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BM/APR 2007/ECO211/164/210/219

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

: : : :

MACROECONOMICS ECO211/164/210/219 APRIL 2007 3 HOURS

INSTRUCTIONS TO CANDIDATES 1. This question paper consists of three (3) parts: PART A (20 Questions) PART B (5 Questions) PART C (5 Questions) Answer ALL questions from PART A and PART B and any three (3) questions from PART C. i) ii) 3. Answer PART A in the Objective Answer Sheet. Answer PART B and PART C in the Answer Booklet. Start each answer on a new page.

2.

Do not bring any material into the examination room unless permission is given by the invigilator. Please check to make sure that this examination pack consists of: i) ii) iii) the Question paper an Answer Booklet - provided by the Faculty an Objective Answer Sheet - provided by the Faculty

4.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 13 printed pages Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

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PART A

1.

Macroeconomics is concerned about all except one of the following A. B. C. D. the general economic factors that determine income. the general price level. the production decisions involving consumer goods in a market. saving and investment from the standpoint of the whole economy.

2.

Which of the following is not an injection into the circular flow of national income? A. B. C. D. Government salaries paid to civil servants. Private fixed capital formation. Government capital spending. Government taxation.

3.

Investment demand curve will shift to the left as the result of A. B. C. D. business pessimism about the future economic condition. an advancement of technology. a decrease in business taxes. an increase in the interest rate.

The total value of all goods and services produced in Malaysia is equal to A. B. C. D. national income. gross domestic income. gross national income. personal income.

5.

Gross domestic product (GDP) does not include (i) (ii) (iii) A. B. C. D. second-hand goods sold in the current time period, intermediate goods, home-made bakery. i only. i and iii only. ii and iii only. i, ii and iii.

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6.

National income equilibrium occurs when A. B. C. D. demand equals supply in the product market. aggregate supply equals the nominal value of national income. aggregate expenditures equals aggregate supply in the economy. total injections exceed total leakages.

7.

Given that the saving function in a two sector economy is S = -100 + 0.2Yd, then the value of multiplier in this economy is A. B. 4.0 2.5

C.
D.

1.25
5.0

8.

An appropriate policy to reduce demand pull inflation is A. B. C. D. reducing taxes. a tight monetary policy. an easy monetary policy. increasing government spending.

Which of the following is the largest component of the money supply M1 in Malaysia? A. B. C. D. Demand deposits. Notes and coins. Traveler's checks. None of the above.

10.

A surplus budget occurs when government expenditures are A. B. C. D. equal to revenues. less than revenues. greater than revenues. dependent on expenditures.

11.

Asma pays a tax of RM300 on her income of RM60.000, while Karen pays a tax of RM120 on her income of RM40.0Q0. This tax structure is A. B. C. D. constant. regressive. progressive. proportional.

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12.

Fiscal policy includes the following except: A. B. C. D. changes changes changes changes in sales tax. in interest rates. in government expenditures. in income tax.

13.

Which of the following may increase money supply in an economy? A. B. C. D. An increase in reserve requirement. A decrease in the discount rate. An increase in the discount rate. Bank Negara Malaysia sells government securities in the open market.

14.

Which of the following is not a source of revenue for an Islamic government? A. B. C. D. Gharar Jizyah. Zakat. Kharai.

Questions 15 and 16 are based on Fisher's Quantity Theory of Money. Year 2002 M RM 2000 Increased by 25% V (i) Constant P RM2 T 5000 Increased by 400

2004 Where; M V P T

Quantity of Money Velocity Price level Level of Transaction

15.

The value of (i) is A. B. C. D. 2 3 4 5

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16.

The value of (ii) is A. 2.15

B. C.
D.

3.15 2.31
3.21

17.

What is the meaning of a discouraged worker? A. B. C. D. People who are temporarily out of jobs or because they are sacked. People who are retrenched because of economy structure changes. People in the labour force looking for a job and are currently not working. People who leaves the labour force after unsuccessfully searching for a job for a certain period of time.

18.

Cost-push inflation is due to A. B. C. D. the economy operating at full level of employment. excess total consumer spending. increase in prices of resources. too much money chasing too few goods.

19.

Which of the following is true about quota? A. B. C. D. A limit on the quantity of imported products. The prices of imported products to domestic consumers. The law that bars trade with another country. The ability of imported products to compete with domestic products.

20.

The relationship between the spending multiplier and the marginal propensity to save is A. B. C. D. positive. negative. constant. uncertain.

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PARTB

QUESTION 1

The table below contains a random selection of items from the national account of a country. ITEMS Government expenditure Private expenditure Mining and quarrying Finance and insurance Manufacturing Rent Hotel and restaurant Agriculture, forestry and fishing Communication Dividends received by individuals Profit Capital consumption Tax on expenditure Net factor income received from abroad Subsidies Transfer payments Business taxes Private income taxes Employees provident funds Social contribution RM MILLION 12,000 20,000 8,000 9,500 25,000 40,000 12,600 22,800 7,400 1,300 46,200 2,000 15,000 6,900 890 1,400 12,500 250 85 25

a)

Calculate: i) ii) iii) Gross domestic product (GDP) at market price. National Income, Disposable income.

