Ecs 1601 Assignment 1

ECS1601 1.The three major flows in any economy are … [1] income, spending and saving. [2] income, government spending and consumption. [3] spending, production and investment. [4] production, income and spending. These are the flows that are discussed in the circular flow model. 2.The two major markets in the circular flow of income and expenditure are the … [1] foreign exchange market and factor market. [2] goods market and factor market. [3] goods market and services market. [4] factor market and production market. These are the two markets the goods market is where households purchase goods and services, whilst the Factor market is owned by households who sell factors of productions to firms. 3.Which one of the following statements on the remuneration of the factors of production is true? [1] The remuneration for capital is profit, as the business aims to earn a profit on its financial investments. [2] The remuneration for labour is rent, as workers are able to pay their rent with the money they earn. [3] The remuneration for entrepreneurship is a salary, as entrepreneurs are also rewarded for their efforts. [4] The remuneration for natural resources is rent, as natural resources consist of all gifts of nature. The following are different Factors of production and their rewards Natural resources (Land) rent Capital Interest Labour Wages /Salary Entrepreneurship Profit 4.In the circular flow of income and spending in South Africa, firms in the factor market becomes households, while households in the goods market becomes firms. Expenditure by foreigners on South African products constitutes the circular flow. [1] income to; spending by; income to; spending by; a leakage from [2] income to; income to; spending by; spending by; an injection into [3] spending by; income to; spending by; income to; an injection into [4] spending by; spending by; income to; income to; a leakage from It is apparent that households own the factors of production hence they sell these factors to firms and get income whilst the firm’s own businesses which make goods and services which provide income to firms. Foreign sector buying from SA is an advantage it injects more money (Exports). 5.In the circular flow of income and spending, financial institutions … [1] act as an intermediary between those who have surplus funds and those who have deficit funds. [2] are not always useful, as households generally spend all their available funds. [3] create an injection into the flow by collecting savings from participants with surplus units only; therefore, there is no need to provide funds to deficit units. [4] generally exist to collect investment spending and transform it into savings. 6.Which of the following is a leakage from the circular flow of income and spending in South Africa? [1] government purchases of textbooks for state-run schools [2] the sale of export fruit to the European Union [3] investment by South African Breweries in a new brewery in South Africa [4] a decision by a major supermarket chain to sell German beer German beer provides income for the company in Germany ultimately, this means the super market would still have to repatriate the funds to Germany which acts as a leakage from SAs point of view. 7.If the Minister of Finance wanted to withdraw funds from the economy using the flows of income, spending and production, you would advise him to … [1] increase government spending to firms. [2] decrease government spending to firms. [3] increase spending on public goods and services. [4] increase taxes received from households. Tax is a leakage in the circular flow model whilst all other answers refer to Government expenditure which is an injection in the circular flow model. 8.Money overcomes the problem of a double coincidence of wants inherent in the barter system through its function as a … [1] medium of exchange. [2] unit of account. [3] standard of deferred payment. [4] store of value. Money as a medium of exchange solves the problem of double coincidence of wants, instead of having to look for a coincidence of needs all the time money can be used to efficiently transact. 9.The most comprehensive measure of money is equal to … [1] M2 plus all short-term and medium-term deposits of the domestic private sector with monetary institutions. [2] M1 plus all short-term and medium-term deposits of the domestic private sector with monetary institutions. [3] M2 plus all long-term deposits of the domestic private sector with monetary institutions. [4] M2 plus all medium-term deposits of the domestic private sector with monetary institutions. M3 is equal to M2 plus all long-term deposits of the domestic private sector with monetary institutions. The long-term deposits in question have a maturity of longer than six months. (See page 259 mohr) ..............................................................................CONTINUED