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SENIOR CERTIFICATE/
NATIONAL SENIOR CERTIFICATE

GRADE 12

ECONOMICS P1

NOVEMBER 2020

MARKS: 150

TIME: 2 hours

This question paper consists of 12 pages.

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INSTRUCTIONS AND INFORMATION

1. Answer FOUR questions as follows in the ANSWER BOOK:

SECTION A: COMPULSORY
SECTION B: Answer TWO of the three questions.
SECTION C: Answer ONE of the two questions.

2. Answer only the required number of questions. Answers in excess of the

required number will NOT be marked.

3. Number the answers correctly according to the numbering system used in this
question paper.

4. Read the questions carefully.

5. Start EACH question on a NEW page.

6. Leave 2–3 lines between subsections of questions.

7. Answer the questions in full sentences and ensure that the format, content
and context of your responses comply with the cognitive requirements of
the questions.

8. Use only black or blue ink.

9. You may use a non-programmable pocket calculator.

10. Write neatly and legibly.

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SECTION A (COMPULSORY)

QUESTION 1 30 MARKS – 20 MINUTES

1.1 Various options are provided as possible answers to the following questions.
Choose the answer and write only the letter (A–D) next to the question
numbers (1.1.1 to 1.1.8) in the ANSWER BOOK, e.g. 1.1.9 D.

1.1.1 The difference in the value of the output at the peak and the value
of the output at the trough of a business cycle is known
as the …

A length.
B trend line.
C amplitude.
D real output.

1.1.2 One of the member countries of the BRICS Protocol is …

A Japan.
B China.
C England.
D Italy.

1.1.3 If the marginal propensity to consume (mpc) is 0,6 in a 2-sector

model, the marginal propensity to save (mps) will be …

A 4.
B 6.
C 9,4.
D 0,4.

1.1.4 Which ONE of the following is presented in October to inform

parliament of changes in the budget since February?

A Main budget
B Medium-term Budget Policy Statement
C Medium-term Expenditure Framework
D National budget

1.1.5 Long-term deposits of the domestic sector at monetary institutions

are part of the … money supply.

A M1
B M2
C M3
D M4

1.1.6 A supply reason for international trade is/are …

A income levels.
B preferences and tastes.
C the size of the population.
D labour resources.
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1.1.7 An interest rate that commercial banks offer to their most valued
clients is called the … rate.

A prime
B repo
C fixed
D preference

1.1.8 Which ONE of the following is classified as excise duties?

A Tax on alcohol
B Gun licence
C Value-added tax
D Personal income tax (8 x 2) (16)

1.2 Choose a description from COLUMN B that matches an item in COLUMN A.

Write only the letter (A–I) next to the question numbers (1.2.1 to 1.2.8) in the
ANSWER BOOK.

COLUMN A COLUMN B
1.2.1 Autonomous A the owners of the factors of production .
consumption in the economy

1.2.2 New economic B coordinates government actions to

paradigm increase the competitiveness of South
African businesses
1.2.3 Bureaucracy
C focus on the acquisition of skills
1.2.4 Mass production
D spending that takes place irrespective of
1.2.5 JIPSA the level of income

1.2.6 Dumping E the smoothing of business cycles using

monetary and fiscal policy
1.2.7 Economic growth
F ensures the supply of standardised
1.2.8 Integrated articles through an automated
manufacturing mechanical process
strategy
G increase in a country's production
capacity

H official rules and regulations that can

hinder service delivery

I selling goods in another country at very

low prices with which the local industry
cannot compete
(8 x 1) (8)

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1.3 Give ONE term for each of the following descriptions. Write only the term next
to the question numbers (1.3.1 to 1.3.6) in the ANSWER BOOK.
Abbreviations, acronyms and examples will NOT be accepted.

1.3.1 The labour force between the ages of 15 and 65 that are willing
and able to work

1.3.2 It illustrates (shows) the relationship between unemployment and

inflation

1.3.3 A form of credit from the International Monetary Fund (IMF) which
can be used when balance of payments difficulties are experienced

1.3.4 A penalty imposed by one or more countries on another country by

restricting trade

1.3.5 Consultation between the South African Reserve Bank and banks
to persuade them to act in a manner that is desirable

1.3.6 An increase in the number of people moving from rural areas to

cities (6 x 1) (6)

TOTAL SECTION A: 30

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SECTION B

Answer any TWO of the three questions in this section in the ANSWER BOOK.

QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES

2.1 Answer the following questions.

2.1.1 Name any TWO sources of state revenue. . (2 x 1) (2)

2.1.2 What is the purpose of the residual item when the expenditure
method is used to calculate national income? (1 x 2) (2)

2.2 Study the extract below and answer the questions that follow.

PUBLIC SECTOR CHALLENGES

The public sector comprises three levels of government, namely national,

provincial and local government. The government programmes include the
Medium-term Strategic Framework implemented from 2014–2019 as part of
the National Development Plan. It consists of various focus areas such as
education, health and economic growth and development.

