150 practice questions and 100 flashcards covering core macroeconomics: GDP, inflation, unemployment, monetary and fiscal policy, aggregate demand/supply, international trade, and South African economic context.
Macroeconomics 101 covers how entire economies function: output, employment, inflation, interest rates, trade, and government policy. Tour practice set includes strong South African context throughout: the SARB inflation target (3-6%), repo rate decisions, National Treasury fiscal policy, the impact of load shedding on GDP, and South Africa's Gini coefficient and unemployment rate.
Many students find macroeconomics abstract until they connect it to real events. Every explanation in tour set tries to make that connection explicit, linking the textbook concept to something actually happening in the South African economy.
150 practice questions and 100 flashcards covering core macroeconomics: GDP, inflation, unemployment, monetary and fiscal policy, aggregate demand/supply, international trade, and South African economic context.
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Question 01 of 150
What is GDP?
Explanation: GDP is the most widely used measure of economic output and size. It includes: consumption (C), investment (I), government spending (G), and net exports (X-M). Formula: GDP = C + I + G + (X-M). SA's GDP is measured quarterly by Statistics South Africa (Stats SA).
Question 02 of 150
What is inflation?
Explanation: Inflation is measured by the CPI (Consumer Price Index) in South Africa. The SARB targets inflation within a 3-6% band. Types: demand-pull (too much money chasing goods), cost-push (production costs rise), built-in (wage-price spiral). Hyperinflation: extremely rapid inflation (e.g., Zimbabwe 2008).
Question 03 of 150
What is monetary policy?
Explanation: SARB Monetary Policy Committee (MPC) meets every two months. Main tool: repo rate (rate at which SARB lends to commercial banks). Raise repo rate โ borrowing more expensive โ spending falls โ inflation slows. Lower repo rate โ cheaper borrowing โ spending increases โ stimulate economy.
Question 04 of 150
What is fiscal policy?
Explanation: Expansionary fiscal policy: stimulates economy during recession (increases deficit). Contractionary: slows overheating economy (reduces deficit or creates surplus). SA's National Treasury manages fiscal policy. Budget deficit: spending > revenue. National debt: accumulated deficits. Debt-to-GDP ratio measures sustainability.
Question 05 of 150
What is the unemployment rate?
Explanation: Unemployment rate = (Unemployed / Labour Force) ร 100. Labour force = employed + unemployed (looking for work). Excludes discouraged workers. SA measures: official rate, expanded rate (includes discouraged workers). SA's youth unemployment is particularly high. Types: frictional, structural, cyclical, seasonal.
Question 06 of 150
What is the repo rate in South Africa?
Explanation: When SARB raises repo rate โ commercial banks pay more to borrow โ they raise prime lending rate โ consumers pay more on loans/mortgages โ spending decreases โ inflation slows. Prime rate = repo rate + 3.5%. The MPC adjusts repo rate to keep inflation within 3-6% target band.
Question 07 of 150
What is the CPI?
Explanation: CPI basket includes: food, housing, transport, clothing, healthcare, education. Stats SA calculates CPI monthly. Headline CPI: all items. Core CPI: excludes food and energy (volatile). CPI used for: measuring inflation, adjusting wages, SARB inflation targeting, indexing social grants.
Question 08 of 150
What is economic growth?
Explanation: Economic growth: real GDP growth (inflation-adjusted). South Africa's growth has averaged below 2% since 2010. Determinants: labour, capital, technology (Total Factor Productivity). GDP per capita: GDP รท population (measures living standard). SDGs target inclusive, sustainable growth.
Question 09 of 150
What is a recession?
Explanation: Recession indicators: falling GDP, rising unemployment, declining industrial production, falling consumer confidence. Technical recession: 2 consecutive quarters of negative growth. Depression: prolonged, severe recession (e.g., Great Depression 1929-1933). SA experienced recession in 2020 (COVID-19) with GDP falling 7%.
Question 10 of 150
What is supply-side economics?
Explanation: Supply-side policies: lower corporate tax (incentivise investment), deregulation (reduce compliance costs), improve education/skills (increase productivity), privatisation (improve efficiency), reduce trade barriers. Associated with Reaganomics (1980s US). Critics: benefits may not 'trickle down' to lower-income groups.
Question 11 of 150
What is the balance of payments?
Explanation: Balance of Payments: Current account (trade in goods/services, income, transfers) + Capital account (asset transfers) + Financial account (investment flows) = 0. Current account deficit: imports > exports + services + income. SA runs persistent current account deficit. Foreign exchange reserves.
Question 12 of 150
What is the multiplier effect?
