROECONOMICS

JANUARY 2024
GRADE 12

ECONOMICS
MARKING GUIDELINES
CIRCULAR FLOW TEST (1)

TIME: 2 hours

MARKS: 140

9 pages

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SECTION A (COMPULSORY)

QUESTION 1 20 MARKS

1.1 Various options are provided as possible answers to the following questions.
Write down the question number (1.1.1 – 1.1.5), choose the answer and write the
letter (A – D) of your choice next to the question number in the ANSWER BOOK.
1.1.1 …is both a producer and a consumer within the closed economy
A Household
B Firms
C Government ✓✓
D Foreign sector

1.1.2 Which formula is used by economist when calculating GDP using

the income method GDP (I)?

A w + r + i + p✓✓
B r+p+s+I
C w+T+I+P
D r+w+I+L

1.1.3 Given that GDP at market prices is 350 million, subsidies on

products are 16 million and taxes on products are 50 million. The
value of GDP at basic prices will be …million.

A R 300
B R 384
C R 316✓✓
D R 56

1.1.4 An economy has marginal propensity to save of 0.1, marginal

propensity to tax of 0.2 and marginal propensity to import of 0.1
Which one of the following is the correct size of the multiplier?

A 0.4
B 0.6
C 1.7
D 2.5✓✓

1.1.5. In the simple Keynesian model consumption is a function of,

A Rate of interest
B Level of income✓✓
C Price level
D Rate of savings (10)

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1.2 Choose a description from COLUMN B that matches the item in COLUMN A.
Write only the letter (A – I) next to the question number (1.2.1 – 1.2.6) in the
ANSWER BOOK, for example 1.2.7 J.

COLUMN A COLUMN B
C✓ 1.2.1 Double counting A The institution responsible for publishing
national account aggregates.
A✓ 1.2.2 South African
Reserve Bank B Total value of all goods and services
produced after all the costs have been
B✓ 1.2.3 Net operating deducted
surplus
C Occurs when values of all outputs of all the
E✓ 1.2.4 Mixed income enterprises in the economy are merely added
together

F✓ 1.2.5 Multiplier effect D Deals with departmental expenditure which

has to be controlled and organized.
D✓ 1.2.6 Administrative
division E It is equal to the value revenue from sales
less the cost of raw materials and
compensation to employees

F An economic phenomenon in which an initial

change in spending has a greater impact on
overall economic activity

G It records the states expenditure in according

to accounting terms in the country’s budget.
(6 × 1) (6)

1.3 Give ONE term for each of the following descriptions. Write only the term next
to the question number (1.3.1 – 1.3.4) in the ANSWER BOOK. Abbreviations,
acronyms and examples will NOT be accepted.

1.3.1 Remuneration for the use of the factors of production in the form of
rent, wages, interest, and profits-income✓

1.3.2 Goods and services produced in other countries and bought by

local firms-imports✓

1.3.3 A year with very small price changes or price fluctuations-base

year✓

1.3.4 Changes in spending have an impact on income that is greater

than the original change in spending-multiplier ✓ (4x1) 4

TOTAL SECTION A: 20

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SECTION B

Answer ONE question from this section in the ANSWER BOOK.

QUESTION 2: MACROECONOMICS

2.1 Answer the following questions

2.1.1 Name any TWO purpose of the system of National Accounts
(SNA) as outlined by the United Nations(UN) (2 x 1) (2)
• Measure and analyse Economic Activity✓
• Facilitate International Comparisons✓
• Track economic growth and development✓
• Guide resource allocation ✓
• Support economic research and analysis✓
• Support fiscal and monetary policy✓
(Accept any other correct relevant response)

2.1.2 What is the relationship between aggregate

spending(consumption) to income? (1x2) (2)
• The relationship between aggregate spending
(consumption) and income is positive, as an increase in
income generally leads to an increase in consumption,
reflecting the propensity of individuals and households to
spend a portion of their income✓✓
(Accept any other correct relevant response)

