1. In macroeconomic theory, total or aggregate spending is denoted by A and total or aggregate production of income by Y. Which one of the following statements is incorrect?

A. When A is greater than Y, there is disequilibrium and Y will tend to increase.

B. When A is equal to Y, there is equilibrium and Y will remain unchanged.

C. When A is less than Y, there is disequilibrium and Y will decrease.

D. When A is greater than Y, there is disequilibrium and A will decrease.

2. Simon borrowed R10 000 from the bank at the end of 2011 at a fixed interest rate of 20%. At the end of 2012, the inflation rate was 25%. Inflation has been ________ to Simon; the real value of his loan plus interest payments changed to ________.

A. Beneficial; R9 600

B. Beneficial; R4 800

C. Beneficial; R8 000

D. Costly; R12 500

3. Which one of the following statements is INCORRECT?

A. Keynesian economists believe that the business cycle is caused by external factors, such as government interference in the economy.

B. Classical economists believe that market economies are inherently stable and fluctuations are ascribed to exogenous factors.

C. Classical economists believe that government should not intervene in the economy to try to smooth out the business cycle.

D. Structuralist economists believe that the market system is neither inherently stable nor systematically unstable.

4. The ________ demand for money arises out of the need to hold money as a medium of exchange. This demand for money is a function of ________.

A. Precautionary; interest rates

B. Transactions; national income

C. Speculative; interest rates

D. Precautionary; national income

5. As the interest rate ________, the opportunity cost of holding money ________ and individuals choose to hold________ money.

A. increases, increases, more

B. decreases, decreases, more

C. increases, decreases, less

D. decreases, increases, more

6. Use the information given in the table below to answer the question

United States South Africa

Computers 3 1

Shoes 6 pairs 3 pairs

Which country or countries have an absolute advantage and comparative advantage in shoes?

A. South Africa has an absolute and comparative advantage in shoes.

B. The United States has an absolute and comparative advantage in shoes.

C. The United States has a comparative advantage and South Africa has an absolute advantage in shoes.

D. South Africa has a comparative advantage and the United States has an absolute advantage in shoes.

7. When aggregate planned expenditure is less than GDP, there is an unintended ___________ in inventories, firm's_______________ production and GDP begins to ___________

A. Decrease, increase, increase

B. Increase, decrease, decrease

C. Increase, decrease, increase

D. Decrease, increase, decrease

8. Consider the case of two countries, Afghanistan and the US, both producing carpets and fighter aircraft. The table below shows output rates per day in the two countries if all resources are fully and efficiently employed. Use this information to answer the question.

Carpets Fighter aircraft

Afghanistan 100 4

US 500 25

An appropriate international exchange ratio that would allow mutually advantageous trade to take

place would be: (4 marks)

A. 1 aircraft = 25 carpets.

B. 1 aircraft = 20 carpets.

C. 1 carpet = 4 aircrafts.

D. 1 aircraft = 22 carpets.

9. Use the information given in the table below to answer the question

Year CPI

2000 100

2002 125

2004 135

Consumer prices

A. Rose by 10% from 2002 to 2004

B. Fell by 25% from 2000 to 2002

C. Fell by 10% from 2002 to 2004

D. Rose by 8% from 2002 to 2004

10. Consider the case of two countries, Mauritius and South Africa, both producing rum and cloth. If all resources are fully and efficiently employed, one worker in Mauritius can produce 270 units of rum or 30m of cloth per week, while one worker in South Africa can produce 320 units of rum or 40m of cloth per week.

Rum Cloth

Mauritius 270 30

South Africa 320 40

Based on this information:

A. South Africa has an absolute advantage in the production of rum only.

B. Mauritius should import rum from South Africa.

C. Mauritius has a comparative advantage in the production of cloth.

D. South Africa should export cloth to Mauritius.

11. Consider the case of two countries, Afghanistan and the US, both producing carpets and fighter aircraft.

The table below shows output rates per day in the two countries if all resources are fully and efficiently employed.

Use this information to answer the question.

Carpets Fighter aircraft

Afghanistan 100 4

US 500 25

If Afghanistan raised its aircraft productivity to 5 units per day, then

A. Mutually beneficial trade would no longer be possible.

B. Afghanistan would continue to import fighter aircraft from the US.

C. Afghanistan should switch from the export of carpets to the export of aircraft.

D. The US would retain its comparative advantage in carpet manufacture.

12. Suppose the SARB decrease interest rates while oil prices is increasing. What would be the expected effect on real GDP and the price level?

Option Price level Real GDP

1 Uncertain Decreases

2 Increase Uncertain

3 Decreases Decreases

4 Increases Decreases

A. Option 1

B. Option 2

C. Option 3

D. Option 4