Explanation: Multiplier = 1 / (1 - MPC) where MPC = Marginal Propensity to Consume. If MPC = 0.8, multiplier = 5. R100m government spending โ R500m increase in GDP. Higher MPC = larger multiplier. Leakages (saving, taxes, imports) reduce multiplier. Keynesian economics relies on fiscal multiplier.
Question 13 of 150
What is stagflation?
Explanation: Stagflation is particularly difficult to address: policies to reduce inflation (raise interest rates) worsen unemployment, and vice versa. Caused by supply shocks (e.g., 1970s oil crisis โ OPEC embargo tripled oil prices). South Africa faces stagflation risk due to energy costs (Eskom) driving inflation while load shedding reduces growth.
Question 14 of 150
What is a budget deficit?
Explanation: SA National Budget: budget deficit as % of GDP is a key metric. High deficits: increase national debt, interest payments crowd out other spending. Debt-to-GDP ratio: SA ~73% (2024). Fiscal consolidation: reducing deficit through spending cuts or revenue increases. National Treasury targets narrowing the deficit.
Question 15 of 150
What is quantitative easing (QE)?
Explanation: QE: used post-2008 financial crisis by US Fed, ECB, Bank of England. Increases money supply โ lowers long-term interest rates โ stimulates investment. Risks: asset price bubbles, inflation if overdone, currency depreciation. SARB used limited QE during COVID-19 (purchased government bonds).
Question 16 of 150
What is the Gini coefficient?
Explanation: Gini coefficient: 0 = everyone has equal income; 1 = one person has all income. SA's Gini โ 0.63 (one of world's highest). Causes: apartheid legacy, skills mismatch, unemployment, spatial inequality. High inequality linked to: social instability, reduced growth, poor health outcomes.
Question 17 of 150
What is comparative advantage?
Explanation: Comparative advantage (Ricardo): even if one country is absolutely better at everything, trade still benefits both parties if they specialise in goods with lower opportunity costs. SA: comparative advantage in mining (gold, platinum), agriculture (citrus, wine). Basis for free trade theory.
Question 18 of 150
What is the current account of the balance of payments?
Explanation: Current account components: Goods trade balance (exports-imports of physical goods), Services balance (tourism, financial services), Primary income (profits, dividends, interest), Secondary income (remittances, foreign aid). SA typically runs a current account deficit (imports more than it exports in value terms).
Question 19 of 150
What is the role of the South African Reserve Bank (SARB)?
Explanation: SARB functions: monetary policy (repo rate, inflation targeting 3-6%), bank supervision (Prudential Authority), financial stability, lender of last resort, manage foreign exchange reserves, issue banknotes and coins. SARB is constitutionally mandated to protect the rand's value. Governor appointed by the President.
Question 20 of 150
What is aggregate demand (AD)?
Explanation: AD components: Consumption (household spending โ largest), Investment (business capital expenditure), Government spending, Net exports (exports minus imports). AD curve slopes downward. AD shifts: interest rates, consumer confidence, exchange rates, government policy. Increase in AD: economic expansion. Decrease: contraction.
Question 21 of 150
What is the difference between real and nominal GDP?
Explanation: Nominal GDP can increase simply because prices rose, not because more was produced. Real GDP removes the inflation effect. GDP Deflator: Nominal GDP / Real GDP ร 100. Example: if nominal GDP rose 8% but inflation was 6%, real GDP growth = ~2%. SA uses real GDP for growth comparisons.
Question 22 of 150
What is structural unemployment?
Explanation: Types of unemployment: Frictional (between jobs, short-term, normal). Structural (skills mismatch โ SA's biggest challenge). Cyclical (due to recession, demand deficiency). Seasonal (predictable patterns โ e.g., agriculture). SA's structural unemployment is high due to poor education outcomes and mismatch between skills produced and demanded.
Question 23 of 150
What is the velocity of money?
Explanation: Quantity Theory of Money: MV = PQ. M=money supply, V=velocity, P=price level, Q=real output. If money supply doubles and velocity and output are constant โ prices double. V has been declining in many economies (digital money, savings behaviour). Central to monetarist thinking (Milton Friedman).
Question 24 of 150
What is a trade surplus?
Explanation: Trade surplus: more is sold abroad than bought from abroad. Examples: China, Germany, Japan. Indicates: competitive industries, high savings rate, undervalued currency (sometimes). Trade deficit: imports > exports. SA often has merchandise trade deficits. Balance: exports of goods and services vs imports.
Question 25 of 150
What is the Laffer Curve?