[Adapted from www.gov.za]

2.2.1 Which level of government develops policy and coordinates

services across all nine provinces? (1)

2.2.2 Name ONE macroeconomic objective of the state. (1)

2.2.3 Briefly describe the term accountability. (2)

2.2.4 How will the government benefit from privatising state-owned

enterprises? (2)

2.2.5 Why is the pricing policy a problem for the government in respect
of the provisioning of goods and services? (2 x 2) (4)

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2.3 Study the table below and answer the questions that follow.

BALANCE OF PAYMENTS 2018

(R MILLIONS)
1. Current account 2018
Merchandise exports 1 175 547
Net gold exports 71 678
Service receipts 210 415
Income receipts 96 507
Less: Merchandise imports 1 222 944
Less: Payments for services 217 939
Less: Income payments 250 552
(A) -35 674
Balance on the current account -172 062
2. Capital Transfer Account 236
Net lending to (+) borrowing from (-) rest of world -172 726
[Adapted from SARB Quarterly Bulletin, March 2019]

2.3.1 Which item in the current account is unique to South Africa? (1)

2.3.2 Name the item (A) missing from the current account in the table
above. (1)

2.3.3 Briefly describe the term Capital Transfer Account. (2)

2.3.4 Explain ONE factor that would influence demand to reduce the
deficit in the balance of payments. (2)

2.3.5 Determine the value of the trade balance. Show ALL calculations. (4)

2.4 Briefly explain leading indicators and composite indicators as features

underpinning forecasting of business cycles. (2 x 4) (8)

2.5 Analyse the impact of a devaluation of the rand on the economy. (8)
[40]

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QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 30 MINUTES

3.1 Answer the following questions.

3.1.1 Name TWO indicators related to foreign trade. (2 x 1) (2)

3.1.2 What is the purpose of the Expanded Public Works Programme?

(1 x 2) (2)

3.2 Study the table below and answer the questions that follow.

ECONOMIC INDICATORS
2016 2017 2018
Population (m.) 55,2 56,7 57,7
GDP @ constant prices (Rm.) 3 076 465 3 119 984 3 144 539
Real GDP per capita 55 914 55 930 55 595
Real GDP growth (%) 2,0 0,7 1,5
Unemployment (%) 25,6 26,1 27,6
Inflation (%) 5,3 4,6 4,4
Average exchange rate 15,02 15,64 16,20
(ZAR : US$)

[Adapted from StatsSA & SARB Quarterly Bulletin, Dec. 2019]

3.2.1 Identify the economic indicator that reflects the average earnings of
each person in the country. (1)

3.2.2 Name ONE international institution that requires South Africa to

standardise their economic indicators. (1)

3.2.3 Briefly describe the term real gross domestic product. (2)

3.2.4 How is the unemployment rate determined in the country? (2)

3.2.5 Why is it necessary for South Africa to standardise its economic

indicators according to international requirements? (2 x 2) (4)

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3.3 Study the extract below and answer the questions that follow.

FOCUS ON SPECIAL ECONOMIC ZONES

The new Special Economic Zone Programme originated from developments

in the national economic policies and strategies, such as the National Industry
Policy Framework. The SEZ policy helped to address challenges with the
current industrial development zones, which formed part of the Spatial
Development Initiatives. The Foreign Investment Grant and Critical
Infrastructure Programme are some of the financial incentives that promote
regional development.

[Adapted from Business Report, 2019]

3.3.1 Give ONE example of a spatial development initiative in South

Africa that is NOT mentioned above. (1)

3.3.2 Which government department is responsible for industrial

development in South Africa? (1)

3.3.3 Briefly describe the term industrial development zone. (2)

3.3.4 How does the Foreign Investment Grant help to promote regional
industrial development? (2)

3.3.5 Why is the new Special Economic Zone Programme regarded as

an improvement of the current industrial development zones?
(2 x 2) (4)

3.4 Briefly explain population growth and life expectancy as characteristics of

demographics as social indicator. (2 x 4) (8)

3.5 Evaluate the success of Broad-Based Black Economic Empowerment

(BBBEE) in the South African economy. (8)
[40]

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QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS

40 MARKS – 30 MINUTES

4.1 Answer the following questions.

4.1.1 Name any TWO forms of economic integration. (2 x 1) (2)

4.1.2 What is the focus of the National Research and Development

Strategy? (1 x 2) (2)

4.2 Study the information below and answer the questions that follow.

BUSINESS CYCLES
A B C

Climatic conditions Demand-and-supply-side Consumer changing

resulting in droughts policies spending patterns
and floods

4.2.1 Identify the exogenous reason for business cycles in the

information above. (1)

4.2.2 Name any ONE type of business cycle. (1)

4.2.3 Briefly describe the term business cycle. (2)

4.2.4 Why does the endogenous school of thought encourage

government intervention in the economy? (2)

4.2.5 How can the Reserve Bank use a demand-side policy to dampen
(contract) the economy? (2 x 2) (4)

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4.3 Study the cartoon below and answer the questions that follow.

