Part B – Macroeconomics
Each question is worth 10 marks.
Question 1:
Suppose the following are national
accounting data for a given year for Malaysia (hypothetical data).
Amount
(Billions
of RM)
Consumption of
fixed capital
285
Gross private
domestic investment
725
Government
consumption expenditures 720
Government
investment expenditures 165
Imports -550
Exports
625
Household
consumption expenditure 3010
Net property
income paid overseas -35
(a)
Calculate GDP and the country’s gross national
expenditure using the expenditure approach;
(b)
Derive the country’s gross national product
(GNP);
(c)
Derive the country’s net national product (NNP);
(d)
Derive the country’s current account balance;
(e)
Derive the country’s gross national savings.
(2 marks each)
Question 2:
(2.5 marks each part)
Using the aggregate demand –
aggregate supply (AD-AS) diagram, show how the four economic events would
affect economic activity, the price and employment levels. (Note: use a separate AD-AS diagram for each
event)
(a)
A decrease in personal income tax;
(b)
An increase in workforce skills through special
training programs;
(c)
An decrease in exports;
(d)
An increase in an economy’s capital stock.
Question 3:
(a)
Describe three problems of using fiscal policy to achieve a precise level
of GDP. (3 marks)
(b)
Why is frictional unemployment inevitable in an
economy characterised by imperfect job information and non-zero job-search
time? (3.5 marks)
(c)
Is structural unemployment something
macroeconomic policymakers should be concerned about? How does it differ from cyclical
unemployment? (3.5 marks)
Question
4:
(10 marks total - 5 marks each part)
(a)
Illustrate and explain with diagrams the
difference between demand-pull and cost-push inflation; (2.5 marks for the diagram and 2.5 marks for
the explanation)
(b)
Provide (describe) two (2) causes of each type
of inflation
(2.5 marks for 2 demand-pull causes
and 2.5 marks for 2 cost-push causes)
Question 5:
(d)
If the Bank Negara Malaysia sold RM800 million of
government securities to private sector money markets, holding other things
being held constant, what is the effect on:
(4 marks – 1 mark each)
(i)
The economy’s monetary base;
(ii)
Short-term money market interest rates;
(iii)
Longer-term maturity interest rates;
(iv)
Aggregate demand, economic activity and
inflation.
(e)
Explain what happens (if anything) to the
economy’s monetary base when the Bank Negara Malaysia sells RM800 million in
foreign currency to one of the banks operating in the country. (3 marks)
(f)
Which policy is more expansionary: RM200 billion
increase in government spending for goods and services or a RM200 billion cut
in taxes? Explain why. (3 marks)
Question 6:
The
Keynesian and Monetarist schools of thought differ somewhat.
(a)
Why is the shape of the aggregate supply curve
important to the debate between the Keynesians and Monetarists? (2 marks)
(b)
If the investment
demand curve was vertical, which view of monetary policy (i.e. Keynesian and
Monetarist) impact on investment spending, aggregate demand, and economic activity
be more correct? (4 marks);
(c)
Explain how they
differ regarding an increase in the money supply causing inflation; (4 marks)
Question 7:
The following diagram shows a demand curve and supply
curve of the Australian Dollars against the Japanese yen.
(a) Who is demanding Australian dollars in the foreign exchange
market and for what purpose?
(b) Who is supplying Australian dollars in the foreign exchange
market and for what purpose?
(c) Mark the equilibrium exchange rate.
(d) Now illustrate the effect of an increased
demand for dollars and a decreased supply.
(e) Has the exchange rate appreciated or
depreciated?.... XXXXXXXXXXAppreciated / Depreciated
(2
marks each)
Note: First
write question and then answer.