Explanation: Laffer Curve: at 0% tax โ R0 revenue. At 100% tax โ R0 revenue (nobody works). Optimal tax rate maximises revenue somewhere between. Used to justify tax cuts (supply-side economics): lower rates โ more economic activity โ same or more revenue. Controversial โ depends on where current rate is relative to optimum.
Question 26 of 150
What is human development?
Explanation: HDI (Human Development Index) combines: Income (GNI per capita), Education (mean years of schooling + expected years of schooling), Health (life expectancy at birth). UNDP publishes annually. SA's HDI: medium human development (around 0.71). HDI addresses limitations of GDP as sole development measure.
Question 27 of 150
What is crowding out?
Explanation: Crowding out: government borrows more โ demand for loanable funds increases โ interest rates rise โ businesses and consumers borrow less โ private investment falls. Partial crowding out in normal conditions. Full crowding out: Ricardian equivalence โ people save more in anticipation of future taxes. Most economists: partial crowding out in practice.
Question 28 of 150
What is price elasticity of supply?
Explanation: PES = % change in Qs รท % change in Price. Elastic (PES>1): supply responds strongly to price. Inelastic (PES<1): supply responds weakly. Perfectly inelastic (PES=0): fixed supply regardless of price. Time matters: supply is more elastic in long run (firms can expand). Agriculture: short-run inelastic.
Question 29 of 150
What is the poverty trap?
Explanation: Poverty traps: lack of capital โ cannot invest โ remain poor. Social grant 'cliff' in SA: income from work may reduce grants, leaving beneficiary not much better off (reduces incentive to work). Solutions: unconditional basic income, investing in education and health, infrastructure, progressive graduation from grants.
Question 30 of 150
What is the natural rate of unemployment?
Explanation: Natural rate (NAIRU: Non-Accelerating Inflation Rate of Unemployment): full employment doesn't mean zero unemployment โ some is always present (frictional, structural). Trying to push unemployment below natural rate causes inflation to accelerate. SA's natural rate is high (~25%) due to structural problems. Compare: expanded unemployment rate.
Question 31 of 150
What is creative destruction?
Explanation: Creative destruction (Schumpeter): capitalism's engine of growth involves constant displacement of old by new. Examples: digital streaming replacing CDs, smartphones replacing cameras and GPS devices, e-commerce displacing retail. Policy challenge: support displaced workers while not impeding innovation. 4th Industrial Revolution accelerates tour process.
Question 32 of 150
What is the difference between economic growth and economic development?
Explanation: GDP growth is necessary but not sufficient for development. A country can grow GDP while inequality worsens, environment degrades, or benefits accrue only to elites. Development: inclusive growth, poverty reduction, healthcare, education, gender equality, sustainable environment. Measured by: HDI, Gini, Multidimensional Poverty Index.
Question 33 of 150
What is the foreign exchange rate?
Explanation: Exchange rate systems: floating (market-determined, SA uses this), fixed (pegged to another currency), managed float (central bank intervenes occasionally). ZAR/USD rate: how many rand per dollar. Rand depreciation: South African goods cheaper for foreigners, imports more expensive. Affects: inflation, trade, investment.
Explanation: Supply-side shock reduces capacity, shifts AS left. Examples: 2022 energy prices, 1970s OPEC oil embargo. SA: Eskom tariff hikes contribute to cost-push inflation.
Question 37 of 150
What is demand-pull inflation?
Explanation: AD shifts right beyond full employment. Wage-price spiral. SARB raises repo rate to cool demand. Classic: post-WWII boom, excessive stimulus.
Question 38 of 150
What is the output gap?
Explanation: Potential GDP: maximum sustainable output at full employment. Negative gap: unemployed resources. Policy: expansionary to close negative gap, contractionary to close positive gap.
Question 39 of 150
What is the paradox of thrift?
Explanation: Individually rational (save) is collectively harmful during recession. When everyone saves: consumption falls โ less demand โ unemployment โ income falls. Government stimulus counters this.
Question 40 of 150
What is the Keynesian multiplier?
Explanation: Multiplier = 1/(1-MPC). R100m government spend, MPC=0.8: total impact R500m. Leakages (saving, taxes, imports) reduce multiplier.
Question 41 of 150
What is Say's Law?
Explanation: Classical economics view. Keynes rejected tour during Great Depression: insufficient demand required government intervention.
Question 42 of 150
What is the Fisher equation?
Explanation: i = r + ฯ (approximately). If real return needed is 3% and inflation is 6%, nominal rate must be 9%. SA: distinguish SARB's nominal repo from real repo rate.
Question 43 of 150
What is consumer confidence?
