NATIONAL

SENIOR CERTIFICATE

GRADE 12

FOCUSED DISTRICT TEST 2023

CIRCULAR FLOW MEMO

MARKS: 120

This marking guideline consists of 14

pages.
SECTION A NB: DATA RESPONSE QUESTIONS EACH CARRIES 10 MARKS

1.1 DATA-RESPONSE

1.1.1 Identify the factor of production in the table above,

which receives the biggest portion of the national
income.
(1)
Labour 

1.1.2 Which method was used to calculate the above figures?

Income 
(1)

1.1.3 Briefly describe the term basic prices.

Basic prices is the cost to the producer adding taxes on

production and subtracting subsidies on production  (2)
(Accept any other correct relevant response)

1.1.4 Briefly explain how subsidies can influence production.

Subsidies on products are payable by government to suppliers to:

reduce their costs of production / encourages them to increase (2)
output 

1.1.5 Gross value added at basic prices 3 871 214 

PLUS: Taxes on products 484 059 
MIN : Subsidies on products 16 415 
GDP at Market Prices 4 338 858  (4)
OR
3 871 214 + 484 059 – 16 415 = 4 338
858 
 DATA-RESPONSE
1.2

1.2.1 Identify the original consumption function on the graph

above.

C= 200 + 0.5Y  (1)

1.2.2 What is the marginal propensity to consume (mpc) on

the above graph?

0,5 (1)

1.2.3 Describe the term induced consumption.

Induced consumption is the portion of consumption that is

dependent on the disposable income. 
(Accept any other relevant correct response)
(2)

1.2.4 How will an increase in government spending affect the

size of the multiplier?

By:
 Improving the overall efficiency of the economy through
infrastructural development thus increasing income
earned and the size of the multiplier. 
 Creating job opportunities which will increase
consumption spending thus kicking the multiplier. 

(Accept any other relevant correct response)

(2)

1.2.5 Use the formula K=ΔY/ ΔJ to calculate the multiplier for

the above scenario. (Show all calculations)

K = ΔY/ ΔJ
600/300 
= 2  (2 x 2) (4)
1.3 DATA-RESPONSE

1.3.1 What is depicted in the diagram above?

Circular flow model / Two sector circular flow model 

(1)

1.3.2 Identify ONE example of a real flow.

Factors of Production/Goods and services 

(1)

1.3.3 Briefly describe the term product market

The market where final consumer goods and services are

traded (sold and bought ) 

(Accept any other relevant correct response) (2)

1.3.4 What could the Minister of Finance do to promote

economic activities in South Africa?

The minister could be:

creating more confidence in
macroeconomic policies between all
role players in the economy 
developing an investor friendly
legislation, availing opportunities for
all with the capabilities to participate
e.g. SMMEs 
overseeing an SA economy
operating in a global economy rather
than a closed one 
making laws and legislation that
permit participation 
• conducting research on what needs (2)
to be done and promote 

(Accept any other correct relevant

response)
1.3.5 How can foreign direct investment (FDI) influence the
national income?
An increase in FDI will influence the national income positively
by:
• investing more (an injection into the circular flow) which will
increase production 
increasing employment opportunities that will result in a
greater demand for goods and services 
increasing aggregate demand (multiplier effect) (2 x 2) (4)

(Accept any other correct relevant response)

(Credit answers if candidates explained the above in a
negative way)
1.4 DATA-RESPONSE

1.4.1 Give ONE example of a non-durable good.

Food / Fuel 
(Accept any other correct relevant response) (1)

1.4.2 Name ONE other item that is used to calculate GDE.

 Final consumption expenditure by government 

 Gross capital formation  (1)
 Residual item 

1.4.3 Briefly describe the term durable goods.

Its goods that can be used over and over for a long period
(Accept any other correct relevant response) (2)

1.4.4 Why are the figures above NOT a true reflection of GDE
growth?
The figures above reflects current prices / The figures do not reflect
constant prices / Inflation not excluded  (2)
(Accept any other correct relevant response) 

1.4.5 Calculate the percentage contribution on services by

households in 2017.

