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NATIONAL
SENIOR CERTIFICATE

GRADE 12

JUNE 2023

ECONOMICS P1

MARKS: 150

TIME: 2 hours

This question paper consists of 13 pages.

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ECONOMICS P1 (EC/JUNE 2023)

INSTRUCTIONS AND INFORMATION

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

SECTION A: COMPULSORY
SECTION B: Answer any 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. Write the question number above each answer.

5. Read the questions carefully.

6. Start EACH question on a NEW page.

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

8. 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.

9. Use only black or blue ink.

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

11. Write neatly and legibly.

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(EC/JUNE 2023) ECONOMICS P1 3

SECTION A (COMPULSORY) 30 MARKS – 20 MINUTES

QUESTION 1

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
number (1.1.1 to 1.1.8) in the ANSWER BOOK, for example 1.1.9 D.

1.1.1 National income will increase when …

A I + G + X = S + T + M.
B I + G + X > S + T + M.
C I + G + X < S + T + M.
D I + G + X – S + T + M.

1.1.2 One of the biggest challenges when calculating the national income
figures is ...

A double counting.
B the residual item.
C compensation of employees.
D net income.

1.1.3 The exchange rate system whereby market forces have absolute
control is called the … exchange rate system.

A fixed
B free floating
C managed floating
D absolute

1.1.4 Aggregate supply in the economy can be stimulated by …

A increasing the costs.

B improving inefficiency of inputs.
C maintaining the same costs.
D improving the efficiency of markets.

1.1.5 The institution that provides parliament with annual written reports
on the standard of financial management of each government
department:

A Treasury control
B Ministerial responsibilities
C Auditor-general
D Parliamentary questioning

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1.1.6 Public goods where free-riders are excluded through fees,

charges or tolls are … goods.

A collective
B private
C community
D consumables

1.1.7 When a currency is …, interest rates can be decreased which will

result in an outflow of foreign currency.

A overvalued
B depreciated
C undervalued
D appreciated

1.1.8 The typical fluctuations of a business cycle will be a/an …

A upswing – downswing – trough – peak.

B peak – downswing – upswing – trough.
C peak – upswing – trough – downswing.
D downswing – trough – upswing – peak. (8 x 2) (16)

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(EC/JUNE 2023) ECONOMICS P1 5

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 numbers
(1.2.1 to 1.2.8) in the ANSWER BOOK.

COLUMN A COLUMN B
1.2.1 Progressive tax A purchase of assets such as shares or
system bonds, where the investor is interested
only in the expected financial return on
the investment

1.2.2 National account B measured from peak to peak or trough

aggregates to trough

1.2.3 Amplitude C shows the government’s projected

income and expenditure for three years

1.2.4 Portfolio D levied according to the amount earned

investments

1.2.5 Medium-term E international guidelines for developing

expenditure and reporting statistics comparable
framework across countries

1.2.6 Special drawing F studies the behaviour and performance

rights of an economy as a whole

1.2.7 System of National G difference in the value of total output

accounts between a peak and a trough

1.2.8 Macroeconomics H an international reserve asset created

by the IMF to supplement the official
reserves of its member countries.

I a summary of a country’s the economic

activity of production, income and
expenditure
(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 A small initial increase in spending produces a proportionately

larger increase in aggregate national income

1.3.2 An indication of the general direction of the economy

1.3.3 The action by the South African Reserve Bank to occasionally

change the balance that banks are required to maintain.

1.3.4 A deliberate downward adjustment to the value of a country’s

currency, relative to another currency

1.3.5 A model which shows the relationship between tax rates and tax
revenue

1.3.6 A government policy that uses government expenditure and taxes

to influence economic activity (6 x 1) (6)

TOTAL SECTION A: 30

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(EC/JUNE 2023) ECONOMICS P1 7

SECTION B

QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES

2.1 Answer the following questions.

2.1.1 Name TWO turning points of a business cycle. (2)

2.1.2 How can a larger marginal propensity to save (mps) affect the size
of the multiplier? (2)

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

NATIONAL INCOME ACCOUNTS OF SOUTH AFRICA

R millions

2020 2021
Compensation of employees 2 678 050 2 861 309
Net operating surplus 1 493 978 1 795 000
Consumption of fixed capital 752 613 797 230
Gross value added at factor cost 4 924 641 5 453 539
Other taxes on production 118 022 131 563
Other subsidies on production 13 088 12 494
A 5 029 575 5 572 608
Taxes on products 541 457 633 854
Subsidies on products 14 116 13 965
Gross domestic product at market prices 5 556 916 B
[Adapted from SARB QB, December 2021]

