Macro

Circular flow

In a four-sector flow, one person's spending becomes another person's income, and the multiplier is that repeat, made smaller each time spending leaks into imports, tax or saving.

CAPS

Grade 12 · Economics · Macro

Economics wants the concept, then the diagram or the data, then the consequence.

The papers
Paper 1 is macroeconomics and economic pursuits. Paper 2 is microeconomics and contemporary economic issues. Each paper is 150 marks.
How to write it
Define the term as CAPS uses it. If a graph is asked for, label both axes, the curves, and the equilibrium or the shift. Then say what happens to price, quantity, growth, inflation or unemployment. A curve with no labels does not explain.
How a marker reads it
A common mix-up is thinking a multiplier means the same person's income doubles, when it means the first spending creates income for other people in later rounds.

Essays are marked on the introduction, a body that applies the theory, and a conclusion that answers the question. A list of definitions is not an argument.

Worked theory

Worked theory. A mine in Rustenburg pays a worker an extra R1 000. She spends R700 of it at a local shop on food, and the shop uses part of that money to pay a baker, who spends at the taxi rank. One person's spending became someone else's income more than once, which is the multiplier in plain words. The other R300 goes on an imported television and leaks out at once. Foreign producers, not the Rustenburg baker, receive that portion. Only the part that stays inside the country keeps being respent locally.

More worked examples

Idutywa grant morning
On grant day in Idutywa a shop sells more maize meal, then orders more from a local mill, and the mill calls in an extra shift. The grant was the first income. The shop's sales and the mill's wages are later rounds of the same spending. If recipients instead spend a large share on clothes that were imported already finished, those rands skip the mill. The local multiplier is larger when the next rand is respent nearby and smaller when the next rand leaves the country.
Durban stand repair
A contractor in Durban is paid to repair a stadium stand and hires local painters. The painters buy lunch from street vendors for a month, so vendor income is a second round of the original spending. When the contractor imports special seating, that part of the budget does not pay a Durban painter or a vendor. Households, firms, government and the foreign sector are all in the story. The foreign share is the leakage that stops the local rounds.

In ordinary words

Households, firms, government and the foreign sector all sit in the flow. When a worker spends at a local shop, that shop's income can pay a baker, who spends again, so an extra rand of income can create more than one rand of total income if it is respent locally. Each round shrinks when the receiver saves, pays tax, or buys imports. An imported good sends the rand out at the first purchase, so the local chain stops, while local food keeps another round alive.

In South Africa

A Rustenburg payday splits between a local food shop and an imported television.

Part 1 / 4

What it is

In a four-sector flow, one person's spending becomes another person's income, and the multiplier is that repeat, made smaller each time spending leaks into imports, tax or saving.

More worked examples

Board walkthroughs on this topic. Open one, copy the working, then try the next.

Example 1 / 20

In a closed economy without government the marginal propensity to consume (mpc) is 0,8. Investment rises by R20 bn. Calculate the multiplier and the change in national income.

4. Step-by-step working

01
Write the formula
k=1(1 − mpc).
k=1(1 − 0,8)
02
Calculate
k=10,2=5.
=5
03
Multiply
ΔY=5×20=R100 bn.
5×20=100

How we got there

Read this like a teacher at the board. We go slowly, name every number, and say why we take each step.

Explain in another language · 11

1. What is the question asking?

Read the question twice. Circle the unknown. Underline every number and unit. The paper is asking: In a closed economy without government the marginal propensity to consume (mpc) is 0,8. Investment rises by R20 bn. Calculate the multiplier and the change in national income.

In other words — as if you have never seen this before

If you have never seen this before: Multiplier k = 1(1 − mpc). Change in income = k × change in injection. We will name a method in words, write the formula with no numbers, then substitute one line at a time.

2. What do we already know?

mpc=0,8; ΔI=R20 bn.

3. Which method — and why this one?

Multiplier k = 1(1 − mpc). Change in income = k × change in injection.

4. Step-by-step working

01 / 06
Write the formula
k=1(1 − mpc).
k=1(1 − 0,8)
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
02 / 06
Calculate
k=10,2=5.
=5
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
03 / 06
Multiply
ΔY=5×20=R100 bn.
5×20=100
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
04 / 06
Step G — Sense-check the size
Ask: is this the kind of number a Grade 10–12 paper would want? A speed of 3 000 ms for a learner walking, or a probability bigger than 1, means a unit or algebra slip. Estimate first: round the numbers and do the sum in your head.
Why this step: Markers write ‘unrealistic’ in the margin when the method is right but the size is wild. A 10-second head check often finds a missing 10² or a unit that never changed.
05 / 06
Step F — Box the answer with its unit
Multiplier 5; national income rises by R100 bn.
Why this step: A number without a unit is half a mark on a Physics paper, and a marker can miss a Maths answer that is buried in working.
06 / 06
Step H — What the marker is looking for
On an NSC memo you usually earn: (1) a method mark for naming the right formula or idea in words, (2) an accuracy mark for substituting the given numbers with units, (3) an accuracy mark for the boxed answer with its unit. Write those three lines even if you are unsure of the arithmetic — blank pages score zero.
Why this step: First-timers chase the final number and leave the method blank. The memo still pays out for the idea and the substitution even when the last line is wrong.

5. The answer

Multiplier 5; national income rises by R100 bn.

Copy onto your answer sheet — in this order

Formula: k=1(1 − 0,8)

Answer: Multiplier 5; national income rises by R100 bn.

6. Check it like a marker

Each round of spending is 80% of the one before: 20 + 16 + 12,8 + … = 100.

7. A trap first-timers fall into

First-timers often grab the first formula they remember, mix units (cm with m, minutes with seconds), or drop a minus sign. Write the formula in words first: “this equals that, because…”

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