% Contribution = 1 199 221 X 100 

2 764 397 1
= 43.38% / 43.4 / 43 
(4) (4)
SECTION B NB: MIDDLE & HIGHER ORDER QUESTIONS EACH CARRIES 8
MARKS

QUESTION 2 40 MARKS – 30 MINUTES

2.1 Differentiate between money flows and real flows in the circular-flow model

Money flow:
 Factor remuneration represents the expenditure of producers 
 And the income of households e.g. wages, rent, interest and profit 
 Consumption expenditure represents the expenditure of households and the
income of producers 
 Government and foreign sector payments
 Import payments (expenditure) and export earnings (income) 
(Max 4)
Real flow:
 Factors of production flow from the owners (households) to producers via the
factor markets 
 Goods and services flow from the producers via the goods markets to
households and other users of goods and services 
 Factors of production and goods and services flow from foreign countries to
South Africa (imports) 
 Factors of production and goods and services flow from South Africa to foreign
countries (exports) 
(Allocate a maximum of 4 marks for mere listing of facts/examples)
(Accept any other correct relevant response) (Accept tabular format or a diagram
of the circular flow model) (Max 4) (8)
2.2 Discuss the multiplier and its effects on the national income if the marginal
propensity to consume (MPC) is 0, 6 and investment increases by R10 bn.
Show calculations.

A relatively small investment produces a proportionately large increase in

national income 
 K = 1/ 1─ mpc
 = 1/1─ 0,6 
 = 2,5 
 Multiplier effect = 2,5 x R10bn 
Therefore, an investment of R10bn will produce a R25 bn increase in national
income 

(If a learner gives a graphical representation of the effect, the graph should
indicate the change in investment of R10 bn and the change in national income
of R25 bn. Accept if the learner explains the effect based on the principle of one
person’s spending becomes another person’s income.)
(Accept any other correct relevant response)
(Allocate a max of 2 marks for mere listing/examples) (Any 4 x 2) (8)
2.3 Differentiate between goods market and factor markets

Goods / Product / Output markets:

• These are markets for consumer goods and services.
In economics a distinction is made between goods and services:
• Goods are defined as any tangible items such as food, clothing and
cars that satisfy some human wants or need.
• Buying and selling of goods that are produced in markets, include:
• Capital goods market for trading of buildings and machinery.
Consumer goods market for trading of durable consumer goods, semi
durable consumer goods and non-durable consumer goods.
• Services are defined as non-tangible actions and includes wholesale
and retail, transport and financial markets.
• Flows of private and public goods and services are real flows and they
are accompanied by counter flows of expenditures and taxes on the
product market.

Factors/Resources/input markets:
• Factors of production are bought and sold in the factor market.
• The factor market includes the labour, property and financial markets.
• Factor services are real flows and they are accompanied by counter
flows of income on the factor market.
• Factor market consists of financial / money / capital / foreign exchange
market.

(Accept any other correct relevant response) (8)

2.4 Differentiate between leakages and injections

LEAKAGES INJECTIONS
 It refers to an outflow of money in It refers to an inflow of money in the
the economy  economy 
 It is the money that leaves the It is the money that enters the circular
circular flow  flow 
 Withdrawal of funds in the Addition or introduction of funds in the
economy  economy 
 L=S+T+M J=I+J+X

MAX ( 8 X 1 ) = 8
2.5 Discuss the interactions between economic participants in a closed
economy

Households
 There is a flow of money and goods and services between the household
sector and business sector. 
 Households are the owners of the factors of production, and they place
their factors of production on the market so that it can be bought. 
 Households earn income in the form of wages by selling their factors of
production to business. 

