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BACHELOR OF BUSINESS ADMINISTRATION

Title: ECONOMICS I
ASSIGNMENT

Student Name: [Insert your name]
Student Number: [Insert your student number]
Professor Name: [Insert professor’s name]

Due Date: [Insert due date]

Table of Contents
1.0 Introduction ……………………………………………………………………………………….. [Page No. 3]
2.0 Question 1 …………………………………………………………………………………………. [Page No.4 ]
2.1 List and briefly explain the four participants who influence the flows of production, income and expenditure in an economy.
2.2 Draw a production possibility frontier showing a combination of two goods that a country could produce, and an area of inefficiency and another that is unattainable
3.0 Question 2 …………………………………………………………………………………………. [Page No.7 ]
3.1 Explain why international trade takes place by discussing these two concepts with the aid of an example:
• Absolute advantage; and
• Comparative advantage.
3.2 Critically discuss the economic concept at work in the scenario below:
“Nouvelle Nougat experienced a boom under the national lockdown and the opening of its online store. In one week the patisserie fulfilled 250 orders. To capitalize on this market, the owners, Nou and Elle, hired two additional pastry chefs, which gave them a total of 10 pastry chefs working in the kitchen. As a result, input of resources, increased by 25% and output increased by 82%.”
3.3 What is the difference between an open and a closed economy? Has South Africa ever been a closed economy?
4.0 Question 3 ……………………………………………………………………………………….. [Page No.10 ]
4.1 Discuss the difference between market and command economies. In your response, make use of examples
4.2 Critically discuss GDP as an economic indicator, and its strengths and weaknesses
5.0 Question 4 ……………………………………………………………………………………….. [Page No.12 ]
5.1 South Africa is a major platinum producer. Suppose the world price of platinum were to rise, due to increased demand, as a result of the turbulent economic climate of late. Using a diagram explain how this change in the industry will impact the exchange rate between the rand and the dollar, ceteris paribus.
6.0 Conclusion ……………………………………………………………………………………….. [Page No.13 ]
7.0 References ……………………………………………………………………………………….. [Page No.14 ]

Introduction

Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of the entire economy rather than individual markets or businesses. It examines the economy as a whole and looks at the relationships between key economic indicators, such as gross domestic product (GDP), inflation, unemployment, and international trade.

Some relevant concepts in macroeconomics include:

1. Gross Domestic Product (GDP): This is the total value of all goods and services produced in a country over a given period, usually a year.
2. Inflation: This is the rate at which the general level of prices for goods and services is rising, and it is usually measured using the Consumer Price Index (CPI).
3. Unemployment: This refers to the number of people who are willing and able to work but cannot find employment.
4. Fiscal Policy: This refers to the government’s use of taxes and spending to influence the economy. For example, the government may increase spending during a recession to stimulate economic growth.
5. Monetary Policy: This refers to the actions taken by a country’s central bank to control the supply and cost of money in the economy. For example, the central bank may lower interest rates to encourage borrowing and stimulate economic activity.
6. International Trade: This refers to the exchange of goods and services between countries. Macroeconomics examines the effects of international trade on a country’s economy, such as the balance of trade, which is the difference between a country’s exports and imports.

ASSIGNMENT QUESTIONS

QUESTION 1 (20 MARKS)

1.1 List and briefly explain the four participants who influence the flows of production, income and expenditure in an economy. (12)
Answer: In an economy, there are four key participants who play a crucial role in influencing the flows of production, income, and expenditure. These participants are households, businesses, the government, and international actors.
1. Households: Households are the primary consumers in an economy. They purchase goods and services from businesses, and in return, they receive income in the form of wages, salaries, and profits. Households also save a portion of their income and invest it in different financial assets.
2. Businesses: Businesses are the

1.2 Draw a production possibility frontier showing a combination of two goods that a country could produce, and an area of inefficiency and another that is unattainable. (8)
Answer: Here’s a more detailed step-by-step guide on how to draw a production possibility frontier (PPF) showing a combination of two goods that a country could produce, and an area of inefficiency and another that is unattainable:
Step 1: Define the two goods First, we need to define the two goods that the country can produce. For this example, let’s say the

QUESTION 2 [26 MARKS]

2.1 Explain why international trade takes place by discussing these two concepts with the aid of an example:
• Absolute advantage; and
• Comparative advantage. (8)
Answer: International trade takes place because different countries have different levels of efficiency in producing certain goods or services. These differences in efficiency give rise to two concepts that explain why international trade takes place: absolute advantage and comparative advantage.

2.2 Critically discuss the economic concept at work in the scenario below:
“Nouvelle Nougat experienced a boom under the national lockdown and the opening of its online store. In one week the patisserie fulfilled 250 orders. To capitalize on this market, the owners, Nou and Elle, hired two additional pastry chefs, which gave them a total of 10 pastry chefs working in the kitchen. As a result, input of resources, increased by 25% and output increased by 82%.” (12)

Answer: The economic concept at work in this scenario is the concept of economies of scale. Economies of scale refer to the cost advantages that a business can achieve by increasing its output and expanding its scale of production. In other words, as a business produces more goods or services, the cost per unit of production decreases,

2.2 What is the difference between an open and a closed economy? Has South Africa ever been a closed economy? (6)
Answer: An open economy is an economy that has trade relations with other countries, where goods and services can freely flow across borders. An open economy allows for the free movement of goods, services, and capital, which enables a country to benefit from the global economy’s growth and development. In contrast, a closed economy is an economy that does not engage in international trade and has no foreign

QUESTION 3 [24 MARKS]
3.1 Discuss the difference between market and command economies. In your response, make use of examples (12)
Answer: Market and command economies represent two contrasting economic systems that differ in how they allocate resources and make economic decisions. In a market economy, resources are allocated based on the decisions made by consumers and producers, while in a command economy, resources are allocated based on the

3.2 Critically discuss GDP as an economic indicator, and its strengths and weaknesses. (12)
Answer: Gross Domestic Product (GDP) is one of the most commonly used economic indicators for measuring the size and growth of an economy. GDP is the total value of all goods and services produced within a country’s borders in a given period, typically measured annually or quarterly. While GDP is a widely used indicator, it has both strengths and weaknesses.
One of the key strengths of GDP is that it provides a broad measure of economic activity, including both the goods and

QUESTION 4 [30 MARKS]
South Africa is a major platinum producer. Suppose the world price of platinum were to rise, due to increased demand, as a result of the turbulent economic climate of late. Using a diagram explain how this change in the industry will impact the exchange rate between the rand and the dollar, ceteris paribus.
Answer: If the world price of platinum were to rise, this would increase the demand for South African platinum exports. As a result, the quantity of platinum supplied by South Africa would increase, leading to an increase in export earnings and an inflow of foreign currency into the country. This increase in demand and export earnings would lead to an increase in the demand for the South African rand.

Conclusion

In conclusion, macroeconomics provides a comprehensive framework for understanding the functioning and performance of an entire economy. By focusing on key economic indicators such as GDP, inflation, unemployment, and international trade, macroeconomics enables policymakers and analysts to identify trends, predict future economic outcomes, and formulate policies that can support long-term economic growth and stability. The concepts of fiscal and monetary policy, as

References

Demand and Supply Shifts in Foreign Exchange Markets

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Total Marks: 100

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