ECS2602
EXAM
PACK 2023
WELL ELABORATE QUESTIONS &
ANSWERS
,Contents
Welcome ....................................................................................................................................................................... 3
October/November 2015 Exam .............................................................................................................................. 4
Section A ................................................................................................................................................................. 4
Section B Questions ............................................................................................................................................ 12
Section B Answers ............................................................................................................................................... 19
May/June 2015 Exam .............................................................................................................................................. 20
Section A ............................................................................................................................................................... 20
Section B Questions ............................................................................................................................................ 26
Section B Answers ............................................................................................................................................... 32
October/November 2014 Exam ............................................................................................................................ 33
Section A ............................................................................................................................................................... 33
Section B Questions ............................................................................................................................................ 42
Section B Answers ............................................................................................................................................... 48
May/June 2014 Exam .............................................................................................................................................. 49
Section A ............................................................................................................................................................... 49
Section B Questions ............................................................................................................................................ 58
Section B Answers ............................................................................................................................................... 65
Additional MCQs...................................................................................................................................................... 66
Additional MCQs’ Answers ..................................................................................................................................... 79
Thank You................................................................................................................................................................. 80
Pg.2
© 2018 Together We Pass. All rights reserved.
,Welcome
Hello and welcome to your ECS2606 exam pack, which is filled with past examination papers as well as
solutions to the papers. I do hope that the content inside this pack will help you in achieving top marks
for your upcoming ECS2602 exam.
Together We Pass
EMAIL
WEB www.togetherwepass.co.za
FB www.facebook.com/togetherwepass
TWITTER @togetherwepass
GOOGLE+ Together We Pass on Google Plus
Pg.3
© 2018 Together We Pass. All rights reserved.
, October/November 2015 Exam
Section A
Question 1.1
The multiplier effect in the economy results from the behaviour of households. Briefly explain why.
Every time there is an injection of new demand into the circular flow there is likely to be a multiplier effect. This
is because an injection of extra income leads to more spending, which creates more income, and so on. The
multiplier effect refers to the increase in final income arising from any new injection of spending.
The size of the multiplier depends upon household’s marginal decisions to spend, called the marginal
propensity to consume (mpc), or to save, and called the marginal propensity to save (mps).
It is important to remember that when income is spent, this spending becomes someone else’s income, and so
on.
Question 1.2
Taxes are part of autonomous spending in the goods market model. Briefly explain why a decrease in
taxes increases the demand for goods and shifts the demand for goods curve upwards in the goods
market, equal to c (T) and not T.
C + I + G + (Ex - Im) formula increases, then GDP—total demand—increases. If the ―G‖ portion—government
spending at all levels—increases, then GDP increases. Similarly, if government spending decreases, then GDP
decreases.
By increasing or decreasing taxes, the government affects households' level of disposable income (after-tax
income). A tax increase will decrease disposable income, because it takes money out of households. A tax
decrease will increase disposable income, because it leaves households with more money. Disposable income
is the main factor driving consumer demand, which accounts for two-thirds of total demand.
Taxes lower households' disposable income. The amount collected in taxes doesn't find its way into
consumption (―C‖). But if the government spends every dollar that it collects in taxes, then that amount does
find its way into total demand through government expenditures. When that occurs, the GDP remains
unaffected by taxes. The size of the economy is the same whether people choose to produce and consume
private goods (angora sweaters) or public goods (army uniforms). The mix of goods doesn't affect the level of
GDP, as long as the total amount spent on them doesn't change.
A decrease in taxes has the opposite effect on income, demand, and GDP. It will boost all three, which is why
people cry out for a tax cut when the economy is sluggish. When the government decreases taxes, disposable
income increases. That translates to higher demand (spending) and increased production (GDP). So, the fiscal
policy prescription for a sluggish economy and high unemployment is lower taxes.
Spending policy is the mirror image of tax policy. If the government were to keep taxes the same, but decrease
its spending, it would have the same effect as a tax increase, but through a slightly different channel. Instead of
decreasing disposable income and decreasing consumption (―C‖), a decrease in government spending
decreases the ―G‖ in C + I + G directly. The lower demand flows through to the larger economy, slows growth
in income and employment, and dampens inflationary pressure.
Question 1.3
Pg.4
© 2018 Together We Pass. All rights reserved.