[Source: Google images]

4.3.1 Which international organisation encourages free trade? (1)

4.3.2 Name the term that relates to the worldwide integration of

economies through trade. (1)

4.3.3 Briefly describe the term protectionism. (2)

4.3.4 Explain the impact of protection on the value of the rand. (2)

4.3.5 How would consumers benefit from a policy of free trade? (2 x 2) (4)

4.4 Briefly explain good governance and investment in social capital as

benchmark criteria for regional development. (2 x 4) (8)

4.5 Evaluate the success of import substitution as a South African trade policy. (8)
[40]

TOTAL SECTION B: 80

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SECTION C

Answer any ONE of the two questions in 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
Compare/Evaluate/Distinguish/Differentiate/Explain/Assess/Debate/Draw a graph
and explain/Use the graph given and explain/Complete the given graph Max. 10
Additional part: Give own opinion/Critically discuss/Evaluate/Critically evaluate/
Deduce/Compare/ Distinguish/Interpret/Briefly debate/How/Suggest/Analyse
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 judgment on the facts discussed
 Additional support information to strengthen the discussion/analysis
 A contradictory viewpoint with motivation, if required
 Recommendations
TOTAL 40

QUESTION 5: MACROECONOMICS 40 MARKS – 40 MINUTES

 Discuss the role of markets in the circular flow. (26 marks)

 How can the business sector contribute more positively to the economy? (10 marks) [40]

QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES

 Discuss, without graphs, the supply-side policy to promote economic growth.

(26 marks)
 Why should government focus more on small, medium and micro-enterprises
(SMMEs) to drive the economy? (10 marks) [40]

TOTAL SECTION C: 40
GRAND TOTAL: 150

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SENIOR CERTIFICATE/
NATIONAL SENIOR CERTIFICATE

SENIOR CERTIFICATE
GRADE 12

ECONOMICS P1

NOVEMBER 2020

MARKING GUIDELINES

MARKS: 150

These marking guidelines consist of 21 pages.

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SECTION A (COMPULSORY)

QUESTION 1

1.1 MULTIPLE-CHOICE QUESTIONS

1.1.1 C – amplitude 
1.1.2 B – China 
1.1.3 D – 0,4 
1.1.4 B - Medium-term Budget Policy Statement 
1.1.5 C – M3 
1.1.6 D – labour resources 
1.1.7 A – prime 
1.1.8 A – tax on alcohol  (8 x 2) (16)

1.2 MATCHING ITEMS

1.2.1 D – spending that takes place irrespective of the level of income 

1.2.2 E– the smoothing of business cycles using monetary and fiscal

policy 

1.2.3 H – official rules and regulations that can hinder service delivery 

1.2.4 F – ensures the supply of standardized articles through an

automated mechanical process 

1.2.5 C – focus on the acquisition of skills 

1.2.6 I – selling of goods in another country at very low prices where the
local industry cannot compete 

1.2.7 G – increase in a country's production capacity 

1.2.8 B – coordinates government actions to increase the competitiveness

of South African businesses  (8 x 1) (8)

1.3 GIVE THE TERM

1.3.1 Economically active population 

1.3.2 Philips curve 
1.3.3 Special Drawing Rights 
1.3.4 Sanctions / trade embargo / boycotts / tariffs / ban / import tax /
quotas 
1.3.5 Moral suasion 
1.3.6 Urbanisation  (6 x 1) (6)

TOTAL SECTION A: 30

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SECTION B

Answer TWO of the three questions in this section in the ANSWER BOOK.

QUESTION 2: MACROECONOMICS

2.1 Answer the following questions.

2.1.1 Name any TWO sources of state revenue.

 Tax (Personal income tax / Capital gains tax / Value Added Tax /
Customs duties / Fuel levy / Excise duties) 
 Income from property rental 
 Income from privatisation of state assets 
 Profits from SOEs 
 Donations 
 Loans 
(Accept any other correct relevant response) (2 x 1) (2)

2.1.2 What is the purpose of the residual item when the expenditure
method is used to calculate national income?

The residual item takes into account errors and omissions that may
have occurred in order to balance the GDP and GDI equation 
(Accept any other correct relevant response) (1 x 2) (2)

2.2 DATA RESPONSE

2.2.1 Which level of government develops policy and coordinates

services across all nine provinces?

National / Central  (1)

2.2.2 Name ONE macro-economic objective of the state.

 Economic growth 
 Full employment 
 Economic equity 
 Price stability 
 Exchange rate stability 
 Balance of Payments equilibrium  (1)

2.2.3 Briefly describe the term accountability.

The duty of an individual or organisation is to explain its decisions

and actions and accept responsibility for its behaviour 
(Accept any other correct relevant response) (2)

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2.2.4 How will the government benefit from privatising state-owned

enterprises?

 Generate additional funds for the government to provide more

goods and services 
 The tax base will be broadened, increasing corporate tax to
ensure an increase in income for the government 
 It can lead to greater efficiency in the economy because the
wage bill is coming down and allows government to be
involved in a greater variety of services 
 The government can use privatisation to promote broad-based
black economic empowerment 
(Accept any other correct relevant response) (2)

2.2.5 Why is the pricing policy a problem for the government in

respect of the provisioning of goods and services?

