Stuvia.com - The study-notes marketplace
ECS1601
ASSIGNMENT 3 SEMESTER 1 2022
UNIQUE NUMBER: 789067
DISCLAIMER: Extreme care has been used to create this document, however the contents are provided “as is” without any
representations or warranties, express or implied. This document is to be used for comparison, research and reference
purposes ONLY. Directly submitting and/or reselling/ distribution / reproduction any part of this document is not permitted.
PREVIEW OF QUESTION 1
1. 3 Reference: Prescribed book PG 277
Although production, income and spending all occur simultaneously, it is useful to consider these
three flows in sequence, starting with production. Production creates income which is then used to
purchase the products that were produced in the first place. By definition, income is always equal to
production but there is no guarantee that all income will be spent. Spending may be equal to, greater
than or less than income.
.
, Stuvia.com - The study-notes marketplace
1. 3 Reference: Prescribed book PG 277
Although production, income and spending all occur simultaneously, it is useful to consider these
three flows in sequence, starting with production. Production creates income which is then used to
purchase the products that were produced in the first place. By definition, income is always equal to
production but there is no guarantee that all income will be spent. Spending may be equal to, greater
than or less than income.
2. 4 Reference: Prescribed book PG 318
As income increases, consumption increases, but the increase in consumption is smaller than the
increase in income.
3. 3 Reference: Prescribed book PG 313
Closed economy with or without Government: The SKM assumes a closed economy (i.e. without
foreign trade) with or without Government. Constant prices: In stark contrast to the quantity theory
model, the SKM assumes an exogenously fixed price level.
4. 4 Induced consumption, on the other hand, differs in that the amount of consumption varies based on
income. As disposable income rises, so does the rate of induced consumption. 1 This process
applies to all normal goods and services. ... As the value of disposable income rises, it induces a
similar rise in consumption.
5. 1 Reference: Prescribed book PG 322
Why do firms purchase capital goods? In other words, why do they invest? The answer is simple –
firms invest because they hope to earn profits. They estimate the cost of the capital goods concerned
(eg buildings, machinery, equipment) and compare these costs to the amounts they expect to earn
from the investment. The greater the expected profit, the greater investment will tend to be. If no
profit is expected, there will be no investment.
6. 1 Reference: Prescribed book PG 328
The multiplier effect is the magnified increase in equilibrium GDP that occurs when any component of
aggregate expenditures changes. The greater the MPC (the smaller the MPS), the greater the
multiplier
7. 2 Households will consume R70 if their disposable income is zero and will consume 0,65 of any
increase in disposable income they receive.
ECS1601
ASSIGNMENT 3 SEMESTER 1 2022
UNIQUE NUMBER: 789067
DISCLAIMER: Extreme care has been used to create this document, however the contents are provided “as is” without any
representations or warranties, express or implied. This document is to be used for comparison, research and reference
purposes ONLY. Directly submitting and/or reselling/ distribution / reproduction any part of this document is not permitted.
PREVIEW OF QUESTION 1
1. 3 Reference: Prescribed book PG 277
Although production, income and spending all occur simultaneously, it is useful to consider these
three flows in sequence, starting with production. Production creates income which is then used to
purchase the products that were produced in the first place. By definition, income is always equal to
production but there is no guarantee that all income will be spent. Spending may be equal to, greater
than or less than income.
.
, Stuvia.com - The study-notes marketplace
1. 3 Reference: Prescribed book PG 277
Although production, income and spending all occur simultaneously, it is useful to consider these
three flows in sequence, starting with production. Production creates income which is then used to
purchase the products that were produced in the first place. By definition, income is always equal to
production but there is no guarantee that all income will be spent. Spending may be equal to, greater
than or less than income.
2. 4 Reference: Prescribed book PG 318
As income increases, consumption increases, but the increase in consumption is smaller than the
increase in income.
3. 3 Reference: Prescribed book PG 313
Closed economy with or without Government: The SKM assumes a closed economy (i.e. without
foreign trade) with or without Government. Constant prices: In stark contrast to the quantity theory
model, the SKM assumes an exogenously fixed price level.
4. 4 Induced consumption, on the other hand, differs in that the amount of consumption varies based on
income. As disposable income rises, so does the rate of induced consumption. 1 This process
applies to all normal goods and services. ... As the value of disposable income rises, it induces a
similar rise in consumption.
5. 1 Reference: Prescribed book PG 322
Why do firms purchase capital goods? In other words, why do they invest? The answer is simple –
firms invest because they hope to earn profits. They estimate the cost of the capital goods concerned
(eg buildings, machinery, equipment) and compare these costs to the amounts they expect to earn
from the investment. The greater the expected profit, the greater investment will tend to be. If no
profit is expected, there will be no investment.
6. 1 Reference: Prescribed book PG 328
The multiplier effect is the magnified increase in equilibrium GDP that occurs when any component of
aggregate expenditures changes. The greater the MPC (the smaller the MPS), the greater the
multiplier
7. 2 Households will consume R70 if their disposable income is zero and will consume 0,65 of any
increase in disposable income they receive.