2.2.1 What method of calculation is used in the table above to determine

the gross domestic product? (1)

2.2.2 Name the missing item labelled (A). (1)

2.2.3 Briefly describe the term subsidies on production. (2)

2.2.4 How would you convert GDP to GNP? (2)

2.2.5 Calculate the value of GDP at market prices for 2021 (B). Show all
calculations. (4)

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

The President of South Africa has announced that the Department of

Energy would take over Eskom. There was an attempt to privatise Eskom
and the entire industry in the late 90s but this was abandoned as no private
company wanted to compete with unsustainable and unprofitable electricity
prices backed by taxes and debt.

[Adapted from news24.net]

2.3.1 Name the parastatal referred to in the above information. (1)

2.3.2 Who is indirectly responsible for bailing out state-owned

enterprises in South Africa? (1)

2.3.3 Briefly describe the concept privatisation. (2)

2.3.4 Explain inefficiencies as a feature of public sector failure. (2)

2.3.5 How could state-owned enterprises contribute towards expanding

the economy? (4)

2.4 Briefly discuss leading and co-incident indicators as features under-pinning

forecasting. (8)

2.5 How can South Africa reduce imports in order to correct the Balance of
Payment (BOP) deficit? (8)
[40]

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(EC/JUNE 2023) ECONOMICS P1 9

QUESTION 3: MACROECONOMICS 40 MARKS – 30 MINUTES

3.1 Answer the following questions.

3.1.1 Name any TWO problems of public sector provisioning. (2)

3.1.2 What is the significance of a surplus on the current account of the

balance of payment? (2)

3.2 Study the information below and answer questions that follow.

Years 2018 2019

Quarters Q1–4 Q1 Q2 Q3 Q4
Current account R bn R bn R bn R bn R bn
items
Exported goods 1176 1193 1233 1258 1260
Net gold exports 72 56 50 70 93
Service receipts 210 208 213 215 215
Income receipts 97 123 106 117 121
Current transfers -35 -36 -35 -36 -36
Imported goods 1223 1207 1314 1284 1250
Service payments 218 221 229 226 230
Income payments 251 266 230 303 241

[Adapted from SARB QB, December 2019]

3.2.1 Give the economic concept illustrated in the table above. (1)

3.2.2 Which current account item is used for recording donations? (1)

3.2.3 Briefly describe the term trade balance. (2)

3.2.4 Why are net gold export figures positive in South Africa? (2)

3.2.5 Calculate the balance on the current account for the second quarter
of 2019. Show ALL calculations. (4)

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

[Source: Enjoy Economics, p56]

3.3.1 Provide a name for the graph given above. (1)

3.3.2 What is the original natural rate of unemployment in the graph

above? (1)

3.3.3 Briefly describe the term new economic paradigm. (2)

3.3.4 Explain how the government can use its fiscal policy to speed up
the recovery of an economy. (2)

3.3.5 With the aid of a graph, illustrate the effect of demand-side and
supply side policies in smoothing out business cycles. (4)

3.4 Explain the effect of an increase in mass production on international trade. (8)

3.5 How can a recession negatively affect the different economic participants? (8)
[40]

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(EC/JUNE 2023) ECONOMICS P1 11

QUESTION 4: MACRO ECONOMICS 40 MARKS – 30 MINUTES

4.1 Answer the following questions.

4.1.1 Name any TWO instruments of the monetary policy. (2)

4.1.2 How can ineffectiveness result in public sector failure? (2)

4.2 Read the extract below and answer the questions that follow.

BUSINESS CYCLES

Economies can be disturbed by many factors which can result in

downswings and it can also go through periods of growth and prosperity.
Countries have to find ways to deal with business cycles in order to achieve
stable economies.