EXAM
PACK 2023
WELL ELABORATE QUESTIONS &
ANSWERS
,Contents
Welcome ....................................................................................................................................................................... 3
October/November 2015 Exam .............................................................................................................................. 4
Section A ................................................................................................................................................................. 4
Section B Questions ............................................................................................................................................ 12
Section B Answers ............................................................................................................................................... 19
May/June 2015 Exam .............................................................................................................................................. 20
Section A ............................................................................................................................................................... 20
Section B Questions ............................................................................................................................................ 26
Section B Answers ............................................................................................................................................... 32
October/November 2014 Exam ............................................................................................................................ 33
Section A ............................................................................................................................................................... 33
Section B Questions ............................................................................................................................................ 42
Section B Answers ............................................................................................................................................... 48
May/June 2014 Exam .............................................................................................................................................. 49
Section A ............................................................................................................................................................... 49
Section B Questions ............................................................................................................................................ 58
Section B Answers ............................................................................................................................................... 65
Additional MCQs...................................................................................................................................................... 66
Additional MCQs’ Answers ..................................................................................................................................... 79
Thank You................................................................................................................................................................. 80
Pg.2
© 2018 Together We Pass. All rights reserved.
,Welcome
Hello and welcome to your ECS2606 exam pack, which is filled with past examination papers as well as
solutions to the papers. I do hope that the content inside this pack will help you in achieving top marks
for your upcoming ECS2602 exam.
Together We Pass
WEB www.togetherwepass.co.za
FB www.facebook.com/togetherwepass
TWITTER @togetherwepass
GOOGLE+ Together We Pass on Google Plus
Pg.3
© 2018 Together We Pass. All rights reserved.
, October/November 2015 Exam
Section A
Question 1.1
The multiplier effect in the economy results from the behaviour of households. Briefly explain why.
Every time there is an injection of new demand into the circular flow there is likely to be a multiplier effect. This
is because an injection of extra income leads to more spending, which creates more income, and so on. The
multiplier effect refers to the increase in final income arising from any new injection of spending.
The size of the multiplier depends upon household’s marginal decisions to spend, called the marginal
propensity to consume (mpc), or to save, and called the marginal propensity to save (mps).
It is important to remember that when income is spent, this spending becomes someone else’s income, and so
on.
Question 1.2
Taxes are part of autonomous spending in the goods market model. Briefly explain why a decrease in
taxes increases the demand for goods and shifts the demand for goods curve upwards in the goods
market, equal to c (T) and not T.
C + I + G + (Ex - Im) formula increases, then GDP—total demand—increases. If the ―G‖ portion—government
spending at all levels—increases, then GDP increases. Similarly, if government spending decreases, then GDP
decreases.
By increasing or decreasing taxes, the government affects households' level of disposable income (after-tax
income). A tax increase will decrease disposable income, because it takes money out of households. A tax
decrease will increase disposable income, because it leaves households with more money. Disposable income
is the main factor driving consumer demand, which accounts for two-thirds of total demand.
Taxes lower households' disposable income. The amount collected in taxes doesn't find its way into
consumption (―C‖). But if the government spends every dollar that it collects in taxes, then that amount does
find its way into total demand through government expenditures. When that occurs, the GDP remains
unaffected by taxes. The size of the economy is the same whether people choose to produce and consume
private goods (angora sweaters) or public goods (army uniforms). The mix of goods doesn't affect the level of
GDP, as long as the total amount spent on them doesn't change.
A decrease in taxes has the opposite effect on income, demand, and GDP. It will boost all three, which is why
people cry out for a tax cut when the economy is sluggish. When the government decreases taxes, disposable
income increases. That translates to higher demand (spending) and increased production (GDP). So, the fiscal
policy prescription for a sluggish economy and high unemployment is lower taxes.
Spending policy is the mirror image of tax policy. If the government were to keep taxes the same, but decrease
its spending, it would have the same effect as a tax increase, but through a slightly different channel. Instead of
decreasing disposable income and decreasing consumption (―C‖), a decrease in government spending
decreases the ―G‖ in C + I + G directly. The lower demand flows through to the larger economy, slows growth
in income and employment, and dampens inflationary pressure.
Question 1.3
Pg.4
© 2018 Together We Pass. All rights reserved.
