ECS2602 ASSIGNMENT 2 SEMESTER 1

ECS2602 ASSIGNMENT 2 SEMESTER 1 DUE: 30 MARCH 2 1. The fully exogenous variables in the IS-LM model are ... 1. government spending and investment spending. 2. investment spending and money supply. 3. interest rate and government spending. 4. government spending and money supply. 5. level of output and income and the interest rate. Explanation: The correct option is 4. In the IS-LM model, the most important variables that we wish to explain are the level of output and income (Y) and the interest rate (i). These variables are therefore our endogenous or dependent variables. Any variable that is influenced by these endogenous variables is by implication also an endogenous variable. In the IS-LM model, the value of the exogenous variables is determined by the model builder, while the values of the endogenous variables are determined by the exogenous variables and the specifications of the model.