ECS2602 ASSIGNMENT 1 SEMESTER 2 AUGUST 2023

. Which of the following statements are correct? a. Macroeconomics studies the determination of the level of output and income for a specific firm. b. In macroeconomics we focus on the interaction between different markets, such as the goods market, the financial market, the labour market and the foreign exchange market. c. Real GDP per capita is widely used as a measure of economic welfare or wellbeing of the residents of a country. d. The main instrument of fiscal policy is the budget, while the main policy variable is the interest rate. e. A contractionary monetary policy implies a decrease in government spending and an increase in taxation. 1. a, b and c 2. b, c and d 3. b, d and e 4. Only b and c 5. b, c and e Explanation: The correct option is 4. Statement a is incorrect. Macroeconomics deals with the economy as a whole and not a specific firm. Statement b is correct. That is what we will be studying in this module. Statement c is correct. Statement d is incorrect. The policy variables are government spending and taxation. Statement e is incorrect. The contractionary monetary policy implies a decrease in the money supply and therefore results in an increase in the interest rate. 2. Which of the following statements are correct? a. In macroeconomics we focus on the determination of the demand for and supply of individual goods and the determination of their prices. b. The impact of fiscal and monetary policy on the level of output and income is an important topic in this module. c. If the population in South Africa grows at 5% per year and the economic growth rate is 3% per year, a decline in the real GDP per capita occurs. d. Expansionary monetary policy during a recession is an example of a stabilisation policy. e. An expansionary fiscal policy implies a decrease in government spending and/or an increase in taxation. 1. a, b and c 2. b, c and d 3. b, d and e 4. Only b and c 5. b, c and e Explanation: The correct option is 2. Statements b, c and d are correct. Statement a is incorrect. The focus in Macroeconomics is on the current level of output and income, given the structure of the economy and not on the determination of the demand for and supply of individual goods and the determination of their prices. Statement e is incorrect. Expansionary fiscal policy implies an increase in government spending and/or a decrease in taxation. 3. The difference between expenditure on the gross domestic product (GDP) and gross domestic expenditure (GDE) is that … 1. expenditure on the GDP includes both imports and exports, while GDE includes exports and excludes imports. 2. expenditure on the GDP includes exports and excludes imports, while GDE includes both imports and exports. 3. expenditure on the GDP includes exports and excludes imports, while GDE includes imports and excludes exports. 4. expenditure on the GDP includes imports and excludes exports, while GDE includes exports and excludes imports. Explanation: The correct option is 3. Expenditure on GDP is the total value of spending on final goods and services produced within the borders of a country, including exports but excluding imports. Expenditure on GDP is the total value of spending on South African produced goods and services. Therefore, expenditure on GDP represents the demand for domestic goods. GDE is the total value of spending on final goods and services within the borders of a country, including imports but excluding exports. GDE is the total value of spending in South Africa; therefore, it represents the domestic demand for goods. Study section 2.1 of learning unit 2 in the study guide and make sure that you understand the difference between GDP, GDE and expenditure on GDP as these differences will become important when we look at an open economy. 3. Which one of the following options is incorrect? 1. The four major spenders in the economy are households, government, private firms and the foreign sector. 2. Final consumption expenditure by households (C) is classified in terms of durable, semi-durable, and nondurable goods and services.