Macroeconomics
ECS2602
Department of Economics
Assignment 02 for 2021
(To be used as a guideline only)
Unique Number: 523068
Due Date: 28 June 2021
This assignment contributes 40% towards your semester mark.
Please ensure that this assignment reaches the university before the due date.
Answer all questions on a mark-reading sheet.
1. Which of the following are fully exogenous variables in the IS-LM model?
1. Level of output and income, interest rate, investment, consumption spending.
2. Government spending, taxation, marginal propensity to consume, interest rate.
3. Interest rate, demand for money, the quantity of money.
4. Consumption spending, investment, government spending.
, Answer:
The fully exogenous variables in the IS-LM model are government spending, taxation,
money supply and the marginal propensity to consume. See section 4.5 (learning unit 4) in
the study guide. Make sure that you know the difference between the exogenous and
endogenous variables in the IS-LM model.
Note that in the IS-LM model the part of investment (I) that is dependent on the level of
output and income and the interest rate are the endogenous components while the part of
investment (Ī) that is influenced by expectations, business confidence, and political and
social factors is the exogenous component of investment. This is known as autonomous or
exogenous investment.
Refer to page 136 of the study guide:
ECS2602
Department of Economics
Assignment 02 for 2021
(To be used as a guideline only)
Unique Number: 523068
Due Date: 28 June 2021
This assignment contributes 40% towards your semester mark.
Please ensure that this assignment reaches the university before the due date.
Answer all questions on a mark-reading sheet.
1. Which of the following are fully exogenous variables in the IS-LM model?
1. Level of output and income, interest rate, investment, consumption spending.
2. Government spending, taxation, marginal propensity to consume, interest rate.
3. Interest rate, demand for money, the quantity of money.
4. Consumption spending, investment, government spending.
, Answer:
The fully exogenous variables in the IS-LM model are government spending, taxation,
money supply and the marginal propensity to consume. See section 4.5 (learning unit 4) in
the study guide. Make sure that you know the difference between the exogenous and
endogenous variables in the IS-LM model.
Note that in the IS-LM model the part of investment (I) that is dependent on the level of
output and income and the interest rate are the endogenous components while the part of
investment (Ī) that is influenced by expectations, business confidence, and political and
social factors is the exogenous component of investment. This is known as autonomous or
exogenous investment.
Refer to page 136 of the study guide:
