ECS 2602 ASSIGNMENT 1

1. Which of the following statements are correct? a. Macroeconomics studies the determination of the level of output and income for a specific firm. b. In macroeconomics we focus on the interaction between different markets, such as the goods market, the financial market, the labour market and the foreign exchange market. c. Real GDP per capita is widely used as a measure of economic welfare or wellbeing of the residents of a country. d. The main instrument of fiscal policy is the budget, while the main policy variable is the interest rate. e. A contractionary monetary policy implies a decrease in government spending and an increase in taxation. 1. a, b and c 2. b, c and d 3. b, d and e 4. Only b and c 5. b, c and e Explanation: The correct option is 4. Statement a is incorrect. Macroeconomics deals with the economy as a whole and not a specific firm. Statement b is correct. That is what we will be studying in this module. Statement c is correct. Statement d is incorrect. The policy variables are government spending and taxation. Statement e is incorrect. The contractionary monetary policy implies a decrease in the money supply and therefore results in an increase in the interest rate. 3 2. Which of the following statements are correct? a. In macroeconomics we focus on the determination of the demand for and supply of individual goods and the determination of their prices. b. The impact of fiscal and monetary policy on the level of output and income is an important topic in this module. c. If the population in South Africa grows at 5% per year and the economic growth rate is 3% per year, a decline in the real GDP per capita occurs. d. Expansionary monetary policy during a recession is an example of a stabilisation policy. e. An expansionary fiscal policy implies a decrease in government spending and/or an increase in taxation. 1. a, b and c 2. b, c and d 3. b, d and e 4. Only b and c 5. b, c and e Explanation: The correct option is 2. Statements b, c and d are correct. Statement a is incorrect. The focus in Macroeconomics is on the current level of output and income, given the structure of the economy and not on the determina