Explanation: High confidence โ more spending, less saving โ stimulates AD. Low confidence โ precautionary saving โ AD falls. Leading indicator. BER measures in SA.
Question 44 of 150
What is a liquidity trap?
Explanation: At zero lower bound, further rate cuts impossible. Fiscal policy needed. Japan's 'lost decade'. Post-2008 developed economies faced this.
Question 45 of 150
What is import substitution?
Explanation: ISI: common in developing countries. Build domestic manufacturing. Criticism: protected industries become inefficient, higher consumer prices. Alternative: export-led growth.
Question 46 of 150
What is the current account deficit?
Explanation: SA runs persistent current account deficit. Financed by FDI, portfolio investment, loans. Risk: sudden stop of capital flows (currency crisis). J-curve effect after depreciation.
Explanation: PPP: if burger costs $5 in USA and R90 in SA, PPP rate = R18/$. Big Mac Index. SA's PPP GDP per capita higher than nominal (rand undervalued vs PPP).
Explanation: Investment depends on change in output. If output growth slows (still positive), investment may fall. Combines with multiplier: amplifies business cycle volatility.
Explanation: Labour productivity = Real GDP / Total hours worked. Increases through capital investment, technology, education, better management. SA's productivity growth has been weak.
Question 54 of 150
What is the marginal propensity to consume?
Explanation: MPC = ฮC/ฮY. MPC=0.8 means 80 cents of every extra rand spent. MPS = 1-MPC. Higher MPC: larger multiplier. Lower income groups: higher MPC.
Question 55 of 150
What is opportunity cost?
Explanation: Government spends on stadiums โ cannot spend on schools. Comparative advantage based on relative opportunity costs. Sunk cost: already incurred, should not affect future decisions.
Question 56 of 150
What is the Phillips Curve?
Explanation: Short-run: inverse relationship. Long-run: vertical at natural rate (no trade-off). 1970s stagflation broke short-run relationship. Expectation-augmented version includes expectations.
Question 57 of 150
What is price elasticity of demand?
Explanation: PED = %ฮQd / %ฮP. Inelastic: necessities (petrol, basic food). Elastic: luxuries, goods with many substitutes. Sin taxes: apply to inelastic goods (cigarettes, alcohol).
Question 58 of 150
What is rent-seeking?
Explanation: Lobbying for subsidies, tariff protection, monopoly rights โ gains at society's cost. Increases inequality, reduces efficiency. State capture: extreme form of rent-seeking.
Explanation: Y = f(K,L,A). Capital: diminishing returns. Steady state: no growth from capital alone. Technological progress (A): permanent source of growth.
Question 61 of 150
What is the business cycle?
Explanation: Phases: Expansion, Peak, Contraction/Recession, Trough, Recovery. Causes: demand/supply shocks, policy changes, financial crises. SA cycles linked to commodity prices.
Question 62 of 150
What is money supply?
Explanation: SARB monitors M3 as broad money. Money creation: commercial banks create money through lending. Reserve requirements: minimum fraction kept as reserves.
Question 63 of 150
What is economic efficiency?
Explanation: Markets achieve efficiency under perfect competition. Monopolies and externalities cause market failure. Pareto efficiency: no one better off without making another worse off.
Question 64 of 150
What is an economic externality?
Explanation: Negative: pollution โ overproduction. Carbon tax (SA has one). Positive: education, R&D, vaccination โ underproduction โ government subsidises.
Question 65 of 150
What is a sovereign credit rating?
Explanation: Investment grade: BBB-/Baa3 and above. SA downgraded to junk (2020). Consequences: capital outflows, rand depreciates, borrowing costs rise.
Explanation: GDP growth necessary but not sufficient for development. Development: inclusive growth, HDI, poverty reduction, gender equality. Measured by HDI, Gini, Multidimensional Poverty Index.
Question 68 of 150
What is income distribution?
Explanation: Functional: labour vs capital. Size: across households. SA: top 10% earn ~65% of income. Redistribution: progressive taxes, social grants, public services.
Question 69 of 150
What is deflation?
Explanation: Deflation spiral: prices fall โ consumers wait to buy โ less demand โ unemployment โ less income โ prices fall further. Japan's 'lost decade'. SARB prefers 3-6% over deflation.
Explanation: Water-diamond paradox (Adam Smith). Water: high total utility, low marginal utility (abundant) โ low price. Diamond: low total utility, high marginal utility (scarce) โ high price. Marginal utility, not total utility, determines price.
Explanation: Primary surplus/deficit: Revenue - (Expenditure - Interest). If primary surplus but overall deficit: debt servicing is the problem. SA: achieving primary surplus is key fiscal target.
