ECS2602-24-S1 Welcome to the module ECS2602-24-S1 Assessment 2
QUIZ
Started on Tuesday, 16 April 2024, 11:43 AM
State Finished
Completed on Tuesday, 16 April 2024, 2:24 PM
Time taken 2 hours 41 mins
Marks 15.00/30.00
Grade 50.00 out of 100.00
,Question 1
Correct
Mark 1.00 out of 1.00
In the IS-LM model, when comparing a contractionary monetary policy with an expansionary fiscal policy, the results are best
described by the following?
Select one:
A.
Option A Contractionary Expansionary
monetary policy fiscal policy
The demand for goods Lower Higher
The level of output and income Lower Higher
The interest rate Higher Unchanged
Investment spending Lower Higher
Budget deficit Unchanged Higher
B.
Option D Contractionary Expansionary
monetary policy fiscal policy
The demand for goods Higher Lower
The level of output and income Higher Lower
The interest rate Higher Higher
Investment spending Indeterminate Lower
Budget deficit Unchanged Higher
C.
Option B Contractionary Expansionary
monetary policy fiscal policy
The demand for goods Lower Higher
The level of output and income Lower Higher
The interest rate Lower Lower
Investment spending Higher Higher
Budget deficit Unchanged Higher
D.
Option C Contractionary Expansionary
monetary policy fiscal policy
The demand for goods Lower Higher
The level of output and income Lower Higher
The interest rate Lower Unchanged
Investment spending Indeterminate Higher
Budget deficit Unchanged Lower
,Your answer is correct. To answer this type of question, you must use a chain of events. When a contractionary monetary
policy is applied, the interest rate increases to cool down economic activity by decreasing the demand for goods.
An expansionary fiscal policy means that government spending has to be increased and/or taxes have to be
decreased. We use the example of an increase in government spending by increasing the demand for goods.
Impact on the financial market Impact on the goods market
MonetaryContraction→i↑ G↑ → Z↑ → Y↑
i↑ → M d ↓ → M ↓ Y↑ → YD↑ → C ↑
Y ↑ → I↑
Impact on the goods market Impact on the financial market
i↑ → I↓ → Z ↓ → Y ↓ i=ἶ
Y ↓ → I↓ Y↑ → M d ↑ → M ↑
Y↓ → YD↓ → C ↓
Back to the financial market
Y↓ → M d ↓ → M ↓
The end result The end result
The end result is that a The end result is that at a given
contractionary monetary policy interest rate, the increase in
results in a decrease in output government spending leads to an
and income level. If the IS-LM increase in the level of output
model presents this, the LM and income. If the IS-LM model
curve shifts upwards. presents this, the IS curve shifts
to the right.
With the chain of events in mind, the correct option is A:
Option A Contractionary Expansionary
monetary policy fiscal policy
The demand for goods Lower Higher
The level of output and income Lower Higher
The interest rate Higher Unchanged
Investment spending Lower Higher
Budget deficit Unchanged Higher
, The correct answer is:
Option A Contractionary Expansionary
monetary policy fiscal policy
The demand for goods Lower Higher
The level of output and income Lower Higher
The interest rate Higher Unchanged
Investment spending Lower Higher
Budget deficit Unchanged Higher
Question 2
Correct
Mark 1.00 out of 1.00
Which one of the following statements is correct?
Any movement along the LM curve will cause a change in the ___
Select one:
A. actual prices.
B. interest rate.
C. marginal propensity to consume.
D. level of output and income.
Your answer is correct. Any movement along the LM curve will cause the level of output and income to change. A movement
to the right will cause Y to increase, and a movement to the left will cause Y to decrease.
The correct answer is:
level of output and income.
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