Exam (elaborations)
MTE1501 Assignment 5 Due 30 Sept 2024
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MTE1501 Assignment 5 Due 30 Sept 2024
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1. ECS1601-24-Y2. Online assessments
3. Assessment 5
Quiz
Assessment 5
Open course index
Started on Tuesday, 24 September 2024, 4:02 PM
State Finished
Completed on Tuesday, 24 September 2024, 4:34 PM
Time taken 32 mins 9 secs
Marks 18.00/20.00
Grade 90.00 out of 100.00
Question 1
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Question text
Which of the following is correct regarding the effects of expansionary fiscal policy?
a.
The size of the multiplier will increase.
b.
Autonomous spending and the level of income will decrease.
c.
The slope of the consumption function will decrease due to a rise in the tax rate.
d.
There will be a leakage of money out of the circular flow of income, spending and production.
Feedback
An expansionary fiscal policy occurs when government spending is increased and taxes decreased. Since
taxes affect the slope of the consumption function, a reduction in taxes increases the slope of the
consumption function, thus causing the size of the multiplier to increase. Autonomous spending and
equilibrium income will increase due to the injection of money in the circular flow of income, spending,
and production.
,Question 2
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Question text
When government spending is increased, the aggregate spending curve_______.
a.
swivels down
b.
shifts downward
c.
shifts upward
d.
swivels upward
Feedback
A change in government spending causes a shift of the aggregate spending curve either upwards or
downwards. When government spending is increased, the aggregate spending curve shifts upwards and as
a result, aggregate expenditure increases. Please see page 141 in the prescribed book. A swivel of the
aggregate spending curve either up or down is caused by a change in the tax rate.
Question 3
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Question text
If the government increases its expenditure, but keeps the tax rate constant, we will find that consumption
expenditure______, total tax revenue_____, and investment spending______.
a.
stays the same, stays the same, stays the same
b.
increases, stays the same, stays the same
c.
increases, increases, stays the same
d.
increases, increases, increases
, Feedback
Remember that our frame of reference is the simple Keynesian model. An increase in G leads to an
increase in income (Y) as the increase in expenditure has to be received by some factors of production as
income. The increase in income will result in an increase in induced consumption and also an increase in
the amount of tax that has to be paid by the receivers of the higher income. Investment spending,
however, is autonomous and does not depend on the income level and will therefore not be affected.
Therefore, the sentence should read as follows: “If the government increases its expenditure, but keeps
the tax rate constant, we find that consumption expenditure increases, total tax revenue increases, and
investment spending stays the same.
Question 4
Correct
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Question text
Which of the following has/have a major impact on the level of net exports (X – Z)?
a) the growth rate of GDP in South Africa relative to the growth rates of GDP in other countries
b) the price level in South Africa relative to the price levels in other countries
c) the exchange rate between the rand and other currencies.
a.
c
b.
a and b
c.
a and c
d.
b and c
e.
a, b and c
Feedback
The growth rate of South Africa relative to other countries will affect the level of imports that South
Africa receives, relative to the exports that it sends abroad. The differences in growth will have an impact
on net exports. The relative prices of South Africa affect the competitiveness of South African goods
relative to other countries; thus has an impact on net exports, similarly the exchange rate affects the
competitiveness of South African goods to other countries.
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