ECS2602 ASSIGNMENT 1 SEMESTER 2 AUGUST 2023

ECS2602 ASSIGNMENT 1 SEMESTER 2
AUGUST 2023
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1. Which of the following statements are correct?
a. Macroeconomics studies the determination of the level of output and income for a
specific firm.
b. In macroeconomics we focus on the interaction between different markets,
such as the goods market, the financial market, the labour market and the foreign
exchange market.
c. Real GDP per capita is widely used as a measure of economic welfare or
wellbeing of the residents of a country.
d. The main instrument of fiscal policy is the budget, while the main policy variable is the
interest rate.
e. A contractionary monetary policy implies a decrease in government spending and an
increase in taxation.
1. a, b and c
2. b, c and d
3. b, d and e
4. Only b and c
5. b, c and e
Explanation:
The correct option is 4. Statement a is incorrect. Macroeconomics deals with the economy
as a whole and not a specific firm. Statement b is correct. That is what we will be studying in
this module. Statement c is correct. Statement d is incorrect. The policy variables are
government spending and taxation. Statement e is incorrect. The contractionary monetary
policy implies a decrease in the money supply and therefore results in an increase in the
interest rate.
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2. Which of the following statements are correct?
a. In macroeconomics we focus on the determination of the demand for and supply of
individual goods and the determination of their prices.
b. The impact of fiscal and monetary policy on the level of output and income is
an important topic in this module.
c. If the population in South Africa grows at 5% per year and the economic growth
rate is 3% per year, a decline in the real GDP per capita occurs.
d. Expansionary monetary policy during a recession is an example of a
stabilisation policy.
e. An expansionary fiscal policy implies a decrease in government spending and/or an
increase in taxation.
1. a, b and c
2. b, c and d
3. b, d and e
4. Only b and c
5. b, c and e
Explanation:
The correct option is 2. Statements b, c and d are correct. Statement a is incorrect. The
focus in Macroeconomics is on the current level of output and income, given the structure of
the economy and not on the determination of the demand for and supply of individual goods
and the determination of their prices. Statement e is incorrect. Expansionary fiscal policy
implies an increase in government spending and/or a decrease in taxation.
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3. The difference between expenditure on the gross domestic product (GDP) and
gross domestic expenditure (GDE) is that …
1. expenditure on the GDP includes both imports and exports, while GDE includes
exports and excludes imports.
2. expenditure on the GDP includes exports and excludes imports, while GDE includes
both imports and exports.
3. expenditure on the GDP includes exports and excludes imports, while GDE
includes imports and excludes exports.
4. expenditure on the GDP includes imports and excludes exports, while GDE includes
exports and excludes imports.
Explanation:
The correct option is 3. Expenditure on GDP is the total value of spending on final goods
and services produced within the borders of a country, including exports but excluding
imports. Expenditure on GDP is the total value of spending on South African produced
goods and services. Therefore, expenditure on GDP represents the demand for domestic
goods.
GDE is the total value of spending on final goods and services within the borders of a
country, including imports but excluding exports. GDE is the total value of spending in
South Africa; therefore, it represents the domestic demand for goods. Study section 2.1 of
learning unit 2 in the study guide and make sure that you understand the difference between
GDP, GDE and expenditure on GDP as these differences will become important when we
look at an open economy.
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3. Which one of the following options is incorrect?
1. The four major spenders in the economy are households, government, private firms
and the foreign sector.
2. Final consumption expenditure by households (C) is classified in terms of durable,
semi-durable, and nondurable goods and services.
3. Transfers payments and interest on debt are included in final consumption
expenditure by government (G) since they are part of the purchase of final goods
and services.
4. Gross capital formation is the spending by households, private firms and government
on residential and non-residential capital goods.
Explanation:
Final consumption expenditure by government (G) consists of the expenditure of the
central government on final goods and services. In 2013 it represented 21.28% of the
expenditure on GDP. It includes not only the buying of final goods, such as textbooks for
schools and medication for hospitals, but also the services provided by government
employees, such as teachers and medical personnel.
Excluded from this figure are transfer payments (e.g. old age pensions, child grants and
disability grants) and interest on debt, since these are not part of the purchase of final goods
and services by government.
(PAGE 8 OF STUDY GUIDE)
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5. An autonomous (or exogenous) variable in our model means that the variable …
a. is not influenced by the level of output and income in the economy.
b. is determined by exogenous factors such as business confidence, regulations
or political influences.
c. is influenced by the level of output and income in the economy.
d. increases or decreases if income in the economy increases or decreases.
1. Only a
2. Only b
3. Only c
4. Only d
5. a and b
Explanation:
The correct option is 5. Statements a and b are correct. An exogenous variable is
independent of the model therefore; it will not be influenced by a change in the level of
output and income. An exogenous variable will be influenced by exogenous factors.
Investment spending is a fully exogenous variable in our goods market model (learning unit
2), which is determined by exogenous factors such as business confidence. In the goods
market investment spending is not determined by the level of output and income in th