ECS2602 Assignment 1 Semester 1 | Due 30 March 2025

ECS2602 Assignment 1 Semester 1 | Due 30 March 2025. All questions answered. Assessment 1 is based on learning units 1, 2 and 3 (60 marks) Question 1: According to the video, fiscal policy is the use of __________________________________and ____________________________ to influence the economy. (2) Question 2: Fiscal policy is a powerful tool. The key to its power is the ___________________________. (1) Question 3: In the video, there is a reference to supply-side economists, like __________________________. (1) Question 4: Monetary policy is the way _____________________________ influences the economy through the management of the ___________________________ and ____________________________. (3) Question 5: The central bank system in the United States is called the _____________________________. (1) Work through LU 1 of the study guide and answer questions 6 to 11. (10 marks) Question 6: In the video the more traditional financial market is explained where it is assumed that the central bank is in control of the money supply, in other words, the exogenously determined money approach. In our particular financial market in ECS2602 module, we follow the endogenously determined money approach where expansionary monetary policy in South Africa entails a(n) ____________________ in the interest (repo) rate in order to __________________ the demand for goods in the economy and or a(n) ________________________ in the level of output and income. (3) Question 7: Which one of the following statements is not a macroeconomic issue? A. The unemployment rate in South Africa, according to the strict definition, was 28.18% in 2019. B. The drought experienced in 2018/19 reduced many crop harvests and caused food price inflation in South Africa. C. Because of high inflation, it is expected that the interest rate will increase. D. The drought experienced in 2018/19 reduced the total maise crop harvested and caused the price of maise in South Africa to rise. Statement: ________________ (1) Question 8: Which one of the following statements is INCORRECT? A. The main fiscal policy instrument is the budget, while the main policy variables are government spending and taxation. B. Assuming a balanced budget initially, the result of the implementation of expansionary fiscal policy is a budget deficit. C. An expansionary monetary policy entails a decrease in the interest rate to increase the demand for goods in the economy. D. A contractionary monetary policy entails an increase in the interest rate. Therefore, the cost of credit in the economy decreases, and the demand for goods decreases. Statement: ________________ (1) Question 9: A decrease in taxes implies the implementation of __________ A. expansionary fiscal policy. B. contractionary fiscal policy. C. expansionary monetary policy. D. contractionary monetary policy. Option ___________________ (1) Question 10: A farmer from Limpopo (South Africa) buys his neighbour's tractor, this does not form part of the gross domestic product (GDP) since _______________________________________________________ ________________________________________________________________________________ _____________________________________________________________________________.(2) Question 11: Imports of agricultural products from Britain to South Africa do not form part of the gross domestic product (GDP) since _________________________________________________________________ __________________________________________________________________________________ ______________________________________________________________________________.(2) Question 12: According to Ms Esterhuyse, which two markets are coming together in Learning Unit 4? _____________________________________ and ___________________________________. (2) Question 13: Use symbols when answering the following question. The autonomous spending components are _______________________, ___________________________, _________________________ and ______________________, while induced spending is represented by _____________________. (5) Question 14: In the "Equilibrium diagram in the goods market", the blue part indicates ______________________ while the green part indicates _______________________________. (2) Question 15: The value of the multiplier in this video is equal to _________________ (1) Question 16: The value of autonomous spending is equal to _________________. (1) Question 17: The value of the equilibrium level of output and income is equal to _________________. (1) Question 18: In the first example in the video, Ms Ranenyeni calculates the equilibrium level of output and income. The value of the multiplier is ____________________, the autonomous spending is equal to _____________, and the equilibrium level of output and income is equal to _________________. (3) Question 19: In the first example to explain the impact of expansionary fiscal policy on the goods market, government spending increases from __________________ to ____________________, and because of this increase the equilibrium level of output and income changes from ______________ to _________________________. (4) Question 20: In the example to explain the impact of expansionary fiscal policy on the goods market where taxes decrease, taxes decrease from __________________ to _____________________ , and because of this decrease in taxes, the equilibrium level of output and income changes from _______________ to ___________________ and the ZZ curve shifts ___________________. (5) Question 21: This question is based on the following consumption function function C = c0 + cYD. Assuming a marginal propensity to consume of 0.8 and the level of disposable income is 80, then consumption spending will be ____________. (1) Question 22: This question refers to the balanced budget multiplier? Assume that c = 0.8 and that G increases by 100 and T increases by 100. The net effect on the level of output and income is _______. (1) The increase in the level of output and income will be ___________ due to the increase in government spending. (1) The decrease in the level of output and income will be _________ due to the increase in taxes. (1) Question 23: An increase in the level of output and income will _______________ the demand for active balances, while an increase in the interest rate will __________________ the demand for passive balances. (2) Question 24: An __________________ in the repo rate increases the interest rate on loans, and, as the interest rate on loans increases, the demand for money decreases, and the number of loans decreases. Consequently, fewer demand deposits are created, and the quantity of money _______________. (2) Question 25: If the level of output and income increases the demand for active balances ________________ as financial participants wish to do more transactions. (1) Question 26: The demand for ___________________, also referred to as the speculative demand for money, is related to the need by financial participants to keep wealth in the form of money – in this sense, money is viewed as a financial asset. The demand for _______________________ depends on people wanting to do transactions. (2) Question 27: The demand for money in an economy depends on the _____________________ with a positive relationship (1) Question 28: The demand for money in an economy depends on the ____________________ with a negative relationship. (1) Question 29: The difference between an exogenously determined money approach and an endogenously determined money approach is as follows: Endogenously determined money is where the _____________________________ is determined by the demand for money, while exogenously determined quantity of money is determined by the __________________________ and is independent of the _______________________ . (3) Question 30: In our financial market model, the central bank will implement a(n) _______________________________ policy by ______________ the repo rate to stimulate the economy. (2)