MACROECONOMICS - ECS260-2
SEMESTER 1 – 2019
ASSIGNMENT 1
UNIQUE NUMBER 703703
DUE DATE: 6 MARCH 2019
This assignment contributes 20% 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 statements are correct?
a. In this module we only study the demand side of the economy, which includes the goods market and the financial
market. The labour market forms part of the supply side analysis and is therefore excluded from this module.
b. Gross domestic product (GDP) is the total value of all goods and services produced within the boundaries of a
country in a particular period.
c. If total nominal output increases by 2% during a specific year and the general price level increases by 4% the real
GDP will decrease and the nominal GDP will increase.
d. The impact of fiscal and monetary policy on the level of output and income is an important topic in this module.
e. An expansionary monetary policy entails an increase in the interest rate to bring about a decrease in the money
supply in order to decrease the demand for goods in the economy.
1. a, b, c and d
2. Only b, d and e
3. Only a, c and d
4. Only c and d
5. Only b, c and d
Explanation:
Only statements c and d are correct. Statement a is incorrect. In this module, we study both the demand and supply side
of the economy. Statement b is incorrect. Gross domestic product (GDP) is the total value of all final goods and services
produced within the boundaries of a country in a particular period. Statement c is correct. If the rise in the general price
level is more than the rise in nominal production then the real production (GDP) declines while the nominal production
(GDP) increases. Statement d is correct. Statement e is incorrect. An expansionary monetary policy entails an increase
in the money supply to bring about a decrease in the interest rate in order to increase the demand for goods in the
economy. We follow the traditional approach to monetary policy in this module.
2. Which of the following statements are correct?
a. Expansionary monetary policy during a recession is an example of stabilisation policy.
b. The main instrument of fiscal policy is the budget, while the main policy variable is the interest rate.
c. A contractionary monetary policy implies a decrease in government spending and an increase in taxation.
d. An increase is taxes implies the implementation of an expansionary fiscal policy.
e. A decrease in the money supply implies the implementation of a contractionary monetary policy.
1. a, b and e
2. b, c, d and e
3. Only a and b
4. a, d and e
5. Only a and e
Explanation:
Statement a is correct – expansionary monetary policy is a stabilisation policy that can be used during a recession.
Statement e is correct - A contractionary monetary policy is a decrease in the nominal money supply in order to cool
down economic activity by decreasing the demand for goods.
Page 1 of 33
SEMESTER 1 – 2019
ASSIGNMENT 1
UNIQUE NUMBER 703703
DUE DATE: 6 MARCH 2019
This assignment contributes 20% 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 statements are correct?
a. In this module we only study the demand side of the economy, which includes the goods market and the financial
market. The labour market forms part of the supply side analysis and is therefore excluded from this module.
b. Gross domestic product (GDP) is the total value of all goods and services produced within the boundaries of a
country in a particular period.
c. If total nominal output increases by 2% during a specific year and the general price level increases by 4% the real
GDP will decrease and the nominal GDP will increase.
d. The impact of fiscal and monetary policy on the level of output and income is an important topic in this module.
e. An expansionary monetary policy entails an increase in the interest rate to bring about a decrease in the money
supply in order to decrease the demand for goods in the economy.
1. a, b, c and d
2. Only b, d and e
3. Only a, c and d
4. Only c and d
5. Only b, c and d
Explanation:
Only statements c and d are correct. Statement a is incorrect. In this module, we study both the demand and supply side
of the economy. Statement b is incorrect. Gross domestic product (GDP) is the total value of all final goods and services
produced within the boundaries of a country in a particular period. Statement c is correct. If the rise in the general price
level is more than the rise in nominal production then the real production (GDP) declines while the nominal production
(GDP) increases. Statement d is correct. Statement e is incorrect. An expansionary monetary policy entails an increase
in the money supply to bring about a decrease in the interest rate in order to increase the demand for goods in the
economy. We follow the traditional approach to monetary policy in this module.
2. Which of the following statements are correct?
a. Expansionary monetary policy during a recession is an example of stabilisation policy.
b. The main instrument of fiscal policy is the budget, while the main policy variable is the interest rate.
c. A contractionary monetary policy implies a decrease in government spending and an increase in taxation.
d. An increase is taxes implies the implementation of an expansionary fiscal policy.
e. A decrease in the money supply implies the implementation of a contractionary monetary policy.
1. a, b and e
2. b, c, d and e
3. Only a and b
4. a, d and e
5. Only a and e
Explanation:
Statement a is correct – expansionary monetary policy is a stabilisation policy that can be used during a recession.
Statement e is correct - A contractionary monetary policy is a decrease in the nominal money supply in order to cool
down economic activity by decreasing the demand for goods.
Page 1 of 33
