ECS2602 Assignment 03 2021 AS PER UPDATED TUTORIAL LETTER (to be used as a guideline only) 100%

Macroeconomics
ECS2602
Department of Economics
Assignment 03 for 2021
(To be used as a guideline only)
(Unique number: S1 students: 704020)
(Unique number: S2 students: 810223)
Due Date: 19 August 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. In an open economy, the impact of an increase in the interest rate on the demand for goods
and the level of output in the goods market can be illustrated by the following chain of
events:

1. i↑⟶E↓→X↑→NX↓

, 2. i↑⟶E↑→X↓→Z↓→Y↓
3. E↓→X↑→NX↑→Z↑→Y↑
4. i↑⟶I↓→Z↑→Y↑→NX↓
Answer:

Refer to your Study Guide page 145:




i↑⇒ Capitalinflow ⇒E↑
E↑⇒ X↓ ⇒NX↓⟹Z ↓⟹Y ↓
E↑⇒ IM↑ ⇒NX↓⟹Z ↓⟹Y ↓
The correct option is 2. An increase in the South African interest rate relative to that of the rest
of the world leads to a capital inflow and a higher demand for rands on the foreign exchange
market. The rand appreciates. The rand's appreciation will decrease exports, which decreases
the demand for goods and the level of output and income decreases.