Student Number

Module EECF1624 EFEC2624 EECF1624/

code Bfn Campus South Campus EFEC2624
Underline Qwa-Qwa Campus
Surname
Initials

UNIVERSITY OF THE FREE STATE

BLOEMFONTEIN & SOUTH & QWA-QWA CAMPUS

EECF1624 / EFEC2624

DEPARTMENT OF ECONOMICS & FINANCE

CONTACT NUMBER:
0724320897

SEMESTER (GRAPHS) TEST 1

12 September 2024

ASSESSOR: Mrs L. Janse van Rensburg; Dr Amon Magwiro

MODERATOR: Dr C. Campher
TIME: 60 minutes MARKS: 50

INSTRUCTIONS:
• Write down your student number in the space provided at the top of each page.
• This paper consists of 4 questions on 7 pages and it also serves as your answer sheet.
• NB!! Answer ALL questions in PEN. Answers in pencil will not be marked.
• Draw the graphs (answers) on this paper at the space provided after each question.
• Where applicable with calculations, round off your FINAL answer to two decimal
places.
• Do your calculations at the back of your answer sheet and not at spaces meant for
final answers.

TOTAL Question 1 Question 2 Question 3 Question 4

Marker name

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 Student Number

QUESTION 1 [13 marks]

The Table below shows the income distribution in Saint Lucia in 2022.

A B C D E
Cumulative percentage of population 0 25 50 75 100
Cumulative percentage of income 0 10 30 50 100

1.1 Plot the cumulative percentage of income on the vertical axis and the cumulative
percentage of population on the horizontal. Draw and indicate the line of perfect
equality. (2)
1.2 Plot the data points A to E, labelling them clearly and hence draw the Lorenz Curve
for Saint Lucia in 2022. (3)
1.3 In 2023, the Saint Lucia government introduced tax that led to a reduction in income
inequality. On the same graph, draw a new hypothetical Lorenz Curve to present
this change in income inequality for Saint Lucia in 2023. Use arrows to show the
direction of movement from the 2022 to the 2023 curve. (2)
100
Cumulative percentage of income

80

✓2
60

✓2
✓3 all data points correctly
40

indicated (1 half a mark for

each wrong)
20

0 25 50 75 100

Cumulative percentage of population

1.4 In a given economy, the government charges different types of taxes for different
types of goods. The table shows different amounts of taxes for 3 types of goods
(X, Y, and Z) consumed by 3 households (A, B, and C) according to their
perspective income levels.

Good X Good Y Good Z

Income Tax Paid Income Tax Paid Income Tax Paid
Household A R10 000 R2 000 R10 000 R1 000 R10 000 R 2000
Household B R50 000 R2 000 R50 000 R10 000 R50 000 R10 000
Household C R100 000 R2 000 R100 000 R30 000 R100 000 R20 000

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Using the data provided in the table above, identify the type of tax (proportional,
regressive, or progressive) of each good and then, graphically illustrate (not to
scale) the specific type of tax you identified. In the space provided indicate for
each illustration if it is a progressive, regressive or proportional tax. (6)
Good X Good Y Good z

✓
✓
Tax rate

Tax rate
Tax rate

Household income Household income Household income

Type of tax:

Regressive Progressive Proportional

____________________ __________________ __________________

QUESTION 2 [8 marks]
2.1 In a given month, a certain household keeps R3000 to buy goods on a daily basis
and R2000 to pay for unforeseen expenses such as medical bills. The household
is aware of opportunities that can arise in the money market. If the interest rate is
as high as 20%, the household keeps zero speculative money balances. Use the
information provided to draw the transactions demand for money curve and total
money demand curve respectively. Label the respective money demand curves
MD0 and MD1. Clearly indicate the relevant datapoints on each graph. (4)

Md0 MD1
20%
✓1
shape
Interest Rate

Interest Rate

MD1
✓1 ✓
✓1
R3000 Quantity of money R5000 Quantity of money

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2.2 Assume the South African Reserve Bank decides to buy government bonds from
the private sector. Make use of a graph to illustrate the impact of this action in the
money market. Clearly indicate, with arrows, the FULL impact on the money
market. (4)

MS1 MS2
i

 for original equilibrium

 for new equilibrium correct
(MS shift to the right)
 for i down
 for increase in the quantity
of money.