2.2 Study the diagram below and answer the questions that follow

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[Source: <https://2012books.lardbucket.org/books/theory-and-applications-of-
macroeconomics/s20- 16-the-circular-flow-of-income.html>]
2.2.1 Identify the main participants that use factors of production to
produce goods and services in the product market (1)
• firms✓
2.2.2 Which flow would link the interaction between the participants
in the circular flow diagram above? (1)
• money flow✓

2.2.3 Briefly describe the term rest of the world (2)

• refers to all countries and entities outside of a particular
country's borders, with which it engages in international
trade, financial transactions, and other economic
interactions✓✓
(Accept any other correct relevant response)
2.2.4 What is the essential function of government in the circular
flow? (2)
• To provide public goods and services that the private sector
is not prepared to provide to the economy✓✓
(Accept any other correct relevant response)
2.2.5 How does borrowing from abroad impact the money flow?
(2 x 2) (4)
• Borrowing from abroad impacts the money flow by
introducing an inflow of funds into the domestic economy.
✓✓
• It increases the supply of money available for investment or
consumption, potentially stimulating economic activity. ✓✓
• it also creates a corresponding outflow of money in the form
of debt repayment and interest payments, affecting the
overall balance of payments✓✓
(Accept any other correct relevant response)

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2.3 Study the picture below and answer the questions that follow

R6.4 BILLION INJECTION FOR SOUTH AFRICA’S CRUMBLING

ROADS

The South African National Roads Agency (Sanral) has started adjudicating
tenders worth R6.43 billion that will be awarded early in 2024 to boost the
construction industry.
[source https://businesstech.co.za/news/trending/739563/r6-4-billion-injection-for-south-africas-
crumbling-roads/:]

2.3.1 Which economic participant does SANRAL represent within

the open economy? (1)
• Government ✓

2.3.2 Name any other sector of the economy besides the one
illustrated above (1)
• Primary sector✓
• Tertiary sector✓

2.3.3 Briefly describe the term production (2)

• Creation of goods or services for consumption or sale,
involving the transformation of inputs into outputs. ✓✓
(Accept any other correct relevant response)

2.3.4 Why is the construction industry regarded as a positive

economic force? (2)
• It creates a foundation for economic growth by improving
connectivity and productivity. ✓✓
• The construction industry is a significant source of
employment, providing jobs for a wide range of skilled and
unskilled workers✓✓
(Accept any other correct relevant response)

2.3.5 How do fewer crumbling roads contribute to the multiplier

effect and stimulate economic growth? (2 x 2) (4)
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• Businesses can deliver goods more efficiently, reducing

logistical bottlenecks and improving competitiveness✓✓
• Better roads enable businesses to access markets,
suppliers, and customers more easily✓✓
• Well-maintained roads are crucial for the tourism industry,
as they provide access to popular destinations and
attractions✓✓
(Accept any other correct relevant response)

2.4 Briefly discuss nominal figures and real figures (4 x 2) (8)

Nominal figures
• Nominal figures refer to values that are not adjusted for inflation. They
represent the absolute or current values of a variable without
accounting for changes in purchasing power over time. ✓✓
• Nominal figures can be influenced by factors such as price changes,
currency fluctuations, or general inflationary pressures. ✓✓
• For example, nominal GDP represents the total value of goods and
services produced in a country at current prices. ✓✓
Real figures
• Real figures, on the other hand, are adjusted for inflation, providing a
more accurate picture of changes in economic variables over time. ✓✓
• Real figures account for changes in purchasing power and reflect the
constant-value or inflation-adjusted measures. ✓✓
• These figures are useful for comparing economic data across different
time periods or regions, as they remove the impact of price changes.
• For instance, real GDP adjusts nominal GDP for inflation to show the
actual growth or decline in economic output✓✓
(Accept any other correct relevant response)

2.5 Evaluate the extent to which an increase in taxes will improve the South
African gross domestic product at market prices (8)
Positive impacts: [40]

• An increase in taxes leads to higher government revenue, which can

be used for various purposes such as infrastructure development,
social services, and public investments. This increased spending by
the government can stimulate economic activity and contribute to GDP
growth. ✓✓
• Higher tax revenue can help the government address budget deficits,
reduce debt levels, and enhance fiscal stability. This can improve
investor confidence and promote economic growth by creating a stable
macroeconomic environment. ✓✓