[Source: www. https://www.econlib.org/library/Enc/BusinessCycles.html]

4.2.1 Name the period of business cycle during which the level of
economic activities increases. (1)

4.2.2 Mention ONE type of a business cycle. (1)

4.2.3 Briefly describe the concept business cycle. (2)

4.2.4 How can natural disasters influence fluctuations in business cycles? (2)

4.2.5 How has the Keynesian (endogenous) school of thought influenced

business cycles? (4)

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4.3 Study the information below and answer questions that follow.

SOUTH AFRICA: TERMS OF TRADE 2022

Month Index of import Index of Terms of Trade
prices export prices
January 108,2 102,9 95,1
February 107,9 105,4 97,6
March 107,7 109,7 A

[Adapted from https://www.statssa.gov.za/publications/P01427/P01427March2022.pdf]

4.3.1 Identify the institution responsible for publishing the data above. (1)

4.3.2 What is the trend in the index of import prices? (1)

4.3.3 Briefly describe the concept terms of trade. (2)

4.3.4 What can bring an improvement in the country’s terms of trade? (2)

4.3.5 Calculate the terms of trade for March 2022 (A). Show ALL
calculations. (4)

4.4 Briefly discuss absolute and comparative advantage as supply reasons

for international trade. (8)

4.5 Why is price stability important to prevent extreme fluctuations in business

cycles? (8)
[40]

TOTAL SECTION B: 80

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(EC/JUNE 2023) ECONOMICS P1 13

SECTION C

Answer any ONE question of the TWO questions 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 Max. 26
discuss/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:
• A brief summary of what has been discussed without repeating Max. 2
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 in detail the markets within the four-sector model. (26 marks)
• How can the business sector contribute more positively to the economy?
(10 marks) [40]

QUESTION 6: MACROECONOMICS 40 MARKS – 40 MINUTES

• Discuss in detail the main objectives of the public sector in the economy.
(26 marks)
• How effective is the South African government in achieving full employment?
(10 marks) [40]

TOTAL SECTION C: 40
GRAND TOTAL: 150

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NATIONAL
SENIOR CERTIFICATE

GRADE 12

JUNE 2023

ECONOMICS P1
MARKING GUIDELINE

MARKS: 150

This marking guideline consists of 17 pages.

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ECONOMICS P1 (EC/JUNE 2023)

SECTION A (COMPULSORY)

QUESTION 1

1.1 MULTIPLE-CHOICE QUESTIONS

1.1.1 B  I+G+X>S+T+M

1.1.2 A  Double counting

1.1.3 B  Free floating

1.1.4 D  Improving the efficiency of markets

1.1.5 C  Auditor-general

1.1.6 A  collective

1.1.7 C  undervalued

1.1.8 D  downswing – trough – upswing – peak (8 x 2) (16)

1.2 MATCHING ITEMS

1.2.1 D levied according to the amount earned

1.2.2 I A summary of a country’s the economic activity of

production, income and expenditure

1.2.3 G difference in the value of total output between a peak and

a trough

1.2.4 A purchase of assets such as shares or bonds, where the

investor is interested only in the expected financial return
on the investment

1.2.5 C Shows the government’s projected income and

expenditure for three years

1.2.6 H An international reserve asset created by the IMF to

supplement the official reserves of its member countries

1.2.7 E International guidelines for developing and reporting

statistics comparable across countries

1.2.8 F Studies the behaviour and performance of an economy

as a whole (8 x 1) (8)

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1.3 GIVE ONE TERM

1.3.1 Multiplier 

1.3.2 Trendline 

1.3.3 Cash reserve requirement 

1.3.4 Devaluation 

1.3.5 Laffer curve 

1.3.6 Fiscal policy  (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 2.1.1 Name TWO turning points of a business cycle.

• Peak 
• Trough  (2 x 1) (2)

2.1.2 How can a larger marginal propensity to save (mps) affect the
size of the multiplier?

It reduces the size of the multiplier as less is available to

spend. 
(Accept any other correct relevant responses.) (1 x 2) (2)

2.2 DATA RESPONSE

2.2.1 What method of calculation is used in the table above to

determine the gross domestic product?