 State-owned enterprises do not work within the market system

of demand and supply creating problems in determining the
price for public goods and services 
 Community goods are provided free of charge, because it is
difficult to attach a price due to its non-excludability and non-
rival characteristics 
 User-charges: government loses income due to motorists
failing to pay e-tolls, leading to tax evasion 
 If the price of a product or service increases sharply it would
lead to a misallocation of resources  for example water and
electricity 
 When government considers covering the cost of a service with
charges, difficulties may arise when relatively high fixed costs
are involved  such as public rail or bus transport, where
direct and indirect subsidies would cover part of the cost 
(Accept any other correct relevant response) (Any 2 x 2) (4)

2.3 DATA RESPONSE

2.3.1 Which item in the current account is unique to South Africa?

Net gold exports  (1)

2.3.2 Name the missing item A from the current account in the table
above.

Current transfers  (1)

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2.3.3 Briefly describe the term capital transfer account

It is a net amount and includes all transactions and grants relating

to the ownership of fixed assets, debt forgiveness and the value of
household and personal effects and financial claims and liabilities
of migrants  (2)

2.3.4 Explain ONE factor that would influence demand to reduce the
deficit in the balance of payments?

 An increase in the repo rate affect interest rates and leads to a

decrease in import spending 
 Government incentives are applied to substitute imports 
 Import control (tariffs and quotas) reduce the demand 
 Certain exchange controls have been retained by the central
bank to ration foreign exchange and led to a decrease in the
demand 
(Accept any other correct relevant response) (2)

2.3.5 Determine the value of the trade balance. Show all calculations.

Merchandise exports 1 175 547 

Plus net gold exports (+) 71 678 
Minus Merchandise imports (-) 1 222 944 
R24 281m  (4)

2.4 Briefly explain leading and composite indicators as features

underpinning forecasting of business cycles.

LEADING INDICATORS
 When these indicators rise, the level of economic activities will also rise a
few months later 
 Leading indicators give consumers, businesses and the state a glimpse of
the direction in which the economy is heading 
 Leading economic indicators are also important for investors, because they
are used to predict the future of the economy 
 e.g. job advertising spaces, inventory and sales  (Max 4)

COMPOSITE INDICATORS
 A summary of the various indicators of the same type into a single
value 
 All three indicators could be calculated as a single composite indicator to
benchmark a country's economic performance 
 E.g. find a value for a composite leading, coincident and lagging indicator
(Accept any other correct relevant response) (Max 4)
(2 x 4) (8)
(A maximum of 4 marks may be allocated for mere listing of facts/examples)

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2.5 Analyse the impact of a devaluation of the rand on the economy.

It will affect the economy positively because:

 exports are cheaper which allows the country to be more competitive 
 there will be an increase in production which will lead to job creation 
 an increase in exports will lead to an improvement in the Balance of
Payments (reduced deficit) 
 an increase in aggregate demand will lead to economic growth 
 it allows central banks to cut interest rates which will stimulate the
economy 

It will affect the economy negatively because:

 it causes inflation which will make imports more expensive 
 it reduces the purchasing power (reduced real wages) of South Africans
travelling abroad 
 it can scare off potential investors because their assets will decrease in
value which can result in capital flight (disinvestment) 
 debts in foreign currency will impact negatively on the cost of
repayments 
(Accept any other correct relevant higher order response) (Max 8) (8)
(A maximum of 2 marks may be allocated for mere listing of facts/examples) [40]

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QUESTION 3: ECONOMIC PURSUITS

3.1 Answer the following questions.

3.1.1 Name TWO indicators related to foreign trade.

 Terms of trade / Export and import ratio 

 Exchange rate 
 Balance of Payments 
 Interest rate differential 
(Accept any other correct relevant response) (2 x 1) (2)

3.1.2 What is the purpose of the Expanded Public Works

Programme?

It offers employment to marginalized groups that are currently

unemployed 
(Accept any other correct relevant response) (1 x 2) (2)

3.2 DATA RESPONSE

3.2.1 Identify the economic indicator that reflects the average

earnings for each person in the country.

GDP per capita  (1)

3.2.2 Name ONE international institution that requires South Africa

to standardise their economic indicators.

 United Nations 
 World Bank 
 International Monetary Fund  (1)

3.2.3 Briefly describe the term real gross domestic product.

The total value of all final goods and services produced in the
borders in the country where changes in price levels (inflation)
have been taken into account 
(Accept any other correct relevant response) (2)

3.2.4 How is the unemployment rate determined in the country?

The number of unemployed people expressed as a percentage of

the labour force 
OR
number of unemployed people x 100 
EAP (labour force) 
(Accept any other correct relevant response) (2)

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3.2.5 Why is it necessary for South Africa to standardize its

economic indicators according to international requirements?