Negative impacts:

• Higher taxes can reduce the profitability and incentives for businesses
to invest. With less investment, there may be a decline in capital
formation and productivity growth, which can negatively affect GDP.
Reduced investment can also lead to slower economic growth and

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lower GDP at market prices ✓✓

• Increased taxes can affect business profitability, particularly for small
and medium-sized enterprises (SMEs). ✓✓
• Higher tax burdens may limit their ability to invest, expand operations,
or hire more employees, potentially hindering their contribution to GDP
growth. ✓✓
• Higher taxes can discourage private consumption and investment, as
individuals and businesses have less money available for spending or
investment purposes. This can lead to a decrease in economic activity,
potentially impacting GDP growth. ✓✓
• An increase in taxes can create incentives for tax avoidance and
evasion, as individuals and businesses seek to minimize their tax
liabilities. This can result in reduced tax revenue for the government
and limit the effectiveness of tax policies in stimulating GDP growth✓✓
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for a mere listing of facts/ examples)

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QUESTION 3

3.1 Answer the following questions

3.1.1 Name any TWO national accounts aggregates that determine
gross value added at basic prices (2 x 1) (2)
• Income method✓
• Production method✓

3.1.2 How does a positive multiplier increase social security

payments? (1x2) (2)
• A positive multiplier effect can indirectly increase social
security payments by generating higher tax revenues,
enabling the government to allocate more funds to support
social security programs✓✓
(Accept any other correct relevant response)

3.2 Study the graph below and answer the questions that follow

[Source : SARB]
3.2.1 Identify the angle that confirms the equality of E and Y (1)
• 45✓
3.2.2 Provide the formula used to determine gross domestic
product (GDP) (1)
• GDP=C+I+G✓

3.2.3 Briefly describe the term economy (2)

• System of production, distribution, and consumption of
goods and services in a country✓✓
(Accept any other correct relevant response)
3.2.4 Why does a change in the planned rate of spending affect
economy? (2)
• Higher consumption spending can have a multiplier effect,

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where each rand spent by consumers generates additional

income and spending throughout the economy. ✓✓
• Changes in spending can impact a country's trade balance.
If there is a decrease in domestic spending, it can lead to
lower imports, which may negatively affect countries that
rely on exports✓✓
(Accept any other correct relevant response)
3.2.5 How do structural reforms help address disequilibrium in the
economy? (2 x 2) (4)
• Structural reforms aim to remove barriers and distortions in
markets, promoting competition and efficiency✓✓
• Labour market reforms can address imbalances in
employment, such as high unemployment rates or skill
mismatches✓✓
(Accept any other correct relevant response)

3.3 Study the table below and answer the questions that follow

EXTRACT FROM NATIONAL ACCOUNTS OF SOUTH AFRICA AT

CURRENT PRICES
R BILLIONS
Gross domestic product (GDP) at market prices A
Primary income from the rest of the world 48 501
Primary income to the rest of the world 34 500
Gross national product (GNP) at market prices 2 978 806

[Source: SARB Quarterly Bulletin, March 2020]

3.3.1 Identify the national account conversion illustrated above (1)

• GDP TO GNP✓

3.3.2 Give one example of components that contribute to GDP at

market prices (1)
• Consumer spending✓
• Investment ✓
• Government spending✓
• Exports✓
• imports✓

3.3.3 Briefly describe the term gross capital formation(I) (2)

• gross capital information includes all the investment
spending by firms on capital goods✓✓
(Accept any other correct relevant response)

3.3.4 Why it is important to subtract primary income to the rest of

the world? (2)
• Subtracting primary income from the rest of the world is
important because it allows for a more accurate
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measurement of a country's economic activity and its impact

on the global economy✓✓
(Accept any other correct relevant response)

3.3.5 Calculate the value of A in the table above. Show ALL correct
calculations (2 x 2) (4)
The question paper had an error with no letter A. Please mark
the correct order of calculations as indicated below.
R BILLIONS
Gross domestic product (GDP) at 2 964 805
market prices
Primary income from the rest of the Less(-)✓/✓: 48 501
world
Primary income to the rest of the world Plus(+)✓/✓:34 500
Gross national product (GNP) at market 2 978 806
prices