MD1

Quantity of Money
QUESTION 3 [14 marks]

3.1 Suppose the mathematical function for Total Expenditure before tax is represented
by TE = 600 + 0.75Y. Calculate the equilibrium income and draw a well labelled
graph that represents the TE function and equilibrium income. Also show the
autonomous TE value. (4)

(3)
TE TE=Y ✓
TE = 600+0.75Y ✓

TE after tax = 600✓ + 0.6Y✓.

✓600

1500✓ 2 400✓ Real GDP/Y

3.2 Suppose the government implements an income tax of 20% on all income earners.
Indicate the impact of this action on the graph drawn in 3.1. Clearly indicate the
new mathematical function of the post-tax TE. (3)

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3.3 (3)

3.4 You are given the following information about the economy of Zululand in 2023. All
monetary figures are in billions of rands.
Autonomous consumption (C1) 85
Marginal propensity to consume (MPC) 0.7
Investment (I) 75
Government spending (G) 300
Tax rate 0.2
Exports (X) 400
Autonomous imports (M) 125
Marginal propensity to import (MPM) 0.1

3.4.1 Write down the mathematical format of the import – and export function. (3)
Z = 125✓ + 0.1Y✓
X = 400✓

3.4.2 Draw the export and import functions on the same graph below and indicate the
value of income at the point of intersection of the two curves. Clearly label the
import – and export functions as Z and X respectively. (4)

Exports,
Imports Z

400 X

125

GDP/Y
2750 

QUESTION 4 [14 marks]

Suppose South Africa trades mostly with the United States of America (USA) and trade
is being facilitated in the foreign exchange market for the United States Dollar (US$).
Given the current demand and supply of the US$, a South African importer needs
R18.00 to buy US$1.00. At this exchange rate, US$10 billion is demanded.
4.1 On the space below, draw a graph showing the demand for US$ and supply of
US$, labelling it D$0 and S$0 respectively. Clearly show the equilibrium exchange
rate, and the corresponding equilibrium amount of dollars. Remember to name and

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label the vertical axis correctly. (4)

S$0
✓Price of 1$ in Rands / Rand/$

✓ both
D$band S$
18
✓
Ex1
✓

D$0
D$1✓
US$1 10✓ Quantity of US$ (billions)

4.2 Suppose that South Africans anticipate that the Rand is going to gain value soon.
On the same graph drawn for 4.1, show how this affects the foreign exchange
market. Clearly label any movements or shifts in demand or supply and the
resulting effect on the exchange rate. If there are new demand and supply curves,
label them D$1 and S$1, respectively. Label the new equilibrium exchange rate Ex1
and write down in the space provided below if the new exchange rate represents
an appreciation or depreciation of the Rand. (3)

The rand will _appreciate✓___________________

Brief explanation.
The demand for US$s will decrease as South Africans will prefer to keep their money in form
of Rands. The demand for US$s, therefore, falls, causing the demand curve to shift
downward (leftwards). The new exchange rate is lower than 18, and the quantity of US$s is
less than 10 billion.

Brief explanation
The Rand has appreciated . A lower exchange rate means that South Africans now need
less amount of Rands to buy the unit of U$1.

4.3 On the graph below, show how this change in the interest rate will affect
investment. Label the amount of investment in the economy 𝐼𝐼0 when the interest
rate is 8% and the new level of investment 𝐼𝐼1 when the interest rate is 5%.

4.3.1 In the space below, show how the change in the interest rate will affect
investment. Label the amount of investment in the economy 𝐼𝐼0 when the interest

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rate is 8% and the new level of investment 𝐼𝐼1 when the interest rate is 5%.
(3)

✓
𝑖𝑖0 =8%
Interest Rate ✓

✓
𝑖𝑖1 =5%

Investment

𝐼𝐼0 𝐼𝐼0
Investment ✓

4.3.2 Consider a model in which prices and wages are fixed (Keynesian Model),
graphically illustrate how the change in investment affects aggregate
expenditure and income. Label the level of aggregate spending when
investment is 𝐼𝐼0 as 𝐴𝐴0 and the level of income as 𝑌𝑌0 . Label the level of aggregate
spending when investment is 𝐼𝐼1 as 𝐴𝐴1 and the level of income as 𝑌𝑌1 . (4)
𝐴𝐴 = 𝑌𝑌

𝐸𝐸1 𝐴𝐴1 ✓
Aggregate spending

𝐴𝐴0 ✓

∆𝐼𝐼 𝐸𝐸0

Marks for Y0 &

Y1 can only be
assigned if the
45 degree line is
correct.

∆𝑌𝑌

𝑌𝑌0 ✓ 𝑌𝑌1 ✓

Total production (real GDP)/ income (Y)

E

END

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