Revision 2 PRINCPLES OF ECONOMICS 3

QUESTION 1

Given below is data for an economy. (All values are in RM million)

Consumption C = 500 + 0.25Yd
Investment I = 500
Government expenditure G = 600
Tax T = 350
Export X = 350
Import M = 200

Based on the above data, answer the questions below:

(a) Find the value of Marginal Propensity to Save (MPS).

(b) Derive the saving function from the consumption function.
(c) Calculate the equilibrium level of national income for the above economy by using
aggregate supply - aggregate demand (AS - AD) approach.
(d) If the full employment level of income for the above economy is RM1000 million, is
there any inflationary or deflationary gap? Draw a diagram by using the aggregate
supply - aggregate demand (AS – AD) approach to show the situation.
(e) If the government expenditure increases from RM600 million to RM750 million, what
would be the new value of equilibrium income (Y1)?

QUESTION 2

The following table shows the labour statistics of Country Godzilla.

Labour statistics 2014 2015

Total population (million) 300 250
People incapable of working (million) 50 60
People not looking for work (million) 60 70
Employed (million) 180 115

(a) Define labour force.

(b) Calculate the labour force for years 2014 and 2015.
(c) Calculate the unemployment rate for both years.
(d) Based on your answer in (c), in which year was the unemployment rate is the highest?
(e) State and explain ONE (1) policy to control high unemployment rates.
(f) Based on the information given below, calculate the rate of inflation for 2015.
(2 marks)

Year Consumer Price Index (RM million)

2014 100
2015 122
Revision 2 PRINCPLES OF ECONOMICS 3
QUESTION 3

The following table shows the information about monetary items in the country.

Items RM (million)
Paper money 3,500
Coins 1,200
Negotiable certificates 3,600
Savings and fixed deposits in other financial institutions 7,900
Savings and fixed deposits in commercial banks 15,000
Bank Negara Malaysia certificates 12,000
Repurchase agreements (Repo) 1,700
Demand deposits 8,000

(a) Define near money.

(b) Indicate THREE (3) Keynesian motives of demand for money.
(c) Find the value of:
(i) M1
(ii) M2
(iii) M3
(iv) Quasi money
(v) Broad Near Money