Question 76 of 150
What is sovereign debt?
Explanation: SA sovereign debt: National Government Bonds (NGBs). Debt/GDP ratio: SA ~73% (2024). Rating agencies assess sustainability. High debt โ higher interest payments โ less fiscal space.
Question 77 of 150
What is the crowding in effect?
Explanation: Infrastructure spending โ reduces business costs โ more private investment. Government R&D โ stimulates private innovation. In recession: government spending boosts confidence.
Question 78 of 150
What is Gross National Income?
Explanation: GNI = GDP + income residents earn abroad - income foreigners earn domestically. SA: GNI < GDP because multinationals repatriate profits. HDI uses GNI per capita.
Question 79 of 150
What is economic rent?
Explanation: Ricardian rent (fertile land earns more than marginal land). Resource rent in SA: mining royalties capture some for public benefit. Land value tax: tax on pure economic rent.
Question 80 of 150
What is GDP?
Explanation: GDP is the most widely used measure of economic output and size. It includes: consumption (C), investment (I), government spending (G), and net exports (X-M). Formula: GDP = C + I + G + (X-M). SA's GDP is measured quarterly by Statistics South Africa (Stats SA).
Question 81 of 150
What is inflation?
Explanation: Inflation is measured by the CPI (Consumer Price Index) in South Africa. The SARB targets inflation within a 3-6% band. Types: demand-pull (too much money chasing goods), cost-push (production costs rise), built-in (wage-price spiral). Hyperinflation: extremely rapid inflation (e.g., Zimbabwe 2008).
Question 82 of 150
What is monetary policy?
Explanation: SARB Monetary Policy Committee (MPC) meets every two months. Main tool: repo rate (rate at which SARB lends to commercial banks). Raise repo rate โ borrowing more expensive โ spending falls โ inflation slows. Lower repo rate โ cheaper borrowing โ spending increases โ stimulate economy.
Question 83 of 150
What is fiscal policy?
Explanation: Expansionary fiscal policy: stimulates economy during recession (increases deficit). Contractionary: slows overheating economy (reduces deficit or creates surplus). SA's National Treasury manages fiscal policy. Budget deficit: spending > revenue. National debt: accumulated deficits. Debt-to-GDP ratio measures sustainability.
Question 84 of 150
What is the unemployment rate?
Explanation: Unemployment rate = (Unemployed / Labour Force) ร 100. Labour force = employed + unemployed (looking for work). Excludes discouraged workers. SA measures: official rate, expanded rate (includes discouraged workers). SA's youth unemployment is particularly high. Types: frictional, structural, cyclical, seasonal.
Question 85 of 150
What is the repo rate in South Africa?
Explanation: When SARB raises repo rate โ commercial banks pay more to borrow โ they raise prime lending rate โ consumers pay more on loans/mortgages โ spending decreases โ inflation slows. Prime rate = repo rate + 3.5%. The MPC adjusts repo rate to keep inflation within 3-6% target band.
Question 86 of 150
What is the CPI?
Explanation: CPI basket includes: food, housing, transport, clothing, healthcare, education. Stats SA calculates CPI monthly. Headline CPI: all items. Core CPI: excludes food and energy (volatile). CPI used for: measuring inflation, adjusting wages, SARB inflation targeting, indexing social grants.
Question 87 of 150
What is economic growth?
Explanation: Economic growth: real GDP growth (inflation-adjusted). South Africa's growth has averaged below 2% since 2010. Determinants: labour, capital, technology (Total Factor Productivity). GDP per capita: GDP รท population (measures living standard). SDGs target inclusive, sustainable growth.
Question 88 of 150
What is a recession?
Explanation: Recession indicators: falling GDP, rising unemployment, declining industrial production, falling consumer confidence. Technical recession: 2 consecutive quarters of negative growth. Depression: prolonged, severe recession (e.g., Great Depression 1929-1933). SA experienced recession in 2020 (COVID-19) with GDP falling 7%.
Question 89 of 150
What is supply-side economics?
Explanation: Supply-side policies: lower corporate tax (incentivise investment), deregulation (reduce compliance costs), improve education/skills (increase productivity), privatisation (improve efficiency), reduce trade barriers. Associated with Reaganomics (1980s US). Critics: benefits may not 'trickle down' to lower-income groups.
Question 90 of 150
What is the balance of payments?
Explanation: Balance of Payments: Current account (trade in goods/services, income, transfers) + Capital account (asset transfers) + Financial account (investment flows) = 0. Current account deficit: imports > exports + services + income. SA runs persistent current account deficit. Foreign exchange reserves.
