ECS2602 ASSIGNMENT 1 SOLUTIONS SEMESTER 2 2020

ECS2602
ECS2602 ASSIGNMENT 1
SOLUTIONS SEMESTER 2
2020




ECS2602 ASSIGNMENT 1
SOLUTIONS 2020
SEMESTER 2 2020

,ECS2602 ASSIGNMENT 1


UNIQUE NUMBER 862557

1. Which of the following statement are correct?


a. Inflation targeting is an example of stabilization policy.
b. The main policy variable of monetary policy is the interest rate.
c. A contractionary monetary policy implies a decrease in the interest rate to bring about an increase in
the money supply.
d. An increase is taxes implies the implementation of an expansionary fiscal policy.
e. An increase in the money supply implies the implementation of an expansionary monetary policy.
f. The main policy variable of monetary policy is the money supply.


1. a and b
2. b, c and d
3. d, e and f


4. a and e


Explanation: Monetary policy is the policy adopted by the monetary authority of a country that controls
either the interest rate payable on very short-term borrowing or the money supply, often targeting
inflation or the interest rate to ensure price stability and general trust in the currency. Expansionary policy
occurs when a monetary authority uses its tools to stimulate the economy. The main variable of MP is
money supply. An expansionary policy maintains short-term interest rates at a lower than usual rate or
increases the total supply of money in the economy more rapidly than usual. It is traditionally

, used to try to combat unemployment in a recession by lowering interest rates in the hope that less
expensive credit will entice businesses into expanding.


2. Which of the following statements are correct?


a. Economic growth and unemployment are areas on which macroeconomics focus in contrast with the
aggregate output level and employment level on which microeconomics focus.
b. An increase in nominal GDP can be the result of an increase in the quantity produced of goods and
services and/or an increase in the prices of goods and services produced.
c. Stabilization policies refer to fiscal policy and monetary policy.
d. An increase of 20% in the price of lamb meat is an example of inflation.
e. 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.


1. a, b and c
2. Only b, c and d
3 b, c, d and e
4 Only b and c
5 Only b, c and e


Explanation: Positive economic growth means that the value of all goods and services produced in the economy,
i.e. the nominal GDP, is increasing. The nominal GDP could increase for two reasons: 1) because production has
increased and 2) because the prices at which the goods and services are sold in the marketplace have increase.
Macroeconomic stabilization is a condition in which a complex framework for monetary and fiscal institutions
and policies is established to reduce volatility and encourage welfare-enhancing growth. Real GDP per capita:
Real GDP divided by Population. This is the "average" output of the economy per person measured in a base year
prices. This ratio is often used as a measure of standard of living in comparisons over time of one country, or
between different countries when measured in the same currency.




3. Gross domestic product (GDP) …


a. is the total value of all goods and services produced within the boundaries of a country in a
particular period.
b. can be measured in real terms and is therefore a measure of economic growth.
2