QUESTION 1 -   

Read the following extract and answer the questions below: Quarterly Bulletin March 2016 Page 3

'Responding to the risk of higher inflation but also mindful of the need to protect the fragile economic growth momentum, the Monetary Policy Committee (MPG) of the SARB raised the repurchase rate by 25 basis points in July 2015 and by another 25 basis points in November. Given the subsequent notable deterioration in the inflation outlook, the MPC decided at its January 2016 meeting to raise the policy rate by a further 50 basis points to 6,75 percent per annum, effective from 29 January 2016."

1. Discuss the excerpt above with reference to the role of the SARB in controlling inflation.

2. The causes of Inflation can be categorized into Cost-Push inflation and Demand Pull Inflation. Use fully labeled diagrams to discuss.

QUESTION 2 -

Read the extract below and answer the questions that follow:

Quarterly Bulletin March 2016 Page 32

"South Africa's annual trade deficit with the rest of the world halved between 2014 and 2015 despite a widening trend in the second half of 2015. The trade balance switched from a surplus in the second quarter of 2015 to deficits of R22 billion and R57 billion in the third and fourth quarters respectively. A contraction in merchandise export volumes alongside increased domestic demand for foreign-produced goods largely shaped developments on the trade account in the final quarter of 2015. Notwithstanding the widening of the trade deficit to 14 per cent of GDP in the fourth quarter of 2015, the trade deficit narrowed on an annual basis from 1,8 per cent of GDP in 2014 to 0,9 per cent in 2015. The traditional shortfall on the services, income and current transfer account with the rest of the world broadened slightly from the third to the fourth quarter of 2015, exacerbating the weakening of the trade balance over the period. The deficit on the current account of the balance of payments thus expanded from 4,3 per cent of GDP in the third quarter of 2015 to 5,1 per cent in the fourth quarter. On an annual basis, the deficit narrowed from 5,4 per cent of GDP in 2014 to 4,4 per cent in 2015."

1. Describe what is meant by "trade deficit'.

2. Discuss the components of the current account.

3. Discuss the measures that government could take to ensure that the trade deficit narrows.

QUESTION 3 -

The diagram below represents an individual firm in the short-run

1. Identify and describe the characteristics of the type of market structure under which this firm is operating.

2. Is the firm making an economic profit or loss in the short run? Describe with the use of fully labeled diagrams, the long-run outcome for this firm?