Income method /GDP (1)

2.2.2 Name the missing item labelled (A).

Gross value added at basic prices/GVA at basic prices.  (1)

2.2.3 Briefly describe the term subsidies on production.

Subsidies on production refer to subsidies that are not linked to

specific goods or services, e.g. subsidy made on employment. 
(Accept any other correct relevant response.) (2)

2.2.4 How would you convert GDP to GNP?

By adding primary income from the rest of the world  and

subtracting primary income to the rest of the world  / GDP +
primary income from the rest of the world – primary income to the
rest of the world.  (2)

2.2.5 Calculate the value of GDP at market prices for 2021 (B).
Show all calculations.

5 572 608 + 633 854  – 13 965  = 6 192 497  (4)

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(EC/JUNE 2023) ECONOMICS P1 5

2.3 DATA RESPONSE

2.3.1 Name the parastatal referred to in the above information.

Eskom  (1)

2.3.2 Who is indirectly responsible for bailing out state-owned

enterprises in South Africa?

The taxpayer  (1)

2.3.3 Briefly describe the concept privatisation.

When the government transfer the functions, activities and

ownership from the government to the private sector. 
(Accept any other correct relevant answer.) (2)

2.3.4 Explain inefficiencies as a feature of public sector failure.

• Inefficiencies lead to wasting of state funds and resources. 

(Accept any other correct relevant answer.) (Any 2 x 1) (2)

2.3.5 How could state-owned enterprises contribute towards

expanding the economy?

• Creating more job opportunities and appointing competent

management. 
• Offering skills development programmes to improve productivity
of existing workers. 
• Maintaining or servicing their machinery and equipment regularly
to ensure quality service delivery. 
• Dealing with corruption to reduce wastage of public funds. 
(Accept any other correct relevant response.) (Any 2 x 2) (4)

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2.4 Briefly discuss leading and co-incident indicators as features

underpinning forecasting.

Leading economic indicators:

• These are indicators that change before the economy changes/coincide
with the reference turning point. 
• They give consumers, businesses and policy makers a glimpse of
where the economy is headed. 
• They reach the peak before the economy reaches the peak. 
• Most important type of indicator in helping economists to predict what
the economy will be like in the future. 
• When these indicators show prosperity, the level of economic activities
will also rise in a few months’ time 
• e.g. number of new vehicles sold, real exports of goods, etc. 
(Max. 2 x 2)

Coincident economic indicators:

• They move at the same time as the economy. If the turning point of a
specific time series variable coincide with the reference turning
point. 
• It indicates the current state of the economy  e.g. retail sales. 
• If the business cycle reaches a peak and then begins to decline, the
value of retail sales will reach a peak and then begin to decline at the
same time. 
(Accept any other correct relevant response.) (Max. 2 x 2)
(4 + 4) (8)

2.5 How can South Africa reduce imports in order to correct the Balance
of Payment (BOP) deficit?

South Africa can reduce imports in order to correct the Balance of Payment
(BOP) deficit by:
• increasing interest rate to discourage domestic expenditure including
imported goods and services 
• increasing indirect taxes such as personal income tax to reduce
household’s disposable income and discourage their expenditure on
imports 
• imposing import tariffs and duties to make imported goods and services
more expensive and reduce domestic expenditure on them 
• reducing the availability of foreign exchange to discourage domestic
expenditure on imports 
• implementing strict customs procedures to delay the process of
purchasing imports 
• encouraging domestic production of imports such that consumers will
purchase them on local markets. 
• increasing aggregate supply of goods and services to avoid shortages on
local markets 
• devaluing the rand to make imports relatively more expensive 
(Accept any other correct and relevant response.)
(A maximum of 2 marks may be allocated for mere listing of facts /
examples.) (8)
[40]
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QUESTION 3: MACRO ECONOMICS

3.1 3.1.1 Name any TWO problems of public sector provisioning.

• Accountability 
• Efficiency 
• Assessing needs 
• Pricing policy 
• Parastatals 
• Privatisation/Nationalisation  (Any 2 x 1) (2)

3.1.2 What is the significance of a surplus on the current account of

the balance of payment?

