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1.wel inside Which of the following statements are correct? The nominal value of a good is its value in terms of some other good, service, or bundle of goods money while the real value is value in terms of money. The nominal money supply is the money supply expressed in terms of its purchasing power in terms of goods. A decline in the general price level results in an increase in the real money supply and more goods and services can be bought. If the nominal money supply is R800 and the price level is R20, then the real money supply is 40. Given the price level, the nominal money supply divided by the price level defines the real money supply. 1. 2. 3. 4. 5. a, c, d and e Only c, d and e Only a, d and e Only b, d and e Only d and e
2.Lina and Lily are flatmates. They spend most of their time working, but they leave some time for their favourite activities- making cakes and fine coffee. Lina takes 5 mins to make a cup of coffee and half an hour to make a cake. Lily takes 20 min to make a cup of coffee and one hour to make a cake.
1. What is each flat mate's opportunity cost of making one cake? Who has the absolute advantage in making cakes? Who has the comparative advantage in making cakes? Explain
2. If Lina and Lily trade food with each other, who will trade away cake in exchange for coffee? Explain.
3. The price of a cake can be expressed in terms of cups of coffee. What is the highest price at which cakes can be traded that would make both flatmates better off? What is the lowest price? Explain.
3. The country of Beerton produces large quantities of beer for domestic consumption and exporting. Unfortunately, the residents of Beerton have become addicted to the consumption of the main beer sold in Beerton entitled “Intoxicant & Mesmerising Drinks Reliving Upset, Nauseousness & Concern” (IMDRUNC for short). As result, the labour force of Beerton has declined considerably and the President of Beerton, Mr Keg, has increased his government's spending considerably as a means of improving Beerton's economy. a) With reference to the National Income Identity, explain the relationship between government spending and GDP. (1 mark) b) If Mr Keg is running a budget deficit, illustrate and explain how this would impact on the real interest rate in Beerton. (1 mark) c) Explain how a budget deficit may be problematic to the economy. (2 marks) d) What is one other way in which the economy of Beerton can improve its GDP with reference to the National Income Identity?
4.
The following can constitute contracts:
Multiple Choice
Express agreements only
Written agreements only
Written or oral agreements which have the right elements for a contract, including an agreed upon exchange (consideration)
Implied agreements only
1.Explanation:- The nominal value of a good is expressed in terms of money whereas the real value og a good is expressed in terms of another goods. The nominal money supply is not related with purchasing power, but only with monetary supply. When price levels falls, purchasing power of money increases ,so the real money supply gets increased. The real money supply is nominal money supply divided by the price level.
2. The opportunity cost of Lina for making one cake is 6 cup of coffee. The opportunity cost of Lina is the time that has forgone to produce a cake instead of making cup of coffee. Because she will take half an hour for making one cake, but she can make 6 cups of coffee in half n hour. Opportunity cost of Lily for making a cake is 3 cups of coffee. The opportunity cost of Lily is the time that she has forgone to produce cake instead of making cup of coffee. She takes one hour to make a cake and she can make 3 cups of coffee in an hour Lina has absolute advantage in making cake as compared to Lily. Because Lina can make 2 cakes in an hour, but Lily can make only one cake in an hour . Lily has comparative advantage in making cakes. Because she can make one cake in an hour, but she can make only 3 cups of coffee( compare the cup of tea and cake ) 2. Lily will trade away cake in exchange for coffee. Because she has comparative advantage in making cakes .She can make only 3 cups of coffee in an hour, but she can make one cake in an hour 3. The highest price of a cake is 6 cups of coffee for both Lina and Lily. Because Lina takes 5 minute for making a cup of tea and takes half an hour for making cake. So she can make 6 cups of coffee for one cake. and she can make one cake for 6 cups of coffee. The lowest price of cake is 3 cups of coffee. Because Lily can make one cup of coffee in 20 minutes and makes one cake in an hour. So she can make 3 cups of coffee for one cake and she can make one cake for 3 cups of coffee
3.
Ans-a The national income identity says that, GDP is a sum total of consumption+investment expenditure+government expenditure+ net exports.
Ans-b When an increase in government expenditure or a decrease in government revenue increases the budget deficit, the Treasury must issue more bonds. This reduces the price of bonds, raising the real interest rate in the economy.
Ans-c The problems that will arise due to budget deficit are mentioned below:-
1) Increase debt- One effect of a budget deficit is increased debt. When the government spends more than it receives, it must pay for such expenses. Unless it has accumulated funds from the previous year’s surpluses, it must be funded through debt.
2) Debt trap- In order to reduce fiscal deficit, government has to borrow funds. Borrowing involves payment of interest with further increases revenue deficit for the government. To control revenue deficit, government further borrows. This shows that country is in debt trap.
3) Increases future burden- increase in budget deficit shows borrowings of the government which increases future obligations.
Answer d. As we know that GDP is the sum total of consumption expenditure, investment expenditure, government expenditure and net exports. One of the measured by which GDP can be increased by increasing investment expenditure in the economy.
4.Written or oral agreements which have the right element for a contract, including an agreed upon exchange (consideration). A valid contract can be constitute when the contract includes all the elements of a contract and a valid consideration which can be both oral or written.
