THIS DOCUMENT CONTAINS ecs2602 exam prep questions and solutions FROM OVER 10 PAST PAPERS, USING IT CORRECTLY AS A GUIDE WILLL HELP YOU SCORE ABOVE 75%
Which one of the following statements is correct?
In the IS-LM model:
Select one:
A. Investment is influenced by the level of output and income only.
B. Investment is influenced by the interest rate only.
C. Investment is positively related to the interest rate and negatively related to
the level of output and income.
D. Investment is influenced by exogenous factors such as expectations,
business confidence and regulations.
Your answer is correct. Investment is regarded as exogenous (autonomous) in
the goods market model. However, investment contains both an exogenous
(autonomous) and an endogenous component in the IS-LM model. The part of
investment (I) influenced by expectations, business confidence, and political and
social factors is the exogenous component of investment. This is known as
autonomous or exogenous investment. The parts of investment (I) that are
dependent on income (Y) and the interest rate (i) are the endogenous
components. Therefore, investment is a function of the interest rate and the level
of output and income.
The correct answer is:
Investment is influenced by exogenous factors such as expectations, business
confidence and regulations.
Question 2 This question is based on the following diagram:
Correct
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question ECS2602
Which one of the following statements is correct?
Within the IS-LM model, if an expansionary monetary is applied, the impact on the
level of output will be the greatest if the ___
Select one:
A. interest rate decreases from i¯ to i¯2.
, B. interest rate decreases from i¯ to i¯1.
C. interest rate decreases from i¯ to i¯3.
Your answer is correct. If the interest rate is decreased from i¯ to i¯1, the level of
output and income will increase from Y to Y1 (or point a to b). If the interest rate is
decreased from i¯ to i¯2 the level of output and income will increase from Y to Y2 (or
point a to c) and if the interest rate is decreased from i¯ to i¯3 the impact on the level
of output and income will increase from Y to Y3(point a to d) where the impact is the
greatest on the level of output and income.
The correct answer is:
interest rate decreases from i¯ to i¯3.
Question 3 This question is based on the following statement below:
Correct
"…by expanding government's contribution to the economy, the fiscus is able to
Mark 1.00 out support economic activity at a time when global and domestic demand is faltering."
of 1.00 (National Budget Review, 2009.)
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question
Which one of the following statements is INCORRECT?
The implication of this within the IS-LM model means ___
Select one:
A. an implementation of expansionary fiscal policy.
B. a rightward shift of the IS curve takes place.
C. an This statement is the only INCORRECT statement. "…
implementation by expanding government's contribution to the
of economy…" implies that government spending
expansionary increases, in other words, the implementation of
monetary expansionary fiscal policy. Therefore, in the IS-LM
policy. model, the IS curve will shift to the right and the
demand for goods and the level of output and income
increases. The central bank (SARB in South Africa) and
not the fiscus set the interest rate; therefore, the LM
curve will not shift.
D. the demand for goods and the level of output and income increases.
Your answer is correct.
The correct answer is:
an implementation of expansionary monetary policy.
Question 4 This question is based on the following diagram:
Correct
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question
The shift of the IS curve from IS to IS 1 might be the result of ___________ and the
level of output and income __________ .
Select one:
A. a decrease in the interest rate; increases
B. an increase in government spending; decreases
C. a decrease in taxes; increases
D. a decrease in government spending; increases
Your answer is correct. The shift of the IS curve from IS to IS1 might be the result of
an increase in government spending and/or a decrease in taxes (expansionary fiscal
policy) to stimulate economic activity by increasing the demand for goods and the
level of output and income (G↑→ Z↑→ Y↑ or T↓ → YD↑ → C↑ → Z↑ → Y↑).
The correct answer is:
a decrease in taxes; increases
Question 5 The term “full employment” refers to a situation in the economy ___
Incorrect
Mark 0.00 out Select one:
of 1.00 A. where there is no unemployment in the economy.
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question B. in which there is only frictional unemployment.
C. in which there is no cyclical unemployment.
D. where everybody who wants to work is employed.
Your answer is incorrect. Given the different types of unemployment, frictional
unemployment always exists due to normal labour market turnover where workers
change jobs and are considered voluntary unemployment. Structural unemployment is
more long-term unemployment, and it is slow to fix as it is linked to the changing
structure of the economy that requires either migration or re-training of the workers.
Therefore, the term full employment refers to a situation in the economy where there
is no cyclical (or demand-deficient) unemployment.
, The correct answer is:
in which there is no cyclical unemployment.
Question 6 This question deals with the derivation of the IS curve and is based on the following
Correct information and diagrams:
Mark 1.00 out The autonomous spending at an interest rate of 10% is 3 000.
of 1.00
A decrease in the interest rate from 10% to 8% increases investment spending by
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question 1 000.
Which one of the following statements is INCORRECT?
Select one:
A. The values for f and g are f = 8% and g = 10%.
B. The value for a is 3 000.
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