 It is important that a country should have the ability to compete

successfully internationally and sustain improvements in real
output and wealth 
 The South African economy is increasingly involved in world
markets through exports and imports, experiencing high levels
of uncertainty in the global environment which hold back higher
growth 
 Various international bodies set specifications on how
indicators should be compiled, which make it easy to compare
figures similarly compiled 
 The System of National Accounts are set according to
specifications set by the United Nations 
 South Africa can only benefit from these international
organizations, if indicators are readily available  e.g.
bridging finance from IMF  financial development aid from
World Bank  and child aid from United Nations Children’s
Fund (Unicef) 
 The South African government forms part of various
international institutions and NGOs, that are globally
involved in providing financial aid, grants, loans and rendering
free services 
(Accept any other correct relevant response) (2 x 2) (4)

3.3 DATA RESPONSE

3.3.1 Give ONE example of a Spatial Development Initiative in South
Africa, not mentioned above.

Corridor / IDZ 
(Accept the name of any other SDI) (1)

3.3.2 Which government department is responsible for industrial

development in South Africa?

Department of Trade and Industry  (1)

3.3.3 Briefly describe the term Industrial Development Zone.

Purpose-built industrial estates that are physically enclosed and

linked to an international port or airport 
(Accept any other correct relevant response) (2)

3.3.4 How does the foreign investment grant help to promote

regional industrial development?

It is a cash incentive to assist foreign investors to cover their

start-up cost which encourages the establishment of
businesses in the different regions  e.g. the cost of relocating /
purchase of new machinery and equipment  (2)
(Accept any other correct relevant response)

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3.3.5 Why is the new Special Economic Zone programme regarded

as an improvement of the current Industrial Development
Zones?

 The SEZ involves a broader range of industrial parks and does

not need to be located near a port or an airport as with the
current IDZs 
 The SEZ involves production for export and domestic use,
whereas the IDZ which is focused only on exports 
 SEZs offer special tax incentives of 15% which is not applicable
to the existing IDZs 
 SEZs lead to a more diversified economy 
(Accept any other correct relevant response) (2 x 2) (4)

3.4 Briefly explain population growth and life expectancy as characteristics

of demographics as social indicator.

Population growth
 Demographic information refers to information about the size and age
structure of a population, and has important implications for public sector
expenditure 
 Currently the South Africa's population is approximately 58 million 
 Census is done every few years in order to determine the population
growth 
 The population growth rate is an important indicator to the government in
terms of the number of social services that are needed 
 The size and the change in the population indicate the future labour force
and the needed infrastructure 

Life expectancy
 Life expectancy refers to the number of years that an individual is
expected to live 
 It reflects the average age at which people in the country die 
 In South Africa life expectancy is low due to AIDS or other pandemics 
 Other demographic indicators include migration rates, population density,
mortality rates and birth rates 
 Assurance companies are interested in life expectancy reductions
because it has an impact on premiums and service delivery 
(Accept any other correct relevant response) (2 x 4) (8)
(Allocate a maximum of 4 marks for the mere listing of facts/examples)

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3.5 Evaluate the success of Broad Based Black Economic Empowerment

(BBBEE) in the South African economy.

The BBBEE has been successful in South Africa because:

 Implementation of this strategy empowers the country's indigenous people
as prescribed by the United Nations and World Bank development
initiative
 Black-owned enterprises benefit from the government's preferential
procurement policies where adhering to the DTI scorecard is essential 
 It has provided access to capital and training of potential black
entrepreneurs focusing on the empowerment of black women 
 A substantial change took place in the racial composition of ownership
and management structures of many businesses 
 Political stability is achieved in correcting the inequalities of the past and
stimulation of participation of disadvantaged groups in the economy 

The BBBEE has not been successful in South Africa because:

 The majority of the disadvantaged people of this country have not fully
benefitted from the policy as poverty and unemployment is still
increasing
 Firms with poor BBBEE scores are unlikely to partake in government
contracts although they employ a large percentage of black people,
impacting negatively on other black owned companies 
 Tenders are awarded through preferential procurement, cost the
government more as they are not the providers of services due to
outsourcing (because they are not involved in the provision of the goods
and services, the quality is compromised) 
 Of fraud where payment for tenders have been honoured without any
product or service delivery 
 Fraud such as fake BEE certification, misrepresentations to government
departments, failure to issue share certificates and theft 
 The redistribution of wealth was emphasized and has not promote
economic growth 
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for the mere listing of facts/examples) (8)
[40]

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QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS

4.1 Answer the following questions.

4.1.1 Name any TWO forms of economic integration.

 Free trade area 

 Customs union 
 Common market 
 Economic union 
 Monetary union  (2 x 1) (2)

4.1.2 What is the focus of the National Research and Development

Strategy?

Focuses on enhanced innovation; research in science, engineering

and technology; development of human resources; transformation

(Accept any other correct relevant response) (1 x 2) (2)

4.2 DATA RESPONSE

4.2.1 Identify the exogenous reason for business cycles in the

information above.

A / climatic conditions resulting in droughts and floods  (1)

4.2.2 Name any ONE type of business cycle.

 Kitchin 
 Jugler 
 Kuznets 
 Kondratieff  (1)
(Accept any other correct relevant response)

4.2.3 Briefly describe the term business cycle.

Successive periods of increasing or decreasing economic

activity  (2)
(Accept any other correct relevant response)

4.2.4 Why does the endogenous school of thought encourage

government intervention in the economy?

