ECS2602 Assignment 3 Video and Questions (QUALITY ANSWERS) Semester 1 2026

This document provides detailed workings, clear explanations, and well-structured solutions for the ECS2602 Assignment 3 Video and Questions (QUALITY ANSWERS) Semester 1 2026 - For assistance call or Whats-App us on 0.8.1..2.7.8..3.3.7.2.... Question 1: (2 marks) In the online lesson, Dr. Kennedy-Palmer uses a simple example to ensure students do not confuse the concepts of constant inflation and rising or falling inflation. Complete the following questions. Assume the inflation rate remains 10%. (a) What is the price of our basket going to be in year three? __________________ (b) What is the price of our basket going to be in year four? ___________________ Question 2: (6 marks) In the online lesson, Dr Kennedy-Palmer explained in one of her examples that “inflation is steady because it is not changing. It's remaining at the 10%, it's not increasing, it's not decreasing.” Then she looked at an example of rising inflation and assumed a change in the economy in the short run. According to the presenter, what changes in the economy? (a)___________________________________________ Which curve was influenced? (b) ___________________________________ What happened to this curve? (c) ___________________________________ In this example, the inflation increases from 10% to (d)___________% and the (e)________________________________ is (f) __________________%. 2 Question 3: (6 marks) Dr Kennedy-Palmer also explained the zero lower bound (deflation spiral). She mentioned the following: “So it's a situation where the Central Bank's policy interest rate is at or near zero and cannot be lowered further to stimulate the economy this situation.” Complete the following missing words, coming from her explanation: “If expected inflation is (a) _______________% and the desired real interest rate is (b)_________________%, then the nominal policy interest rate should be set at (c)_________________% because it's where the real interest rates equals (d)_________________%. If expected inflation is -5%, then the lowest the real policy interest rate can reach is (e)_______________% because the (f) _______________________________________. “So this restriction on the real policy interest rate means that if expected deflation increases, the effective real interest rate will increase”. Question 4: (6 marks) In the last part of the online lesson, Dr Kennedy-Palmer explained “fiscal consolidation”. She firstly refers to the short run and then asks the question: “And then what happens in the medium run? “Well, when output is too low and (a) __________________________, the central bank is likely to react and (b)______________________________________, and the (c) _____________________________________ ”. Then she explained what happened to the different curves and the movements along specific curves until output is back to potential, output increases back and inflation is again stable. She explained further. Complete the following using the exact words of the presenter: The (d) ______________________ needed to maintain output at potential is now (e)_____________________ than before. ……..at this new equilibrium point income or output is (f) ____________________________ as it was before fiscal consolidation.