Exam (elaborations)
ECS1500 Assignment 6 2023 S2
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Exam of 14 pages for the course Economics 1500 at Unisa (MCQ And ANSWERS)
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2023 ECS1500-23-S2 Welcome Message Assessment 6QUIZ
Started on
State Finished
Completed on
Time taken mins
Marks 32.00/40.00
Grade 80.00 out of 100.00
Feedback Excellent performance. You seem to understand Learning Units 8, 9 and 10 well.
Question 1
Correct
Mark 2.00 out of 2.00
The question is based on the following information:
Business A produces electrical plugs. It wants to expand its production and needs funds to finance the machinery that it
needs to purchase in order to expand production. Business B is a mining business, and has just exported a large amount
of platinum, for which it has received a large cash payment. Business B plans to build a new shaft in two years' time and
therefore wants to invest this cash now and earn interest on it until it is needed.
Business B purchases a financial asset from Business C. Business C then uses the funds it received from Business B to
lend to Business A. Business A will pay back the funds over a period of two years.
Which one of the following is a financial intermediary?
Select one:
a. Business A
b. Business B
c. Business C
That is correct.
The correct answer is Business C.
A financial intermediary is an institution that facilitates the lending and borrowing process in the economy, that is, it acts as a
middleman between lenders (surplus units in the economy) and borrowers (deficit units in the economy).
Business A is a deficit unit, as it needs funds to invest in order to expand. Business B is a surplus unit that has excess funds
that it wishes to invest in order to earn interest. Business C receives the surplus funds from Business B and lends it to
Business A. Therefore, Business C is a financial intermediary, and is the correct answer.
The correct answer is: Business C
, Question 2
Correct
Mark 2.00 out of 2.00
When government expenditure exceeds government revenue ____________.
Select one:
a. the government's budget deficit will definitely increase
b. we can expect interest on government debt to decrease
c. government will have to borrow to finance the deficit
d. taxes will always increase
Your answer is correct.
When government expenditure exceeds government revenue, government will have to borrow to finance the deficit.
When government expenditure exceeds government revenue this will result in a deficit on the government budget. However,
since we do not know what the difference was between government expenditure and government revenue in the previous
year, we cannot be sure if the budget deficit will increase, decrease or stay the same.
We can also not say for certain that taxes will increase. Government has other ways of financing expenditure, and if the
economy grows, it is even possible for government to generate more income at the same tax rates.
Reaganomics, a type of economic policy prescription that was popular during the time when Reagan was president in the
United States of America, advocates that lower tax rates may result in higher tax income since it will result in higher
economic growth and thus a higher tax base. It is therefore clear that a government deficit will not necessarily result in higher
taxes.
However, the budget deficit has to be financed in some way, and the only way in which the government can finance it is by
borrowing. For this same reason, we cannot say that interest on government debt will decrease. When the government has to
borrow to finance the deficit, government debt will increase.
The correct answer is: government will have to borrow to finance the deficit
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