• The value of the rand will increase due to the net flow of foreign
exchange 
• Public debt to cover BOP problems will be reduced / less
borrowing 
• Foreign reserves may increase thereby improving the financial
position of the country 
(Accept any other correct relevant response.) (Any 1 x 2) (2)

3.2 DATA RESPONSE

3.2.1 Give the economic concept illustrated in the table above.

Balance of payments/BOP  (1)

3.2.2 Which current account item is used for recording donations?

Current transfers  (1)

3.2.3 Briefly describe the term trade balance.

It is the difference between merchandise exports plus net gold

export and the merchandise imports. 
(Accept any other relevant and correct response.) (2)

3.2.4 Why are net gold export figures positive in South Africa?

This is because South Africa is the world’s largest exporter of gold,

and therefore a net exporter.  (2)

3.2.5 Calculate the balance on the current account for the second
quarter of 2019. Show ALL calculations.

Current account balance = (inflows) – (outflows) + (current transfers)

= (1 233 + 50 + 213 + 106) –- (1 314 + 229 + 230)  + (-35)
= 1 602 – 1773 – 35
= - 206  (4)

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3.3 DATA RESPONSE

3.3.1 Provide a name for the graph given above.

Phillips Curve  (1)

3.3.2 What is the original natural rate of unemployment in the graph

above?

14%  (1)

3.3.3 Briefly describe the term new economic paradigm.

The new economic paradigm refers to government policies designed

to ensure a high rate of economic growth without having supply
constraints and price inflation. 
(Accept any other correct relevant response.) (2)

3.3.4 Explain how the government can use its fiscal policy to speed
up the recovery of an economy.

Government can speed up the recovery of the economy by:

• reducing taxes which will give consumers and companies more
money to spend on goods and services and for companies to
expand their production capacity. 
• increasing government spending which will increase aggregate
expenditure and demand, thus stimulate economic activity and
employment
• increasing government spending and simultaneously decreasing
taxes. 
(Accept any other correct relevant response.) (Any 2 x 1) (2)

3.3.5 With the aid of a graph, illustrate the effect of demand-side and
supply side policies in smoothing out business cycles.

(4)

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3.4 Explain the effect of an increase in mass production on international

trade.

Effect of the increase of mass production on international trade:

• An increase in production as a result of mass production would lead to
an increase in the supply of goods and services on foreign markets 
• An increase in exports will lead to an inflow of foreign exchange which
will push the supply curve to the right 
• This will lead to an appreciation in the value of the rand 
• Create more employment that will lead to an increased demand for
foreign goods that might facilitate international trade  and lead to an
access to a greater variety of goods and services 
• Most manufactured products require large-scale production in order to
be affordable and profitable 
(Accept any other correct relevant response.) (8)
3.5 How can a recession negatively affect the different economic
participants?

• The tax base for the government may shrink as some businesses may
shut down their operation and workers lose jobs 
• Social expenditure by the government may increase as poverty and
unemployment levels increase during the recession
• State debt may increase as the government tries to raise funds for some
of its critical expenditure 
• Households may lose their jobs and fail to find new employment as
production of goods and services decrease 
• Businesses may experience low demand for goods and services as
consumers postpone soe of their expenditures 
• Business confidence may decrease thereby discouraging them from
investing in the economy 
• Businesses may generate less revenue resulting in less profits 
• The foreign sector will have less supply of South African exports as
domestic production decreases. 
(Accept any other correct relevant responses.) (8)

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QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS

4.1 4.1.1 Name any TWO instruments of a monetary policy.

• Interest rates 
• Cash reserve requirements 
• Open market transactions 
• Moral suasion 
• Exchange rate policy  (Any 2 x 1) (2)

4.1.2 How can ineffectiveness result in public sector failure?

It can result in public sector failure when:

• Targets that are missed with regard to inflation, growth and
employment 
• There is incompetency in using monetary and fiscal policy and
harmonising them 
• There is failure to supplement existing policies with suitable
effective ones 
(Accept any other relevant response.) (Any 1 x 2) (2)

4.2 DATA RESPONSE

4.2.1 Name the period of business cycle during which the level of
economic activities increases.

Upswing/expansion  (1)

4.2.2 Mention ONE type of a business cycle.

• Kitchin cycle 
• Kondratief
• Jugler cycle
• Kuznets (Any 1 x 1) (1)

4.2.3 Briefly describe the concept business cycle.

Successive periods of increasing and decreasing economic

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

4.2.4 How can natural disasters influence fluctuations in business

cycles?
Bad weather can influence fluctuations by:

• Reducing the productivity of the agricultural sectors hence

causing a downturn in the economy. ✓✓
• Causing contractions in business cycles because of a decline
in the supply of agricultural product. ✓✓
• Decreasing raw material used to produce other goods thus
causing a retarded growth in the level of economic
activities. ✓✓
(Accept any relevant correct response.) (2)
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(EC/JUNE 2023) ECONOMICS P1 11

4.2.5 How has the Keynesian (endogenous) school of thought

influenced business cycles?

