ECS2602
www.studynotesunisa.co.za
,Table of Contents
GOODS MARKET MODEL ............................................................................................................................... 4
IMPACT OF FISCAL POLICY TO EQUILIBRIUM ............................................................................................ 7
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 16
May 2012 ............................................................................................................................................ 16
Nov 2012 ............................................................................................................................................. 19
May/June 2013 ................................................................................................................................... 21
Nov 2013 ............................................................................................................................................. 24
FINANCIAL MARKETS .................................................................................................................................. 27
Wealth ................................................................................................................................................. 27
Money Demand ...................................................................................................................................... 27
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 35
May 2012 ............................................................................................................................................ 35
Nov 2012 ............................................................................................................................................. 38
May 2013 ............................................................................................................................................ 38
Nov 2013 ............................................................................................................................................. 39
IS-LM MODEL .............................................................................................................................................. 41
LM ....................................................................................................................................................... 45
IS-LM: The model ................................................................................................................................ 47
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 53
............................................................................................................................................................ 53
May 2012 ............................................................................................................................................ 53
............................................................................................................................................................ 57
............... 58
Nov 2012 ............................................................................................................................................. 59
............................................................................................................................................................ 59
May 2013 ............................................................................................................................................ 63
, Nov 2013 ............................................................................................................................................. 66
....................................................................................................................................................................
67
OPENNESS IN GOODS, FINANCIAL AND IS-LM MODEL ............................................................................... 68
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 68
May 2012 ............................................................................................................................................ 68
Nov 2012 ............................................................................................................................................. 69
............................................................................................................................................................ 69
May 2013 ............................................................................................................................................ 70
............................................................................................................................................................ 71
Nov 2013 ............................................................................................................................................. 71
LABOUR MARKET ........................................................................................................................................ 76
Bargaining Power ................................................................................................................................ 76
Real Wage & Unemployment rate ...................................................................................................... 78
............................................................................................................................................................ 79
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 86
May 2012 ............................................................................................................................................ 86
Nov 2012 ............................................................................................................................................. 86
May 2013 ............................................................................................................................................ 87
............................................................................................................................................................ 87
............................................................................................................................................................ 87
............................................................................................................................................................ 88
Nov 2013 ............................................................................................................................................. 90
AD-AS MODEL ............................................................................................................................................. 91
The Neutrality of Money ....................................................................................................................... 107
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................. 109
.......................................................................................................................................................... 109
, GOODS MARKET MODEL
• Endogenous variables - depends on other variables within the model
• consumption depends on income >> endogenous
• exogenous variables - constant, not explained within the model, taken as a given
The full model will consist of four sectors: households, firms, the government, and
the foreign sector. Households earn income from firms, which they spend on private
consumptions and savings. Firms produce goods sold on the goods market, and pay
the revenue to households for factors of production. The government collects taxes
which finance transfers and public consumption. Goods are also exported to and
imported from the foreign sector. The first version of the model, however, is
simplified as far as possible. It contains only the household- and firm sectors. It is
closed in the sense of having no trade with the rest of the world, and private in the
sense of having no government. According to the system of national accounts, GDP,
denoted by Y, can be alternatively expressed in terms of production, expenditure,
or income. The national account balance identity define GDP from the expenditure
approach. It states that firm production, Y, will be used for either household
consumption, C, or investments, I.
Y=C+I
Total Demand for Goods, (Z) (total = aggregate)
The total amount of goods and services demanded in the goods market. This total
demand for goods and services determines the level of income and output in the
economy.
Total amount of goods: (total = aggregate)
All goods and services produced even if they replace depreciated or worn out
products.
www.studynotesunisa.co.za
,Table of Contents
GOODS MARKET MODEL ............................................................................................................................... 4
IMPACT OF FISCAL POLICY TO EQUILIBRIUM ............................................................................................ 7
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 16
May 2012 ............................................................................................................................................ 16
Nov 2012 ............................................................................................................................................. 19
May/June 2013 ................................................................................................................................... 21
Nov 2013 ............................................................................................................................................. 24
FINANCIAL MARKETS .................................................................................................................................. 27
Wealth ................................................................................................................................................. 27
Money Demand ...................................................................................................................................... 27
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 35
May 2012 ............................................................................................................................................ 35
Nov 2012 ............................................................................................................................................. 38
May 2013 ............................................................................................................................................ 38
Nov 2013 ............................................................................................................................................. 39
IS-LM MODEL .............................................................................................................................................. 41
LM ....................................................................................................................................................... 45
IS-LM: The model ................................................................................................................................ 47
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 53
............................................................................................................................................................ 53
May 2012 ............................................................................................................................................ 53
............................................................................................................................................................ 57
............... 58
Nov 2012 ............................................................................................................................................. 59
............................................................................................................................................................ 59
May 2013 ............................................................................................................................................ 63
, Nov 2013 ............................................................................................................................................. 66
....................................................................................................................................................................
67
OPENNESS IN GOODS, FINANCIAL AND IS-LM MODEL ............................................................................... 68
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 68
May 2012 ............................................................................................................................................ 68
Nov 2012 ............................................................................................................................................. 69
............................................................................................................................................................ 69
May 2013 ............................................................................................................................................ 70
............................................................................................................................................................ 71
Nov 2013 ............................................................................................................................................. 71
LABOUR MARKET ........................................................................................................................................ 76
Bargaining Power ................................................................................................................................ 76
Real Wage & Unemployment rate ...................................................................................................... 78
............................................................................................................................................................ 79
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................... 86
May 2012 ............................................................................................................................................ 86
Nov 2012 ............................................................................................................................................. 86
May 2013 ............................................................................................................................................ 87
............................................................................................................................................................ 87
............................................................................................................................................................ 87
............................................................................................................................................................ 88
Nov 2013 ............................................................................................................................................. 90
AD-AS MODEL ............................................................................................................................................. 91
The Neutrality of Money ....................................................................................................................... 107
PRACTICE OF THE CONCEPT FROM PAST PAPERS ................................................................................. 109
.......................................................................................................................................................... 109
, GOODS MARKET MODEL
• Endogenous variables - depends on other variables within the model
• consumption depends on income >> endogenous
• exogenous variables - constant, not explained within the model, taken as a given
The full model will consist of four sectors: households, firms, the government, and
the foreign sector. Households earn income from firms, which they spend on private
consumptions and savings. Firms produce goods sold on the goods market, and pay
the revenue to households for factors of production. The government collects taxes
which finance transfers and public consumption. Goods are also exported to and
imported from the foreign sector. The first version of the model, however, is
simplified as far as possible. It contains only the household- and firm sectors. It is
closed in the sense of having no trade with the rest of the world, and private in the
sense of having no government. According to the system of national accounts, GDP,
denoted by Y, can be alternatively expressed in terms of production, expenditure,
or income. The national account balance identity define GDP from the expenditure
approach. It states that firm production, Y, will be used for either household
consumption, C, or investments, I.
Y=C+I
Total Demand for Goods, (Z) (total = aggregate)
The total amount of goods and services demanded in the goods market. This total
demand for goods and services determines the level of income and output in the
economy.
Total amount of goods: (total = aggregate)
All goods and services produced even if they replace depreciated or worn out
products.