(2 marks)

(2 marks)

(2 marks)

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b) c)

Differentiate between income and wealth. (2 marks) State two (2) problems in computing national income. (2 marks)

QUESTION 2 a) The following table shows various levels of income in a country. (All figures are in RM million). The saving function of this economy is given as S = -80 + 0.2Yd.

INCOME 200 400 600 800

CONSUMPTION

i)

Complete the above table. (2 marks)

ii)

Define autonomous consumption and state the relationship between income and consumption. (2 marks) Find the value of average propensity to consume (APC) and average propensity to save (APS) at income level RM400 million. (1 mark) Suppose this economy has an investment of RM100 million, calculate the equilibrium income level. (2 marks)

iii)

iv)

b)

Using diagrams, investment.

distinguish

between

autonomous

investment

and

induced (3 marks)

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QUESTION 3 Based on the diagram below and given tax is equal to RM20, answer the following questions. S.I.G
- D U + U. I O Y
4

100

40 0 /

A
Y2

A
Y3

I +G

I National Income (Y)

A
Y 1

a)

State the values of marginal propensity to consume and autonomous consumption. (1 mark)

b)

Calculate the equilibrium level of national income, Y3. (2 marks)

c)

If the full employment income level is RM1.500, is there an inflationary gap or a deflationary gap? Draw a diagram to show the situation. (3 marks) Determine the change in government expenditure required to achieve the full employment level of income. (2 marks) Why is saving considered as a leakage and investment considered as an injection? (2 marks)

d)

e)

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QUESTION 4

Below is data for monetary aggregates released by Malaysia's Ministry of Finance for year 2006. ITEMS Currency in circulation Demand deposits of the private sector Repurchase agreement (repos) placed with commercial banks Savings and fixed deposits in commercial banks Savings and fixed deposits with other banking institutions Negotiable instruments of deposits (NIDs) placed with commercial banks Negotiable instruments of deposits (NIDs) placed with finance companies and merchant banks a) Calculate: i) ii) iii) M1 M2 M3 (1 mark) (2 marks) (1 mark) (RM MILLION) 30,166 96,116 135,989 71,253 26,098 22,874 16,209

b)

Define quasi money. (1 mark)

c)

Suppose Consumer Price Index (CPI) for the year 2006 is 104.5 and the base year is year 2003. i) Calculate the percentage change in general price level between 2003 and 2006. (1 mark) Calculate the change in the value of money from 2003 to 2006 and determine whether the value of money has increased or decreased during this period. (2 marks) iii) In 2003, the Chong family earned RM40,000. In 2006 their income is RM42,000. Has Chong family's real income increased or decreased? Justify your answer. (2 marks)

ii)

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QUESTION 5 a) The following data shows the production possibilities of Australia and New Zealand before international trade. It is assumed that wheat and cotton are the only two goods produced and both countries divide their resources equally to produce wheat and cotton. COUNTRY Australia New Zealand WHEAT (IN BUSHELS) 300 100 COTTON (IN BALES) 400 200

In the production of which good do Australia and New Zealand has a comparative advantage? (3 marks) ii) Show the amount of wheat and cotton produced by each country after specialization. (1 mark) Suggest a terms of trade that will benefit both countries. (1 mark)

iii)

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b)

The following data shows the balance of payments for a nation in 2006. ITEM Merchandise exports Merchandise imports Government transactions Service of foreign ship Travel Investment income Remittances of Indonesian workers to Indonesia Portfolio investment Direct investments Other investments Errors and omissions Calculate: i) Current account balance. (2 marks) RM MILLION 30,000 27,811 11,896 9,979 1,537 11,200 11,117 19,450 22,800 8,937 503

ii)

Overall balance.

(2 marks)

iii)

Net change in the country's international reserves.

(1 mark)

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PARTC

QUESTION 1 a) Explain any three (3) macroeconomic objectives from the conventional economic perspective. (6 marks) Briefly explain any two (2) constraints of investment from the Islamic economic perspective. (4 marks)

b)

QUESTION 2 a) Discuss the three (3) reasons why people hold money according to Keynes. (6 marks) b) Differentiate between surplus budget and deficit budget. (4 marks)

QUESTION 3 a) With the aid of diagrams, explain the types of tax structure. (6 marks) b) Discuss two (2) sources of government revenues from the Islamic perspective. (4 marks) QUESTION 4 a) Using an appropriate diagram, explain the concept of cost push inflation. (6 marks) b) Explain how fiscal policy can help to reduce the above problem. (4 marks)

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