3.4 Briefly explain autonomous consumption and marginal propensity to

consume(mpc) (4 x 2) (8)
Autonomous consumption
• Autonomous consumption refers to the level of consumption that
occurs even when individuals have no income or when income is zero.
✓✓
• It represents the minimum level of consumption necessary for survival
or basic needs, often financed through savings or borrowing✓✓
Marginal propensity to consume (mpc)
• Marginal Propensity to Consume (MPC) measures the proportion of an
additional unit of income that individuals choose to consume rather
than save. ✓✓
• It represents the change in consumption resulting from a change in
income. ✓✓ For example, if the MPC is 0.8, it means that for every
additional unit of income, individuals consume 80% of it and save the
remaining 20%✓
• A higher MPC indicates a greater propensity to consume, which can
lead to a larger multiplier effect and increased economic activity when
there is an injection of income into the economy, such as government
spending or tax cuts✓✓
(Accept any other correct relevant response)

3.5 What role do taxes on products play in the economy? (8)

• Taxes on products, such as sales taxes or value-added taxes (VAT),
generate significant revenue for governments. ✓✓
• This revenue is used to fund public goods and services, including
infrastructure, education, healthcare, and social programs✓✓
• Taxes on products can be used as a fiscal policy tool to manage
aggregate demand and stabilize the economy. ✓✓
• During periods of high inflation or overheating, governments may

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increase taxes on certain products to reduce consumer spending and

curb inflationary pressures✓✓
• Higher taxes on certain products, such as tobacco or alcohol, can
increase their prices, discouraging consumption and promoting public
health objectives. ✓✓
• Tax incentives can also be applied to encourage the consumption of
certain goods, such as energy-efficient products or environmentally [40]
friendly technologies. ✓✓
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for a mere listing of facts/ examples)

TOTAL SECTION B: 80

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 SECTION C

Answer ONE of the two question from this section in the ANSWER BOOK.

Your answer will be assessed as follows:

MARK
STRUCTURE OF ESSAY
ALLOCATION
Introduction
The introduction is a lower-order response. Max. 2
• A good starting point would be to define the main concept related to the
question topic.
• Do not include any part of the question in your introduction.
• Do not repeat any part of the introduction in the body.
• Avoid mentioning in the introduction what you are going to discuss in the
body.
Body
Main part: Discuss in detail/In-depth discussion/Examine/Critically discuss/ Max. 26
Analyse/Compare/Evaluate/Distinguish/Differentiate/Explain/Draw a graph and
explain/Use the graph given and explain/Complete the given
graph/Assess/Debate
A maximum of 8 marks may be allocated for headings/examples Max. 10
Additional part: Critically discuss/Evaluate/Critically evaluate/Debate/
Deduce/Compare/Distinguish/Interpret/How? /Suggest
A maximum of 2 marks may be allocated for mere listing facts.
Conclusion
Any higher-order conclusion should include: Max. 2
• A brief summary of what has been discussed without repeating facts already
mentioned
• Any opinion or value judgement on the facts discussed
• Additional support information to strengthen the discussion/analysis
• A contradictory viewpoint with motivation, if required
• Recommendations
TOTAL 40

QUESTION 4 MACROECONOMICS 40 MARKS 40 MINUTES

• Discuss in detail the role of following markets within the four-sector model

- Goods market (8)

