Exam (elaborations)
ECS2602 - Macroeconomics (ECS2602) ASSIGNMENT 3 SEMESTER 1 YEAR 2022
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Exam (elaborations) ECS2602 - Macroeconomics (ECS2602)
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ECS2602ASSIGNMENT 3
SEMESTER 1
YEAR 2022
,1.
In the IS-LM model for an open economy, when a contractionary monetary
policy is applied, the ...
A. interest rate increases, the LM curve shifts upwards and the level of output
decreases in the goods market.
B. interest rate decreases, the LM curve shifts downwards and the level of
output increases in the goods market.
C. interest rate decreases, the LM curve shifts downwards and the demand
for goods decreases in the goods market.
D. interest rate increases, the LM curve shifts upwards and investment
spending increases in the goods market.
2.
Study the following diagram and answer the question.
Which one of the following statements is correct?
After the government's fiscal policy intervention, the central bank decides to
stimulate the economy, which results in …
A. a depreciation of the exchange rate because of the implementation
of contractionary monetary policy.
B. the implementation of contractionary monetary policy, the downwards
shift of the LM curve to LM1, the equilibrium level of output and income
is at Y2, and the exchange rate appreciates.
C. an increase in the interest rate, and at the level of output and income
Y2, investment spending is indeterminate.
D. a decrease in the interest rate, the LM curve shifts downwards to LM1,
the equilibrium level of output and income is at Y 2, and the exchange
rate depreciates since a positive relationship exists between the
interest rate and the exchange rate.
, 3.
Study the following diagram and answer the question.
Which one of the following statements is INCORRECT?
Assuming that the Marshall-Lerner condition holds, the above policy mix of
fiscal and monetary policies improves the net exports position since …
A. a depreciation of the domestic currency leads to an increase in
exports because domestic goods are now relatively cheaper and
decrease imports because foreign goods are now relatively more
expensive.
B. a depreciation of the domestic currency leads to an increase in
exports because domestic goods are now relatively more expensive
and a decrease in imports because foreign goods are now relatively
more expensive.
C. the negative effect of the rise in imports due to the increase in the level
of output and income will be outstripped by the positive effect of an
increase in exports and a decrease in imports due to the depreciation
of the domestic currency.
D. the negative effect of the rise in the price of imports which increases
the imports bill will be outstripped by the positive effect of an increase
in exports due to the depreciation.
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