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2.1 Answer the following questions - NSC Economics - Question 2 - 2023 - Paper 1
Question 2
2.1 Answer the following questions. 2.1.1 Name the TWO turning points of a business cycle. 2.1.2 Why would a decrease in South African exports lead to the deprecia... show full transcript
Worked Solution & Example Answer:2.1 Answer the following questions - NSC Economics - Question 2 - 2023 - Paper 1
Step 1
2.1.1 Name the TWO turning points of a business cycle.
Answer
The two turning points of a business cycle are:
- Peak: This is the point at which the economy reaches its highest level of activity before a downturn.
- Trough: This is the lowest point of the economic cycle, where an economy is in decline before it begins to recover.
Step 2
2.1.2 Why would a decrease in South African exports lead to the depreciation of the rand?
Answer
A decrease in South African exports would result in a lower demand for the rand, as foreign buyers will need fewer rands to purchase South African goods. This reduction in demand for the rand can lead to its depreciation, as there would be an oversupply of the currency in the foreign exchange market. Additionally, decreased exports may also signal a weakening economy, further undermining confidence in the currency.
Step 3
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Step 5
2.2.3 Briefly describe the term progressive tax.
Answer
A progressive tax is a tax system where individuals with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes. This structure aims to reduce income inequality by taxing wealthier individuals at higher rates.
Step 6
2.2.4 Explain the effect of a regressive tax system on income distribution.
Answer
A regressive tax system disproportionately affects low-income earners, as they pay a higher percentage of their income in taxes compared to higher-income earners. This can increase income inequality and reduce disposable income for lower-income households, thereby exacerbating economic disparities.
Step 7
2.2.5 Why will tax revenue decrease if the government imposes very high tax rates?
Answer
Tax revenue may decrease with very high tax rates because:
- Tax Evasion: High rates may incentivize individuals and businesses to evade taxes, leading to a reduction in collected revenue.
- Economic Disincentives: High tax rates can discourage investment and business expansion, resulting in lower overall economic activity and, consequently, lower tax revenue. Businesses may also reduce production or withdraw investments, further shrinking the tax base.