problems are based on the table below, which describes the process by which a loaf of bread is made available to a consumer as a final good.

Price (R) of a loaf of bread
Farmer sells wheat to miller 0,70
Miller sells flour to baker 1,05
Baker sells bread to grocer 1,90
Grocer sells bread to consumer 2,25

problem1) Money financing of the government deficit

a. occurs when government borrows from central bank.
b. occurs when the central bank buys securities from the government.
c. occurs when any banking institution buys securities from the government.
d. is a way of reducing the supply of money.
e. leaves the government with the ongoing obligation to pay interest.

problem2) Which of the following is likely to lead to the increase in inflation?

a. An increase in taxes
b. Monetary and credit policies that reduce private consumption
c. More efficient public activities
d. An increase in money-financed spending
e. None of the above.

problem3) If government spending is higher than present government revenue, this is called as

a. a deficit on the current account of the balance of payments.
b. the budget deficit.
c. the public debt.
d. money financing.
e. good fiscal management.

problem4) The South African income tax system is

a. regressive.
b. a flat-rate tax.
c. proportional.
d. progressive.
e. indirect.

problem5) Which of the following will be classed as the expansionary fiscal policy?

a. An increase in the money supply
b. A reduction in the number of goods exempted from VAT
c. An increase in government taxation
d. An increase in government expenditure
e. An increase in the VAT rate

problem6) Which of the following is recorded on a financial (capital) account of balance of payments?

a. A group of South Africans spends three weeks touring Europe
b. A monetary gift from Canadian citizens to their relatives in South Africa
c. A German firm pays R5 million dividends to the holders of its shares in South Africa
d. An American firm sells its shares in a South African construction firm
e. A group of German tourists visits the Kruger National Park in South Africa for two weeks

problem7) Which of the following summarises transactions involving the country’s international exchange of goods, services, current transfers and income?

a. Current account
b. Financial account
c. Balance of payments
d. Gold standard
e. Balance of trade

problem8) Which of the following will most probably contribute to deficit (or reduce the surplus) on the South African current account?

a. A depreciation of the rand
b. A Malaysian company invests in a South African oil company
c. An increase in transfers from Italian citizens to their South African relatives
d. A decline in imports
e. An increase in mine workers’ transfer of earnings to Mozambique

problem9) The foreign exchange rate is the rate at which

a. one country’s goods trade for those of another country.
b. the currency of one country trades for the goods of another country.
c. currencies of different countries are exchanged.
d. one country’s currency trades for silver provided by another country.
e. the services of one country trade for currency of another country.

problem10) Assume that euro/US dollar exchange rate changes from 1,3 euros per dollar to 1,1 euros per dollar. Then

a. the euro has depreciated against the dollar.
b. this will increase the demand for Eurozone goods by the United States.
c. this will lead to a decline in exports by the United States to the Eurozone.
d. the euro has appreciated against the dollar.
e. the dollar has appreciated against the euro.