Business Sector
 Businesses use the factors of production to produce goods and services
on which the household sector spends their income. 
 Businesses place goods and services on the product market which is
bought by households to satisfy their needs. 
 Business receives an income. 
State/Government
 There is a flow of money and goods and services between the household
sector and State. 
 Household sector provides the state with labour and receives income.
 The state provides the household with public goods and services 
(e.g.) parks, hospitals 
 Households pay taxes to the state. This is income for the state. 
 There is a flow of money and goods and services between the business
sector and state. 
 The business sector provides the state with goods and services for which
the state pays. 
 The state provides the business sector with public goods and services.
 e.g. Roads, Electricity, harbours, etc. 
 Businesses pay taxes to the state, which is used for infrastructure. 
(Accept any other correct relevant response.) (2 x 4) = 8
SECTION C

QUESTION 4 : MACRO ECONOMICS 40 MARKS – 30 MINUTES

 Discuss the role of markets in the circular flow. (26 marks)

 How does the financial sector contribute to the South African economy?
(10 marks)
INTRODUCTION

 Markets coordinate economic activities and determine prices for goods and services

 The circular flow model is a simplified representation of the interaction between the
participants of the economy 
 
(Accept any other relevant introduction) (Max 2)

MAIN PART

Goods/Product/Output markets
 These are markets for consumer goods and services 
 In economics a distinction is made between goods and services:
 Goods are defined as any tangible items such as food, clothing and cars that satisfy
some human wants or need 
 Buying and selling of goods that are produced in markets, include: - Capital goods
market for trading of buildings and machinery -
 Consumer goods market for trading of durable consumer goods, semi-durable
consumer goods and non-durable consumer goods 
 Services are defined as non-tangible actions and includes wholesale and retail,
transport and financial markets 
 Flows of private and public goods and services are real flows and they are
accompanied by counter flows of expenditures and taxes on the product market 

Factors/Resources/Input markets

 Factors of production are bought and sold in the factor market 
 The factor market includes the labour, property and financial markets 
 Factor services are real flows and they are accompanied by counter flows of income
on the factor market 

Financial markets

 They are not directly involved in production of goods and services, but act as a link
between households, the business sector and other participants with surplus funds

 Banks, insurance companies and pension funds form part of the financial market
Money markets

 In the money market, short-term loans and very short-term funds (less than 3 years)
are saved and borrowed by consumers and business enterprises 
 Products sold in this market are bank debentures, treasury bills and government
bonds 
 The SARB is the key institution in the money market 

Capital markets

 In the capital market long-term funds (3 years or longer) are borrowed and saved by
consumers and business enterprises 
 The Johannesburg Security Exchange is a key institution in the capital market 
 Products sold in this market are mortgage bonds and shares 

Foreign exchange markets

 On the foreign exchange market businesses buy/sell foreign currencies to pay for
imported goods and services 
 These transactions occur in banks and consists of an electronic money transfer from
one account to another 
 The most important foreign exchange markets are in London/New York/Tokyo 
 The SA rand is traded freely in these markets when a person buys travellers' cheques
to travel abroad 
 Imports and exports are real flows and they are accompanied by counter flows of
expenditure and revenue on the foreign exchange market 

(Accept any other correct relevant response) (Max 26)
ADDITIONAL PART

 It facilitates the flow of funds between the participants in the economy ✓✓

 It leads to making available funds for stimulating economic activities as
businesses get an opportunity to expand their businesses. ✓✓
 The financial sector helps to direct the flow of savings from the household sector
to the business and government sector in the economy. ✓✓
 It also helps to channel the savings to be available to investors, ✓✓
 For example, businesses use these funds to expand their businesses whilst the
government will borrow money from the financial sector to provide public goods
and services to the economy. ✓✓
 The financial sector facilitates the accumulation of capital and the production of
goods and services. ✓✓

(Accept any other correct higher order response) (Max.10)

CONCLUSION

Markets are critically important institutions in our economic system, because they regulate the
market, to safeguard price stability and general business

TOTAL SECTION C : 40
GRAND TOTAL : 120