 Markets are unstable, therefore government should intervene in

the economic processes to stabilise the economy (to smooth out
peaks and troughs) 
 The price mechanism fails to coordinate supply and demand in
the product and factor market 
(Accept any other correct relevant response) (2)

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4.2.5 How can the Reserve Bank use a demand-side policy to

dampen (contract) the economy?

 The Reserve Bank will use a restrictionary monetary policy to

reduce economic activity or to reduce inflation 
 Use the monetary policy to increase the interest rate to
decrease the money supply 
 Increasing the cash reserve requirement which results banks
having less money to lend 
 Selling government bonds to banks to reduce liquidity (open
market transactions) 
 Pursue banks to limit the amount of credit given to consumers
(moral suasion) 
 SARB could temporarily intervene by buying or selling foreign
currency to stabilise the value of the rand 
(Accept any other correct relevant response) (2 x 2) (4)

4.3 DATA RESPONSE

4.3.1 Which international organisation encourages free trade?

World Trade Organisation  (1)

4.3.2 Name the term that relates to the worldwide integration of

economies through trade.
Globalisation  (1)

4.3.3 Briefly describe the term protectionism.

A policy that governments impose to protect local producers against
the unfair effects of foreign competition 
(Accept any other correct relevant response) (2)

4.3.4 Explain the impact of protection on the value of the rand.

The rand (currency) will appreciate when the exchange rate

improves due to a negative trade balance where protectionism
measures were imposed to correct the deficit on the Balance of
Payments 
(Accept any other correct relevant response) (2)

4.3.5 How would consumers benefit from a policy of free trade?

The consumer:
 enjoy freedom of choice to buy anywhere in the world / they are
not limited to buy locally produced goods 
 purchases products for less when other countries produce some
items cheaper (reduced prices) 
 welfare is increased because some prefer to buy foreign goods
rather than domestic goods 
(Accept any other correct relevant response) (2 x 2) (4)

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4.4 Briefly explain good governance and investment in social capital as

benchmark criteria for regional development.

GOOD GOVERNANCE:
 Regional development strategies should be managed effectively and free
of corruption 
 Must be supported by democratic decision-making that should not be
compromised by nepotism and secrecy / appoint people with correct
skills 
 Involves transparency where all role-players should be consulted 
 Proper financial management and control is essential to meet the aims set
by government 

INVESTMENT IN SOCIAL CAPITAL:

 Regional development focuses on the principle of: of the people, for the
people, by the people 
 Development should be addressed from below where most urgent human
needs exist 
 Total development covers all human life including education, health and
nutrition 
(Accept any other correct relevant response)
(Allocate a maximum of 4 marks for the mere listing of facts/examples) (2 x 4) (8)

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4.5 Evaluate the success of import substitution as a South African trade

policy.

Import substitution has been successful as trade policy by:

 promoting initiation and growth of local industries 
 creating a gap for investment within domestic boundaries 
 redirecting resources to the production of goods leading to formation of
new industries 
 leading to increased profits which impacted positively on savings,
investment and capital formation 
 boasting domestic industrialisation that enhanced demand for labour
intensive industries that created job opportunities by using the latest
technology 
 increasing the resilience to global economic shocks by building economic
stability and sustainability 
 facilitating urbanisation through expanding industries 
 restricting imports created an increased demand for locally produced
products 

Import substitution was unsuccessful as trade policy because:

 it led to a lack of external competition that affected the efficiency of infant
industries – negatively affecting growth 
 it failed to meet the needs of a growing domestic industry that resulted in
black markets (illegal markets) 
 financial leakages took effect reducing government revenue an overall
capital base of the economy 
 trade protection due to import substitution led to overvalued exchange
rates causing a rise in domestic prices 
 it forced government to spend more on subsidising industrial investment.
Inflation followed 
 capital and entrepreneurial talent are pulled away from industries and
developing countries to countries who have a comparative advantage in
production 
 the total amount of imports are not reduced, as South Africa still import
specialised products, as well as capital (loans) and intermediate goods to
produce goods locally 
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for the mere listing of facts/examples) (8)
[40]

TOTAL SECTION B: 80

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SECTION C
Answer any ONE of the two questions in this section.

QUESTION 5: MACROECONOMICS

 Discuss the role of markets in the circular flow. (26 marks)

 How can the business sector contribute more positively to the economy?
(10 marks) [40]

INTRODUCTION
 Markets coordinate economic activities and determine prices for goods and
services  /
 The circular flow model is a simplified representation of the interaction between the
participants of the economy 
(Accept any other relevant introduction) (Max 2)

MAIN PART

Goods/Product/Output markets 
 These are markets for consumer goods and services 
In economics a distinction is made between goods and services:
 Goods are defined as any tangible items such as food, clothing and cars that
satisfy some human wants or need 
 Buying and selling of goods that are produced in markets, include:
- Capital goods market for trading of buildings and machinery 
- Consumer goods market for 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 
 Flows of private and public goods and services are real flows and they are
accompanied by counter flows of expenditures and taxes on the product market


