Answer the following questions - NSC Economics - Question 2 - 2023 - Paper 1

During the prosperity phase of a business cycle, the inflation rate tends to be high due to the following reasons:

• High Demand: There is a significant increase in demand for goods and services, leading prices to rise as supply tries to catch up.
• Money Circulation: The amount of money in circulation increases, resulting in consumers competing for available goods, which drives prices higher.

South Africa recorded the highest value of exports in 2021.

The account in the balance of payments (BOP) that records portfolio investments is called the Financial Account.

The term trade balance refers to the difference between a country's exports and imports of goods and services. It is calculated as:

A positive trade balance indicates more exports than imports, while a negative trade balance suggests the opposite.

Electricity shortages in South Africa can significantly impact export volumes in the following ways:

• Decreased Production: If power cuts disrupt production processes, businesses may produce fewer goods, leading to lower export volumes.
• Higher Costs: Companies may incur additional costs by needing to install alternative energy sources, which can increase prices of exported goods, reducing competitiveness in international markets.

The South African Reserve Bank (SARB) can take several measures to reduce the balance of payments deficit:

• Increased Repo Rates: By increasing the repo rate, the SARB can discourage excessive consumer spending, reducing imports.
• Control Foreign Exchange: Addressing the foreign exchange market can help stabilize currency and ease pressure on the balance of payments.
• Improved Investment Attractiveness: Ensuring that local interest rates provide attractive returns to investors may help increase capital inflows, benefiting the current account.

The method used to calculate the gross domestic product (GDP) in the table is the Production Approach.

An example of taxes on products is Value Added Tax (VAT).

A subsidy on production refers to financial assistance provided by the government to businesses for producing certain goods. This aims to lower production costs, encourage higher output, and make products more affordable for consumers.

Preparing national account aggregates is important because it:

• Measures Economic Performance: It helps assess the overall performance of the economy by analyzing growth rates.
• Informs Policy Decisions: Accurate national accounts help policymakers and government officials make informed decisions on fiscal and monetary policies.

To calculate the gross value added (GVA) at basic prices (A), we use the following formula:

Substituting the values from the table:

Specialisation

Specialisation enhances the standard of living by focusing resources on producing specific goods. It allows countries to:

• Increase efficiency and productivity.
• Enhance trade relationships by offering unique products in the global market.

Mass Production

Mass production, facilitated by international trade, involves producing large quantities of goods using standardized processes. The benefits include:

• Lower per-unit costs due to economies of scale.
• Greater availability of products at competitive prices, boosting consumer access.

Business cycles significantly affect the application of fiscal policy. During periods of economic growth, governments may focus on reducing debt and increasing savings. Conversely, during downturns, they may:

• Increase Spending: Implement expansionary fiscal policies to stimulate growth.
• Adjust Tax Policies: Modify tax rates to encourage consumption and investment. This responsiveness helps stabilize the economy and mitigate the impacts of cyclical fluctuations.