General Guidance: Answer the question as it is written and make sure you identify any particular
assumptions you might be using in your answer. Please follow the guidance provided for each
question below on answer length. Excessively long answers will be penalized. (Page lengths refer
to text only. Graphs and diagrams do not count in the page limits, though make sure you do not
include irrelevant inserts). You must work on this assignment by yourself, without help from, or
collaboration with, others and the work you submit must be your own. Breaches of these protocols
will be severely penalized.
For diagrams, you may insert, as an image file, a hand-drawing into your submission. Format
should be A4, font size 12, single space.
(a) Understanding of economic concepts and terms (maximum half-page) (3 MARKS)
TRUE/FALSE/MAYBE and EXPLAIN. According to Solow-Swan, it is impossible for a country
to maintain high growth rates in real GDP per capita (and per hour worked) with overall
diminishing returns to capital.
(b) Understanding and using economic theory and models (maximum one page) (4 MARKS)
Use the appropriate AD-AS model diagram and explanation to depict the following:
(a) An exogenous shock where equilibrium price level and real GDP move higher. (1 MARK)
(b) An exogenous shock where equilibrium price level and real GDP move in opposite directions.
(c) a rise in price level and real GDP without any exogenous shock. (2 MARKS)
Explain your answers briefly.