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ECS2602 October/November Exam 2024
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ECS2602
OCTOBER/NOVEMBER EXAM 2024

, ECS2602

October/November Exam 2024

Intermediate Macroeconomics

Question 1:

Which one of the following statements is INCORRECT regarding the impact of
depreciation on the level of output and income and the trade balance?

 A. If the Marshall-Lerner condition holds, the positive effect of an increase in
exports on the trade balance outstrips the negative effect of an increase in
imports, which results from the increase in output and income and an
improvement in the trade balance.
 B. Given goods market equilibrium and a trade balance position, a depreciation
of the exchange rate causes an increase in exports and the level of output and
income. The trade balance improves, and a downward movement along the NX
curve indicates it.
 C. Given goods market equilibrium and a trade balance position, a depreciation
of the exchange rate causes an increase in exports and the level of output and
income – this increase in the output level results in an increase in imports.
 D. The increase in the relative price of imports causes the switching of
expenditure from foreign goods (now more expensive) to domestically produced
goods. This results in a higher demand for domestic goods and a higher level of
output and income.

Answer: B

, Question 2:

Which one of the following statements is correct regarding the goods market
model?

 A. A decrease in taxes to decrease unemployment will be as effective in a
capital-intensive economy as in a labour-intensive economy.
 B. If government revenue is higher than government expenditure, then we have a
budget deficit.
 C. An increase in government spending and/or a decrease in taxes can decrease
cyclical unemployment.
 D. An increase in income forces the government to increase its expenditure,
according to our model.

Answer: C

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