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The IS-LM model is a simplification of the interrelationship between
selected economic variables. The model consists of a number of en-
dogenous variables (those variables whose values are determined inside
the model) and a number of exogenous variables (those variables whose
values are determined outside the model). The labour markets mostly
consider the relationships between prices, expected prices, unemploy-
ment among other macroeconomic variables.
(a) Explain endogenous and exogenous variables in the IS-LM model
as well as the labour markets, derive the AD-AS model.
(10 marks)
(b) In the labour market, explain how the rate of unemployment is
related to the bargaining power and nominal wages.
(5 marks)
(c) As a policy consultant, use the AD-AS framework to explain how
the health of the South African economy can be improved given
you diagnosis in question 1.
(15 marks) Note: Please use diagrams to aid your explanation.
Explain endogenous and exogenous variables in the IS-LM model as well as the labour markets, derive the AD-AS model.
of the transactions that build an economy.”— Discuss the statement and show
how this model works in a three-sector economy
If the supply and demand functions are given by p=20e0.4Q and p=100e-0.2Q, respectively, find the equilibrium price and quantity, and calculate the consumer’s and producer’s surplus.