• The Keynesian (endogenous) view is that markets are inherently

unstable, therefore government intervention is necessary to
stabilise the economy 
• They argue that changes in value of total expenditure bring about
changes in demand 
• Government can intervene through fiscal policy which includes
taxes and government spending 
• During a recession, government can increase its spending and
reduce taxes. (stimulate) 
• This will increase the level of economic activity e.g. production,
employment, income and demand 
• During a peak the government can increase taxes and reduce
government spending 
• This will result in reduced income, reduced demand for factors of
production, and expenditure 
(Accept any other relevant response.) (Any 2 x 2) (4)

4.3 DATA RESPONSE

4.3.1 Identify the institution responsible for publishing the data above.

Statistics South Africa/Stats SA  (1)

4.3.2 What is the trend in the index of import prices?

• A decrease/decline  (1)

4.3.3 Briefly describe the concept terms of trade.

The ratio of the index of export prices to the index import prices / The
relationship between export prices and import prices / It expresses a
country’s export prices in terms of its import prices 
(Accept any correct relevant response.) (2)

4.3.4 What can bring an improvement in the country’s terms of trade?

An increase in export prices / A decrease in import prices.  (2)

4.3.5 Calculate the terms of trade for March 2022 (A). Show ALL
calculations.

Terms of trade = index of export prices/index of import prices x 100

= 109,7 /107,7  x 100 
= 101,8  (4)

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ECONOMICS P1 (EC/JUNE 2023)

4.4 Briefly discuss absolute and comparative advantage as reasons for

international trade.

Absolute advantage:
• Absolute advantage means the country can produce that good or
service better than anyone else / at the lowest costs. 
• A country with an absolute advantage makes economic gains by
specialising in what it does best. 
• A basis for trade exists since it makes sense for this country to
specialise in the production of this good and then trade it for goods that
other countries have an absolute advantage in. 
• Each country specialises in producing what they do best and imports
those products that they can buy more cheaply from foreign countries
than from local producers. 
• Even if the country has absolute advantage in the production of
everything, it does not necessarily have to produce everything and be
self-sufficient because of the principle of comparative advantage. 

Comparative advantage:
• The principle of comparative advantage states that under certain
conditions, two countries can gain from trade if one of them is more
efficient than the other in producing everything. 
• Comparative advantage introduces opportunity cost as a factor for
analysis in choosing between different options for production
diversification.  Comparative advantage state that there will be
advantages to all parties in trading if countries specialise in producing
goods in which they have a comparative advantage (the lowest
opportunity cost). 
• A country has a comparative advantage in the production of a good or
service that it produces at a lower opportunity cost than its trading
partners. 
• Countries increase their economic prosperity by exporting the goods
that they are relatively more efficient at producing and importing the
goods that other countries are relatively more efficient at producing.  (8)

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4.5 Why is price stability important to prevent extreme fluctuations in

business cycles?

Price stability is important in preventing extreme fluctuations in

business cycles because it:
• contributes to high levels of economic activity and employment 
• improves the transparency of the price mechanism so that people can
recognise changes in relative prices without being confused by
changes in the overall price 
• allows people to make well-informed consumption decisions 
• encourages foreign investment to promote growth 
• helps to allocate resources more efficiently 
• avoids unproductive activities that are sometimes used to protect one
against the impact of high inflation 
• avoids the risk of deflation which makes it more difficult implement
policies guarding against it 
• implements inflation targeting, by reducing distortion of inflation or
deflation which exacerbate the distortionary impact on the economic
behaviour of tax and social security 
• prevents an arbitrary redistribution of wealth and income as a result of
unexpected fluctuations 
• keeps interest rates unchanged to ensure continued growth in the
economy without big fluctuations 
• adapts the cash reserve requirements which will compel banks to limit
credit/money in circulation 
(Accept any correct relevant response.) (8)
[40]

