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ECS2602 ASSIGNMENT 2 OF 2021 POSSIBLE SOLUTIONS

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ECS2602 - Macroeconomics (ECS2602)
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ECS2602 assignment 2 of 2021 possible solutions including explanations

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ECS2602
ASSIGNMENT 2
2021
This assignment contributes 40% towards your semester mark.
Please ensure that this assignment reaches the university before the due date.

Answer all questions on a mark-reading sheet.

1. Which of the following are fully exogenous variables in the IS-LM model?

1. Level of output and income, interest rate, investment, consumption spending.
2. Government spending, taxation, marginal propensity to consume, interest rate.
3. Interest rate, demand for money, the quantity of money.
4. Consumption spending, investment, government spending.




2. Which of the following statements are correct? In the IS-LM model:

a. Investment is influenced by the interest rate only.
b. Investment is influenced by exogenous factors such as expectations, business confidence and regulations.
c. Investment is influenced by the interest rate and the level of output.
d. Investment is negatively related to the interest rate and the level of output.
e. Investment is negatively related to the interest rate and positively related to the level of output.

1. Only a and b
2. b, c and e
3. b, c and d
4. a and e
5. Only c and e

Explanation: Compare statements a and c: statement a is incorrect and statement c is correct. Statement b is
correct. In the goods market model investment is regarded as exogenous (autonomous) and in the IS-LM model
investment is a function of income and the interest rate. Compare statements d and e: statement d is incorrect and
statement e is correct.

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