Question 91 of 150
What is the multiplier effect?
Explanation: Multiplier = 1 / (1 - MPC) where MPC = Marginal Propensity to Consume. If MPC = 0.8, multiplier = 5. R100m government spending โ R500m increase in GDP. Higher MPC = larger multiplier. Leakages (saving, taxes, imports) reduce multiplier. Keynesian economics relies on fiscal multiplier.
Question 92 of 150
What is stagflation?
Explanation: Stagflation is particularly difficult to address: policies to reduce inflation (raise interest rates) worsen unemployment, and vice versa. Caused by supply shocks (e.g., 1970s oil crisis โ OPEC embargo tripled oil prices). South Africa faces stagflation risk due to energy costs (Eskom) driving inflation while load shedding reduces growth.
Question 93 of 150
What is a budget deficit?
Explanation: SA National Budget: budget deficit as % of GDP is a key metric. High deficits: increase national debt, interest payments crowd out other spending. Debt-to-GDP ratio: SA ~73% (2024). Fiscal consolidation: reducing deficit through spending cuts or revenue increases. National Treasury targets narrowing the deficit.
Question 94 of 150
What is quantitative easing (QE)?
Explanation: QE: used post-2008 financial crisis by US Fed, ECB, Bank of England. Increases money supply โ lowers long-term interest rates โ stimulates investment. Risks: asset price bubbles, inflation if overdone, currency depreciation. SARB used limited QE during COVID-19 (purchased government bonds).
Question 95 of 150
What is the Gini coefficient?
Explanation: Gini coefficient: 0 = everyone has equal income; 1 = one person has all income. SA's Gini โ 0.63 (one of world's highest). Causes: apartheid legacy, skills mismatch, unemployment, spatial inequality. High inequality linked to: social instability, reduced growth, poor health outcomes.
Question 96 of 150
What is comparative advantage?
Explanation: Comparative advantage (Ricardo): even if one country is absolutely better at everything, trade still benefits both parties if they specialise in goods with lower opportunity costs. SA: comparative advantage in mining (gold, platinum), agriculture (citrus, wine). Basis for free trade theory.
Question 97 of 150
What is the current account of the balance of payments?
Explanation: Current account components: Goods trade balance (exports-imports of physical goods), Services balance (tourism, financial services), Primary income (profits, dividends, interest), Secondary income (remittances, foreign aid). SA typically runs a current account deficit (imports more than it exports in value terms).
Question 98 of 150
What is the role of the South African Reserve Bank (SARB)?
Explanation: SARB functions: monetary policy (repo rate, inflation targeting 3-6%), bank supervision (Prudential Authority), financial stability, lender of last resort, manage foreign exchange reserves, issue banknotes and coins. SARB is constitutionally mandated to protect the rand's value. Governor appointed by the President.
Question 99 of 150
What is aggregate demand (AD)?
Explanation: AD components: Consumption (household spending โ largest), Investment (business capital expenditure), Government spending, Net exports (exports minus imports). AD curve slopes downward. AD shifts: interest rates, consumer confidence, exchange rates, government policy. Increase in AD: economic expansion. Decrease: contraction.
Question 100 of 150
What is the difference between real and nominal GDP?
Explanation: Nominal GDP can increase simply because prices rose, not because more was produced. Real GDP removes the inflation effect. GDP Deflator: Nominal GDP / Real GDP ร 100. Example: if nominal GDP rose 8% but inflation was 6%, real GDP growth = ~2%. SA uses real GDP for growth comparisons.
Question 101 of 150
What is structural unemployment?
Explanation: Types of unemployment: Frictional (between jobs, short-term, normal). Structural (skills mismatch โ SA's biggest challenge). Cyclical (due to recession, demand deficiency). Seasonal (predictable patterns โ e.g., agriculture). SA's structural unemployment is high due to poor education outcomes and mismatch between skills produced and demanded.
Question 102 of 150
What is the velocity of money?
Explanation: Quantity Theory of Money: MV = PQ. M=money supply, V=velocity, P=price level, Q=real output. If money supply doubles and velocity and output are constant โ prices double. V has been declining in many economies (digital money, savings behaviour). Central to monetarist thinking (Milton Friedman).
Question 103 of 150
What is a trade surplus?
Explanation: Trade surplus: more is sold abroad than bought from abroad. Examples: China, Germany, Japan. Indicates: competitive industries, high savings rate, undervalued currency (sometimes). Trade deficit: imports > exports. SA often has merchandise trade deficits. Balance: exports of goods and services vs imports.
