ECS1601 May/Jun 2012 exam paper — questions

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  1. Question 1.1 · Circular flow and the economic system · 3 marks

    In the circular flow model, the government sector is linked to the rest of the economy through three distinct flows. Identify and name these three flows associated with the government in the circular flow model.Show the full question

  2. Question 1.2 · Monetary policy and the Reserve Bank · 4 marks

    When a central bank implements monetary policy, its actions do not have an immediate effect on the economy; instead, several delays or lags occur before the intended effect is felt. Name the four lags that are associated with the implementation of monetary policy.Show the full question

  3. Question 2.1 · Fiscal policy, taxation and public finance · 3 marks

    Using a supply-and-demand diagram of the market for cigarettes, show how the imposition of an excise tax changes the equilibrium price and quantity of cigarettes. Make sure your diagram is fully labelled.Show the full question

  4. Question 2.2 · Fiscal policy, taxation and public finance · 9 marks

    Assume you are the chief economic advisor to the government of Mahala, a country currently experiencing demand-pull inflation even though its government has stated price stability as its objective. Using the aggregate demand/aggregate supply diagram provided, explain the steps the Mahala government should take to achieve price stability. On the diagram (worth 3 of the 9 marks) you must clearly show any changes in aggregate demand or aggregate supply, and the resulting changes in prices and production caused by the government's actions. In your written explanation (worth the remaining 6 marks) you must discuss the instruments of fiscal policy available to the government, how each is applied, and what effects they have.Show the full question

  5. Question 2.3 · Keynesian income determination and the multiplier · 3 marks

    Working within a Keynesian model of an open economy, use the diagram provided to illustrate the impact of an increase in autonomous imports on the equilibrium level of income. Remember to label your diagram fully.Show the full question

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