Factors/Resources/Input markets 
 Factors of production are bought and sold in the factor market 
 The factor market includes the labour, property and financial markets 
 Factor services are real flows and they are accompanied by counter flows of
income on the factor market 

Financial markets 
 They are not directly involved in production of goods and services, but act as a link
between households, the business sector and other participants with surplus funds

 Banks, insurance companies and pension funds form part of the financial
market

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Money markets 
 In the money market, short-term loans and very short-term funds (less than 3
years) are saved and borrowed by consumers and business enterprises 
 Products sold in this market are bank debentures, treasury bills and government
bonds 
 The SARB is the key institution in the money market 
Capital markets 
 In the capital market long-term funds (3 years or longer) are borrowed and saved
by consumers and business enterprises 
 The Johannesburg Security Exchange is a key institution in the capital market 
 Products sold in this market are mortgage bonds and shares 
Foreign exchange markets 
 On the foreign exchange market businesses buy/sell foreign currencies to pay for
imported goods and services 
 These transactions occur in banks and consists of an electronic money transfer
from one account to another 
 The most important foreign exchange markets are in London/New York/Tokyo 
 The SA rand is traded freely in these markets when a person buys travellers'
cheques to travel abroad 
 Imports and exports are real flows and they are accompanied by counter flows of
expenditure and revenue on the foreign exchange market 
(Accept any other correct relevant response) (Max 26)
ADDITIONAL PART
How can the business sector contribute more positively to the economy?
The business sector can contribute more positively by:
 investing more in labour intensive projects with the focus on in service-training and
skills development of workers 
 re-investing their profits in gross capital formation programmes  equipment,
tools, transportation assets and electricity 
 expanding their business operations and investing in the latest technology to
ensure an upliftment of the quality of factors of production needed for production

 diversifying their business operations by bringing in a differentiated product
offering within or outside the range they produce 
 supporting South African businesses in terms of procuring raw materials and
increase the market share for South African produced goods and services locally
and abroad 
 ensuring the existence of sound business principles towards a long-term
involvement in the economy leading to a positive economic growth rate 
 using loans to invest in capital goods like machinery, to ensure mass production at
a lower cost thus improving their competitiveness 
(Accept any other correct higher order response) (Max.10)
CONCLUSION
Markets are critically important institutions in our economic system, because they
regulate the market, to safeguard price stability and general business confidence 
(Max. 2) [40]
(Accept any other correct relevant response)

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QUESTION 6: ECONOMIC PURSUITS

 Discuss, without graphs, the supply-side policy to promote economic growth.
(26 marks)
 Why should government focus more on Small, Medium and Micro-enterprises
(SMMEs) to drive the economy? (10 marks) [40]
INTRODUCTION
Supply-side policies focus on supply and its microeconomic components such as
competition and potential output to supply goods and services 
(Accept any other correct relevant response) (Max. 2)
MAIN PART
1. THE EFFICIENCY AND EFFECTIVENESS OF MARKETS 
Efficient
 If a business achieves its aims of profitability and growth, the business is
efficient 
 Similarly, industries and markets are also efficient when they achieve their aims 
 In South Africa, the government imposes aims on the markets through law which
they are obliged to pursue and if they meet those objectives, they are efficient 
Effectiveness
 Government demands that markets operate in a manner that ensures that more
black people are absorbed into the mainstream economy because they were
previously excluded 
 Two Acts were promulgated among others to enforce a preference for black workers
and the business of black people 
The Employment Equity Act  This Act prohibits discrimination and requires that
the workforce reflects the racial and gender profile of the population 
o Businesses have to file an employment equity plan with the Department of
Labour and inspectors from the department visit the business sites to ensure
compliance 
Broad-based Black Economic Empowerment 
o This Act provides the legal basis for the transformation of the South African
economy 
o This requires the redress so that the number of black people who own / manage
and control businesses in the country  can increase significantly and income
inequalities can be decreased substantially 
o Pareto efficiency  means that given the constraints of the effectiveness
parameters, it is not possible to change the allocation of resources in such a
way that someone is made better off without making someone else worse
off 
o It includes productive and allocative efficiency 
- Competition  This was increased in the following manner in the markets:
By establishing new businesses and recruiting of FDI  and the reduction of
import restrictions  which increased competition from abroad 
- In addition, a competition regulatory network was established to enforce
competition practices amongst domestic businesses (the Competition Act
(1998), Competition Tribunal, and Competition Appeals Court)  and in
spite of this, the Global Competitive Index shows that South Africa's
competitiveness is slipping 
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- Deregulation  Private sector power imbalances that inhibit the free

operation of markets have been revised and some were even abolished in
the mid-1990s 
- Privatisation  Efficiency is improved in terms of quality of services
delivered and products delivered 
o Government maintains its commitment to improve the ease of doing business in
South Africa 
o Exchange control measures were occasionally relaxed but not abandoned by
2012 
o The Ease of Doing Business Index shows South Africa is slipping every
year 

Business efficiency 
Some measures serve as incentives to increase the effort and efficiency and greater
profitability 