- Factor markets (8)
- Financial markets (monetary and capital) (10) (26 marks)
• Evaluate the impact of the three-sector economy on the value multiplier in 40
South Africa, considering a marginal propensity to consume (MPC) of 0.9
(10 marks)
INTRODUCTION
The circular flow is a simplified economic model that illustrates the inter-relationship
between the economic participants OR
A market is a mechanism that brings buyers and sellers together to exchange different
types of products ✓✓
END
(Accept any other correct relevant introduction) (Max 2)
BODY: MAIN PART
Product/Goods market
• Product market is where goods and services are bought and sold ✓✓
• Firms, government and foreign sector supply goods and services and their
movement is called real flow✓✓
• Consumers, firms, government and foreign sector buy goods and services and
their payments represent money flow ✓✓
• Goods are defined as any tangible items such as food, clothing and cars that
satisfy some human needs ✓✓
• In capital goods market products such as buildings and machinery are
exchanged ✓✓
• Consumer goods market involves the trading of durable consumer goods, semi-
durable consumer goods and non-durable consumer goods ✓✓
• Services are defined as non-tangible actions and includes wholesale and retail,
transport and financial markets ✓✓

Factor/Resources/Input market
• Factor market is where factors of production are exchanged, ✓✓ e.g. the
labour market, property market and the financial markets ✓
• Households are the owners of factors of production and they sell them to firms
to produce goods and services ✓✓
• The factors of production are labour, entrepreneurship, capital and land and
they are exchanged for wages, profit, interest, and rent respectively ✓✓
• Factor services are real flows and they are accompanied by counter flows of
income on the factor market ✓✓
Financial markets
• Financial markets render financial services to the other participants in the
economy by gathering surplus funds and lending them to those who needs
funding ✓✓
• Banks, insurance companies and pension funds form part of the financial
market✓✓
• Financial markets are not directly involved in production of goods and services,
but act as a link between households and businesses with surplus income and
other participants who require it ✓✓
Money market
• The money market is the market for short-term and very short-term savings and
loans ✓✓
• The South African Reserve Bank (SARB) is a key institution in the money
market✓✓
• The SARB administers the function of legislating and managing the money
market ✓✓
• Money market includes inter-bank lending for a period as short as overnight ✓✓
• The securities traded include short term deposits, short term debentures and
treasury bills ✓✓
Capital market
• The capital market is the market for long-term savings and loans ✓✓
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 • The Johannesburg Securities Exchange (JSE) is a key institution in the capital
market ✓✓
• The securities traded in this market are long term deposits, mortgage bonds
and shares ✓✓
(Max 26)
Additional part
Evaluate the impact of the three-sector economy on the value multiplier in South
Africa, considering a marginal propensity to consume (MPC) of 0.9 (10 marks)
Positive impact:
• With a high MPC of 0.9, a significant portion of any increase in income will be
consumed rather than saved. ✓✓
• This high propensity to consume leads to a larger multiplier effect, as each unit
of additional income generates more spending throughout the economy. ✓✓
• It can stimulate economic activity, increase production, and create more jobs,
leading to overall economic growth. ✓✓
• Higher consumption resulting from a high MPC boosts aggregate demand in the
economy. ✓✓
• When consumers spend more, businesses experience increased sales,
prompting them to produce more to meet the rising demand. ✓✓
• This can have a positive multiplier effect, as increased production leads to
increased income for workers and suppliers, further stimulating consumption
and economic growth. ✓✓
• Increased consumer spending can benefit various industries, such as retail,
hospitality, and services, contributing to their growth and profitability. This
expansion can also have spillover effects on other sectors, including
manufacturing, transportation, and construction, leading to a broad-based
economic expansion. ✓✓
Negative impact:
• A high MPC of 0.9 means that individuals save only a small portion of their
income. While this may stimulate immediate consumption and demand, it can
limit savings for investment purposes. ✓✓
• Insufficient savings can hinder long-term economic growth and limit the
availability of funds for productive investments in areas such as infrastructure,
research and development, and capital goods. ✓✓
• With a high MPC, individuals' consumption patterns are highly sensitive to
changes in income. ✓✓
• Economic downturns or decreases in income can have a magnified negative
impact on consumption levels. ✓✓
• This sensitivity can make the economy more vulnerable to fluctuations,
potentially leading to greater volatility in economic activity and growth ✓✓
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for a mere listing of facts/ examples)
CONCLUSION
Markets ensure availability of consumer goods and services to households and
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government while allowing businesses access to factors of production. ✓✓
(Accept any other relevant higher order conclusion.) (Max 2)

TOTAL SECTION C: 40

TOTAL: 100

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