ECS1601 SECTION A – MEMORANDUM OCTOBER 2016
Question 1 (15)
1(a) Briefly explain demand management policies and how they can be used in the
economy. (3)
They can be used in regulating the total/aggregate demand for goods and services in
the economy. √
Fiscal Policy/ Government spending/ T √√ (Maximum 2)
Monetary policy/ interest rate/ investment √ √ (Maximum 2)
They are significant in controlling inflation / output in the economy. √
Policies that affect domestic demand √
Import substitution
Export promotion
Examples [OPTIONAL]:
Any of the bulleted examples based on inflation or output. √
• If there is inflation, a contractionary (monetary) policy can be used.
OR
• If there is inflation, the monetary authority may decide to increase interest rates.
(we can also accept examples drawn from contractionary fiscal policy)
• Decrease in government spending would reduce inflation;
• Increase in taxes would also reduce inflation.
• If there is unemployment, an expansionary policy may be used.
OR
• If there is unemployment, government may decide to increase government spending,
• Alternatively, government may decide to reduce taxes / influence consumer spending,
• A decrease in interest rate would also increase output / influence investment.
1
, 1(b) Distinguish between a flow variable and a stock variable. Give one example of each. (4)
Any appropriate example
Flow variable is measured over a period of time. √
E.g. spending, income, profit, loss, investment, saving, number of births or deaths,
demand for labour, supply of goods. √
Stock variable is measured at a particular point in time. √
E.g. of stocks – wealth, assets, liabilities, capital, population, balance in savings
account, unemployment, gold reserves. √
2
Question 1 (15)
1(a) Briefly explain demand management policies and how they can be used in the
economy. (3)
They can be used in regulating the total/aggregate demand for goods and services in
the economy. √
Fiscal Policy/ Government spending/ T √√ (Maximum 2)
Monetary policy/ interest rate/ investment √ √ (Maximum 2)
They are significant in controlling inflation / output in the economy. √
Policies that affect domestic demand √
Import substitution
Export promotion
Examples [OPTIONAL]:
Any of the bulleted examples based on inflation or output. √
• If there is inflation, a contractionary (monetary) policy can be used.
OR
• If there is inflation, the monetary authority may decide to increase interest rates.
(we can also accept examples drawn from contractionary fiscal policy)
• Decrease in government spending would reduce inflation;
• Increase in taxes would also reduce inflation.
• If there is unemployment, an expansionary policy may be used.
OR
• If there is unemployment, government may decide to increase government spending,
• Alternatively, government may decide to reduce taxes / influence consumer spending,
• A decrease in interest rate would also increase output / influence investment.
1
, 1(b) Distinguish between a flow variable and a stock variable. Give one example of each. (4)
Any appropriate example
Flow variable is measured over a period of time. √
E.g. spending, income, profit, loss, investment, saving, number of births or deaths,
demand for labour, supply of goods. √
Stock variable is measured at a particular point in time. √
E.g. of stocks – wealth, assets, liabilities, capital, population, balance in savings
account, unemployment, gold reserves. √
2