TOTAL SECTION B: 80

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ECONOMICS P1 (EC/JUNE 2023)

SECTION C

QUESTION 5: MACROECONOMICS

• Discuss in detail the markets within the four-sector model. (26 marks)
• How can the business sector contribute more positively to the
economy? (14 marks)

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.) (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 

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 

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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) (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) (10)

Conclusion
Markets are critically important institutions in our economic system, because they
regulate the market, to safeguard price stability and general business
confidence 
(Accept any other correct relevant response) (Max. 2) (2)
[40]

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ECONOMICS P1 (EC/JUNE 2023)

QUESTION 6: MACRO ECONOMICS

• Discuss in detail the main objectives of the public sector in the economy.
(26 marks)
• How effective is the South African government in achieving full
employment? (10 marks)

INTRODUCTION

The government provides goods and services that are under supplied by the market
and therefore plays a major role in regulating economic activity and guiding and
shaping the economy. 
(Accept any correct relevant introduction.) (2)

MAIN PART

Economic growth 
• Refer to an increase in the production of goods and services 
• Measured in terms of Real GDP 
• For economic growth to occur, the economic growth rate must be higher than
population growth 
• Growth and development in a country benefit its citizens because it often leads
to a higher standard of living 
• Formula used:

Real GDP current year – Real GDP previous year x 100

Real GDP =
Real GDP previous year 

Full employment 
• It is when all the people who want to work, who are looking for a job must be
able to get a job 
• High levels of employment is the most important economic objective of the
government 
• The unemployment rate increased over the past few years 
• Disabled persons have disadvantaged status in South Africa 
• Informal sector activities must be promoted because it is an area where
employment increase 
• For employment to increase, production needs to increase 
• Formula:
= number of employed persons x 100 
Employment rate
Total EAP

Exchange rate stability 

• The economy must be managed effectively and effective fiscal and monetary
policy must be used to keep the exchange rate relatively stable 
• Depreciation and appreciation of the currency create uncertainties for producers
and traders and should be limited 
• The SARB changed the exchange rate system from a managed floating to a free
floating exchange rate system 

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Price stability 
• Stable prices cause better results in terms of job creation and economic
growth 
• The SARB inflation target is 3–6% 
• Interest rates, based on the repo rate are the main instruments used in the
stabilisation policy 
• The stable budget deficit also has a stabilising effect on the inflation rate 

Economic equity / Economic fairness 

• Redistribution of income and wealth is essential 
• South Africa uses a progressive income tax system
• taxation on profits, taxation on wealth, capital gains tax and taxation on
spending, are used to finance free services 
• Free social services are basic education; primary health and to finance basic
economic services 
• E.g. cash grants to the poor, e.g. child grants and cash grants to vulnerable
people, e.g. disability grants 
• Progressive taxation means that the higher income earners pay higher/more
taxation 

Balance of Payments equilibrium 

• The surplus or deficit on the trade balance should be minimised by limiting
imports and promoting exports 
• It can be done by a foreign trade policy which focuses on export promotion,
import substitution and protection 
• Domestic industries, with special focus on the secondary sector, must also be
developed  (Max. 26 marks) (26)

ADDITIONAL PART

• Unemployment has exceeded 30% and it is likely to escalate. 

• Employment opportunities are enjoyed by people who are neither skilful nor
suitable for the job. 
• The GEAR strategy has not really been showing the intended results in terms
of employment. 
• EPWP is creating jobs that are not sustainable and are unproductive. 
• Government initiatives in providing skills to its people is not equal to the
demand for labour. 
• It is argued that a greater percentage of the country's budget goes to
compensation, and very little is left for job creation. 
(Accept any other correct and relevant response.) (Max 10) (10)

CONCLUSION

While some successes have been achieved by government, the fulfilling of some
of the objectives are compromised by factors like a lack of accountability,
corruption, budgeting, nepotism and incompetence. 
(Accept any other relevant higher order conclusion.) (Max. 2) (2)

TOTAL SECTION C: 40
GRAND TOTAL: 150

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