ECS2602 Assignment 2 2026 - Distinction | Due 15 September 2026

ECS2602 Assignment 2 2026 - Distinction | Due 15 September 2026 Assessment 3 ANSWER ALL THE QUESTIONS ON THE ANSWER SHEET PROVIDED. Learning unit 7: The IS-LM model in an open economy Study the diagram below and answer questions 1 to 4: Question 1: (3 marks) What will happen to investment spending (I)? Give two reasons for this change. Question 2: (2 marks) What happens with the nominal exchange rate? Give the reason for this change. Question 3: (2 marks) What happens to exports? Give the reason for this change. Question 4: (2 marks) Why are imports indeterminate? Give two reasons. 1 Learning Unit 8: The labour market Question 5: (3 marks) Draw a labour market diagram to indicate what will happen to the implied real wage and the natural unemployment if firms decrease the markup. Clearly indicate the shifts and/or movements along the curves on the diagram. DO NOT COPY AND PASTE ANY DIAGRAM FROM A TEXTBOOK OR THE STUDY GUIDE. YOU CAN DRAW YOUR DIAGRAM AND THEN COPY AND PASTE IT TO YOUR ANSWER SHEET. Question 6: (1 mark) What will ensure that the bargained real wage is equal to the implied real wage given the above diagram? Learning unit 9: The IS-LM-PC model Watch the following video and answer the questions based on the video on the answer sheet provided. https://youtu.be/icsWlQfliGo Question 7: (1 mark) In the online lesson, Dr. Kennedy-Palmer explained “Fiscal Consolidation” by using the ISLM-PC model. Dr. Kennedy-Palmer referred to the short run and explained the change in government spending and/or taxes. What is the reason she mentioned? Use her exact words. Question 8: (1 mark) In her example, she assumed a _________________________________ to explain the ISLM-PC model. Question 9: (9 marks) Given this assumption, apply her explanation of the IS-LM-PC model and what will happen to the different variables by using the amended diagram below: 2 a. At which point is there a negative change in inflation? b. As we moved from point r to s, what will happen to consumption and investment? c. The presenter mentioned the reason for the change in investment. What is the reason? d. Why will the central bank react in the medium run to decrease the policy rate, according to the presenter? e. At which point will the inflation again be stable? f. Which point is the medium run equilibrium position? g. Dr. Kennedy-Palmer refers to the term “Crowding out”. What does she mean by this term in her presentation? Question 10: (1 mark) Dr. Kennedy-Palmer refers to the term “Neutrality of money”. In her example, she refers to two real variables. Name the two variables. ********************************* 3