ECS2602 - ASSIGNMENT 3 - SEMESTER 2

Question 1 of 15 This question is based on the following diagram of an IS-LM model for an open economy A decrease in government spending causes ... A. a decrease in the demand for goods and the level of output; a decrease in the demand for money and the interest rate; a depreciation of the domestic currency and the trade balance deteriorates as exports increases. B. a decrease in the demand for goods and the level of output; a decrease in the demand for money and the interest rate; a depreciation of the domestic currency and the trade balance improves as exports increases. C. a decrease in the demand for goods and the level of output; an increase in the demand for money and the interest rate; a depreciation of the domestic currency and the trade balance improves as exports increases. D. a decrease in the demand for goods and the level of output; a decrease in the demand for money and an increase in the interest rate; an appreciation of the domestic currency and the trade balance improves as exports increases. Question 2 of 15 An expansionary fiscal policy, for example an increase in government spending (G), causes an increase in the demand for goods (Z) and the level of output and income (Y) and consequently ... A. an increase in the demand for money and the interest rate; a depreciation of the domestic currency and the trade balance improves as exports increases. B. an increase in the demand for money and the interest rate; an appreciation of the domestic currency and the trade balance deteriorates as exports decreases. C. a decrease in the demand for money and the interest rate; a depreciation of the domestic currency and the trade balance improves as exports increases. D. an increase in the demand for money and the interest rate; an appreciation of the domestic currency and the trade balance deteriorates as exports increases. Question 6 of 15 Which of the following statement(s) is/are correct? 1. Workers are able to determine the real wage through nominal wage bargaining. 2. Through an increase in their nominal wages workers are able to increase their real wages. 3. An increase in the mark-up by firms causes a decrease in real wages. A. Only 1 B. Only 2 and 3 C. Only 1 and 3 D. Only 2 E. Only 3 Question 15 of 15 Compare the impact of a contractionary monetary policy and an expansionary fiscal policy in the short run in the AS-AD model. Which one of the following would occur as a result of both policies in the short run? A. Higher level of output and income B. Higher price level C. Lower interest rate D. Higher interest rate