 Taxes 
o The country's corporate income tax is at 28% and small businesses pay a lower
rate as long as their income is less than R350 000 over year while the micro-
enterprises the turnover is R750 000 
o Individual income tax starts at 18% and increase on sliding scale to 40% 
o The effects of bracket creeping on personal income tax has been attended to in
almost every budget with the adjustments in of income brackets 

 Capital formation 
o The depreciation of capital goods used by businesses is designed to encourage
investment e.g. the purchasing of new machinery may be depreciated over four
years, 40% in the first year and computers and electronic equipment over three
years 
o Government , through the DTI and the IDC, also provides capital and loans to
SMMEs and bigger businesses 
o These serve as incentives to promote efficiency 

 Human resources/transformation of education 

o Education receives proportionally the bigger slice of the budget expenditure

o Sectoral Education and Training Authorities (SETAs) have to facilitate post-
school, work-related training and all these measures are aimed at fostering
efficiency 

 Free advisory services 

o Examples include the development of export markets, managing and running
SMMEs, agricultural production, weather forecasts, and preventing and curing
animal diseases 

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2. COST OF DOING BUSINESS 

In South Africa government controls most physical infrastructure components 
The availability, reliability and cost of infrastructure services play an important role in
the financial viability and profitability of businesses 

 Transport costs 
o Transport options in the form of air, road, rail and sea transport 
o Government controls air and rail transport in South Africa 
o A substantial promotion of cargo and passenger transport is moved by road 
o Only a reliable rail service that is cheaper than road transport will turn this
around 
o Transport costs within South Africa and between South Africa and its exports
destinations are expensive due to the long distances involved 
o Government has committed to improving the efficiency and reliability of its rail
transport services and to making it more affordable 

 Communication costs 
o Communications options are cable, signal and mail 
o Government controls cable (land / fixed) and mail communication services 
o Cable communication in South Africa is the most expensive in the world but
reasonably efficient 
o The high cost make IT services for businesses and individuals expensive and
inhibits global competitiveness 

 Energy costs 
The two main forms of energy in South Africa are electricity and liquid fuels 
o Eskom is a monopoly electricity supplier 
o In recent years its rates escalated substantially and at times it has been unable
to meet the demand for electricity and this undermines the efficiency in the
economy 
o Government announced substantial investments in new electricity capacity 
o Government regulates petrol and paraffin prices 
o prices of imported crude oil are linked to high international market prices 
o High liquid energy prices undermine the efficiency of the economy 

3. HUMAN RESOURCES 
o Apply migration policies to retain highly skilled workers and curb inflow of lesser
skilled workers 
o Promote quality education and training to increase labour productivity 
o Reduce the power of unions in order to encourage greater flexibility in wage and
labour practices 

4. NATURAL RESOURCES 
o Value, grow and conserve the natural resources of the country 
o Invest in new discoveries of minerals and other natural resources 
o Invest in research and technology to increase productivity of natural resources


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5. CAPITAL FORMATION 
o Promote private sector investment in manmade capital such as new factories

o Use public money efficiently to improve infrastructure, public goods and services

o To promote technological improvements to increase the productivity of capital
and labour 
o Encourage foreign investment through the abolishment of exchange controls
and other restraints on the free movement of capital
o Encourage the public to save to provide funding for capital formation 
o Create a stable business environment that instils confidence and promotes
investment 
6. ENTREPRENEURSHIP 
o Encourage competition through policies of deregulation and anti-monopoly
legislation 
o Promote an entrepreneurial culture and encourage new business start-ups by
providing financial and advisory assistance, entrepreneurial education and
training and business-friendly legal environment 
7. TECHNOLOGY 
o New scientific knowledge in the form of inventions and innovations are
applied
o Advanced technology stimulates economic growth and development to produce
a wider variety of goods / improve the quality of goods and services / explore
and produce new products 
o It is important for countries to invest money in education, technology and
research development 
(A maximum of 8 marks can be allocated for mere listing of facts/examples)
(Accept any other correct relevant response) (Max 26)
ADDITIONAL PART
The government should focus on SMMEs to drive the economy because:
 the small business sector employs a large part of the labour force compared to
other size businesses 
 the average capital cost of a job created in the SMME sector is lower than in the
big business sector 
 it allows for more competitive markets where consumers will benefit from a wider
variety of goods at more competitive (lower) prices 
 it can adapt more rapidly than larger organisations to changing preferences and
trends 
 often local resources are used which has a ripple-effect in the development of
other industries 
 it provides opportunities for aspiring entrepreneurs, especially those who are
unemployed, under-employed or retrenched 
 workers at the smaller end of the scale often require limited or no skills or training;
they learn on the job 
 subcontracting by large enterprises to SMMEs lends expansion to production
processes 
 it plays a vital role in technical and other innovations which can lead to a world of
successful, highly qualified competitors in future 
(Accept any other correct relevant response) Max (10)

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CONCLUSION

The supply-side policy approach can be used to encourage quality and quantity use of
factors of production to the best of the economy  Max (2)
(Accept any other correct relevant higher order response) [40]

TOTAL SECTION C: 40

GRAND TOTAL: 150

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