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 a

MACROECONOMICS - ECS260-2 SEMESTER 1 – 2019 ASSIGNMENT 1 UNIQUE NUMBER 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.