Question 104 of 150
What is the Laffer Curve?
Explanation: Laffer Curve: at 0% tax โ R0 revenue. At 100% tax โ R0 revenue (nobody works). Optimal tax rate maximises revenue somewhere between. Used to justify tax cuts (supply-side economics): lower rates โ more economic activity โ same or more revenue. Controversial โ depends on where current rate is relative to optimum.
Question 105 of 150
What is human development?
Explanation: HDI (Human Development Index) combines: Income (GNI per capita), Education (mean years of schooling + expected years of schooling), Health (life expectancy at birth). UNDP publishes annually. SA's HDI: medium human development (around 0.71). HDI addresses limitations of GDP as sole development measure.
Question 106 of 150
What is crowding out?
Explanation: Crowding out: government borrows more โ demand for loanable funds increases โ interest rates rise โ businesses and consumers borrow less โ private investment falls. Partial crowding out in normal conditions. Full crowding out: Ricardian equivalence โ people save more in anticipation of future taxes. Most economists: partial crowding out in practice.
Question 107 of 150
What is price elasticity of supply?
Explanation: PES = % change in Qs รท % change in Price. Elastic (PES>1): supply responds strongly to price. Inelastic (PES<1): supply responds weakly. Perfectly inelastic (PES=0): fixed supply regardless of price. Time matters: supply is more elastic in long run (firms can expand). Agriculture: short-run inelastic.
Question 108 of 150
What is the poverty trap?
Explanation: Poverty traps: lack of capital โ cannot invest โ remain poor. Social grant 'cliff' in SA: income from work may reduce grants, leaving beneficiary not much better off (reduces incentive to work). Solutions: unconditional basic income, investing in education and health, infrastructure, progressive graduation from grants.
Question 109 of 150
What is the natural rate of unemployment?
Explanation: Natural rate (NAIRU: Non-Accelerating Inflation Rate of Unemployment): full employment doesn't mean zero unemployment โ some is always present (frictional, structural). Trying to push unemployment below natural rate causes inflation to accelerate. SA's natural rate is high (~25%) due to structural problems. Compare: expanded unemployment rate.
Question 110 of 150
What is creative destruction?
Explanation: Creative destruction (Schumpeter): capitalism's engine of growth involves constant displacement of old by new. Examples: digital streaming replacing CDs, smartphones replacing cameras and GPS devices, e-commerce displacing retail. Policy challenge: support displaced workers while not impeding innovation. 4th Industrial Revolution accelerates tour process.
Question 111 of 150
What is the difference between economic growth and economic development?
Explanation: GDP growth is necessary but not sufficient for development. A country can grow GDP while inequality worsens, environment degrades, or benefits accrue only to elites. Development: inclusive growth, poverty reduction, healthcare, education, gender equality, sustainable environment. Measured by: HDI, Gini, Multidimensional Poverty Index.
Question 112 of 150
What is the foreign exchange rate?
Explanation: Exchange rate systems: floating (market-determined, SA uses this), fixed (pegged to another currency), managed float (central bank intervenes occasionally). ZAR/USD rate: how many rand per dollar. Rand depreciation: South African goods cheaper for foreigners, imports more expensive. Affects: inflation, trade, investment.
Explanation: Supply-side shock reduces capacity, shifts AS left. Examples: 2022 energy prices, 1970s OPEC oil embargo. SA: Eskom tariff hikes contribute to cost-push inflation.
Question 116 of 150
What is demand-pull inflation?
Explanation: AD shifts right beyond full employment. Wage-price spiral. SARB raises repo rate to cool demand. Classic: post-WWII boom, excessive stimulus.
Question 117 of 150
What is the output gap?
Explanation: Potential GDP: maximum sustainable output at full employment. Negative gap: unemployed resources. Policy: expansionary to close negative gap, contractionary to close positive gap.
Question 118 of 150
What is the paradox of thrift?
Explanation: Individually rational (save) is collectively harmful during recession. When everyone saves: consumption falls โ less demand โ unemployment โ income falls. Government stimulus counters this.
Question 119 of 150
What is the Keynesian multiplier?
Explanation: Multiplier = 1/(1-MPC). R100m government spend, MPC=0.8: total impact R500m. Leakages (saving, taxes, imports) reduce multiplier.
Question 120 of 150
What is Say's Law?
Explanation: Classical economics view. Keynes rejected tour during Great Depression: insufficient demand required government intervention.
Question 121 of 150
What is the Fisher equation?
Explanation: i = r + ฯ (approximately). If real return needed is 3% and inflation is 6%, nominal rate must be 9%. SA: distinguish SARB's nominal repo from real repo rate.
