QUESTION ONE [50]

Question 1.1 and 1.2 is based on the excerpt below:

The petroleum company Total has discovered a potential 1 billion barrels of “wet” gas off the coast of South Africa which could be used as petrol or perhaps even converted into electricity. These discoveries of gas condensate fields off the coast of Mossel Bay, South Africa, have been hailed as “game-changers” for the country’s economy, potentially holding over 1 billion barrels of gas condensate each. These discoveries could significantly reduce South Africa’s reliance on oil and gas imports, create employment opportunities, and provide an alternative to the coal-dominated energy sector.

1.1 Explain, using the Keynesian approach to measuring aggregate demand the economic impact of the gas find on aggregate spending and total production (income). Use a diagram to motivate your answer. (35)

1.2 Discuss the ONE main type of unemployment that can be reduced. Include in your answer a discussion of the other types of unemployment. (15)

QUESTION TWO (20) “Crowding out refers to the situation whereby government spending fails to increase overall aggregate demand because higher government spending causes an equivalent fall in private sector spending and investment.“
In terms of the above statement, discuss whether a case of pure fiscal policy will be crowded out in an open economy with floating exchange rates. Substantiate your answer with an appropriate diagram.

Answers to Above Questions on Economics

Answer 1: The Keynesian approach to aggregate demand is an important approach in analysing the total spending in an economy. The main focus of this approach is on the importance of government spending, consumer demand and the net exports in determining the overall economic activity within any economy.