8 3 3 On the demand of money Increases Reason for the impact in short Expect

8 3 3 on the demand of money increases reason for the

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(3) (3) On the demand of money Increases Reason for the impact in short: Expect bond prices to increase but at a slower rate On production in the economy Increase Reason for the impact in short: Production function depends on investment (Y=C+G+I) and investment on the expected rate of interest but at a decreasing rate 9
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Question B3 [10] Describe each of the following concepts, ideas and propositions in interest rate theory in short: (2) (2) Speculative demand for money Short description : Demand for money as a store (hedge) of economic value Arbitrage Short description : Exploiting price differences in the different markets of the same asset in time (speculation – price differences over time) 10
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(2) (2) Exogenous supply of money Short description : Supply of money not effected by forces (variables) inside the economy(economic forces)/ impacted by forces outside the ecomomy (non-economic forces) Interest elasticity of endogenous money supply Short description : The sensitivity of money supply to a change in interest of which the supply is determined by economic forces/endogenous forces 11
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(2) (2) Question B4 [10] Answer the questions after careful reading of the snippet below: Gold-exchange standard Short description : Bank/paper money is backed by gold Interest elasticity of money supply in a commodity system Short description : The sensitivity of money supply to a change in interest of which the supply is determined by non-economic forces/exogenous forces 12
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“…The platinum mines affected by the strike account for about 40 per cent of platinum production in South Africa. The contraction in platinum output accounted for about 19 percentage points of the total mining sector contraction of around 25 per cent in the first quarter. In the meantime the strike is continuing, and even if a settlement were achieved today and workers returned to work soon thereafter, it would take weeks for normal operations to resume. It is also possible that a number of shafts will never re-open. In the meantime the costs to both workers and the mining companies continue to escalate. According to the Chamber of Mines, workers have lost R9,6 billion in wages foregone, while the companies have lost R21,5 billion in earnings. The knock-on effects of the loss of earnings go well beyond the 70,000 workers and their dependents directly affected by the strike. There are numerous accounts of how the communities and businesses in the Rustenburg area and parts of the Eastern Cape are being impacted by the loss of earnings. It also impacts on the upstream and downstream industries that are connected to the sector….” 1 Name and explain one impact the most recent strike in the platinum industry may have on the South African economy according to Governor Gill Marcus? (2) Name and explain the impact the strike will have on prices according to the classical theory?
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