Question 122 of 150
What is consumer confidence?
Explanation: High confidence โ more spending, less saving โ stimulates AD. Low confidence โ precautionary saving โ AD falls. Leading indicator. BER measures in SA.
Question 123 of 150
What is a liquidity trap?
Explanation: At zero lower bound, further rate cuts impossible. Fiscal policy needed. Japan's 'lost decade'. Post-2008 developed economies faced this.
Question 124 of 150
What is import substitution?
Explanation: ISI: common in developing countries. Build domestic manufacturing. Criticism: protected industries become inefficient, higher consumer prices. Alternative: export-led growth.
Question 125 of 150
What is the current account deficit?
Explanation: SA runs persistent current account deficit. Financed by FDI, portfolio investment, loans. Risk: sudden stop of capital flows (currency crisis). J-curve effect after depreciation.
Explanation: PPP: if burger costs $5 in USA and R90 in SA, PPP rate = R18/$. Big Mac Index. SA's PPP GDP per capita higher than nominal (rand undervalued vs PPP).
Explanation: Investment depends on change in output. If output growth slows (still positive), investment may fall. Combines with multiplier: amplifies business cycle volatility.
Explanation: Labour productivity = Real GDP / Total hours worked. Increases through capital investment, technology, education, better management. SA's productivity growth has been weak.
Question 133 of 150
What is the marginal propensity to consume?
Explanation: MPC = ฮC/ฮY. MPC=0.8 means 80 cents of every extra rand spent. MPS = 1-MPC. Higher MPC: larger multiplier. Lower income groups: higher MPC.
Question 134 of 150
What is opportunity cost?
Explanation: Government spends on stadiums โ cannot spend on schools. Comparative advantage based on relative opportunity costs. Sunk cost: already incurred, should not affect future decisions.
Question 135 of 150
What is the Phillips Curve?
Explanation: Short-run: inverse relationship. Long-run: vertical at natural rate (no trade-off). 1970s stagflation broke short-run relationship. Expectation-augmented version includes expectations.
Question 136 of 150
What is price elasticity of demand?
Explanation: PED = %ฮQd / %ฮP. Inelastic: necessities (petrol, basic food). Elastic: luxuries, goods with many substitutes. Sin taxes: apply to inelastic goods (cigarettes, alcohol).
Question 137 of 150
What is rent-seeking?
Explanation: Lobbying for subsidies, tariff protection, monopoly rights โ gains at society's cost. Increases inequality, reduces efficiency. State capture: extreme form of rent-seeking.
Explanation: Y = f(K,L,A). Capital: diminishing returns. Steady state: no growth from capital alone. Technological progress (A): permanent source of growth.
Question 140 of 150
What is the business cycle?
Explanation: Phases: Expansion, Peak, Contraction/Recession, Trough, Recovery. Causes: demand/supply shocks, policy changes, financial crises. SA cycles linked to commodity prices.
Question 141 of 150
What is money supply?
Explanation: SARB monitors M3 as broad money. Money creation: commercial banks create money through lending. Reserve requirements: minimum fraction kept as reserves.
Question 142 of 150
What is economic efficiency?
Explanation: Markets achieve efficiency under perfect competition. Monopolies and externalities cause market failure. Pareto efficiency: no one better off without making another worse off.
Question 143 of 150
What is an economic externality?
Explanation: Negative: pollution โ overproduction. Carbon tax (SA has one). Positive: education, R&D, vaccination โ underproduction โ government subsidises.
Question 144 of 150
What is a sovereign credit rating?
Explanation: Investment grade: BBB-/Baa3 and above. SA downgraded to junk (2020). Consequences: capital outflows, rand depreciates, borrowing costs rise.
Explanation: GDP growth necessary but not sufficient for development. Development: inclusive growth, HDI, poverty reduction, gender equality. Measured by HDI, Gini, Multidimensional Poverty Index.
Question 147 of 150
What is income distribution?
Explanation: Functional: labour vs capital. Size: across households. SA: top 10% earn ~65% of income. Redistribution: progressive taxes, social grants, public services.
Question 148 of 150
What is deflation?
Explanation: Deflation spiral: prices fall โ consumers wait to buy โ less demand โ unemployment โ less income โ prices fall further. Japan's 'lost decade'. SARB prefers 3-6% over deflation.
Explanation: Water-diamond paradox (Adam Smith). Water: high total utility, low marginal utility (abundant) โ low price. Diamond: low total utility, high marginal utility (scarce) โ high price. Marginal utility, not total utility, determines price.
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