PPE0045

PRINCIPLES OF MACROECONOMICS

5 APRIL 2012

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS) Instruction: Answer all the questions on the answer sheets provided. 1. If exports rise and imports fall, then ___________________________. A. B. C. D. GDP will increase GDP will decrease Net exports will fall GDP may remain unchanged

2. Which of the following illustrates double counting? A. B. C. D. counting the value of final goods only counting the value of intermediate goods only counting the value of intermediate goods and final goods counting the value of used car sales when measuring GDP

3. The market value of all final goods and services in an economy produced by resources owned by people of that economy, regardless of where the resources are located, is called ____________________________. A. B. C. D. National Income Net National Product Gross National Product Gross Domestic Product

4. Consumption includes _______________________________. A. B. C. D. purchase of residential housing net exports minus government purchases durable goods, nondurable goods, and services inventory investment minus government purchases Production Good A Good B Good C Exhibit 1 Year 1 4 5 6 Year 2 6 3 8 Price per unit Year 1 Year 2 RM0.40 RM0.30 RM0.20 RM0.50 RM0.60 RM0.80

Continued

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PPE0045

PRINCIPLES OF MACROECONOMICS

5 APRIL 2012

5. Refer to Exhibit 1. Assuming that Year 1 is the base year, then real GDP in Year 2 is __________. A. B. C. D. RM6.20 RM7.80 RM8.50 RM9.70

6. National income equals ________________________. A. B. C. D. the sum of factor payments personal income plus personal taxes disposable income at current-year prices compensation of employees plus proprietors income plus rental income plus net interest

7. Leisure is ___________________________. A. B. C. D. a good that is counted in GDP a good that is not counted in GDP equal to personal income minus taxes minus savings none of the above

8. GDP overstates our economic well-being in which one of the following cases? A. B. C. D. when people pollute the environment when household production is ignored when there are technological improvements when the production of legal goods is hidden to avoid taxes

9. The income that people receive is called __________________. A. B. C. D. National Income personal income transfer payments disposable personal income

10. Real GDP per capita is a countrys ___________________. A. B. C. D. real GNP divided by its real GDP real GDP divided by its real GNP real GDP divided by its population population multiplier by its real GDP

Continued
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PPE0045

PRINCIPLES OF MACROECONOMICS

5 APRIL 2012

11. If the value of ringgit (RM) increases relative to other currencies, how does this affect the aggregate demand curve for Malaysia? A. B. C. D. This will shift the aggregate demand curve to the left. This will shift the aggregate demand curve to the right. This will move the Malaysian economy up along a stationary aggregate demand curve. This will move the Malaysian economy down along a stationary aggregate demand curve.

12. Suppose consumption is RM10,000 when income is RM9,000 and the marginal propensity to save equals 0.2. When income increases to RM9,500, consumption will be _________. A. B. C. D. RM9,800 RM10,400 RM10,800 RM10,200

Refer to Exhibit 2 for question no. 13. Consumption (RM) 600 900 1,200 Exhibit 2 Disposable Income (RM) 1,000 1,500 2,000

13. Refer to Exhibit 2. Given the consumption schedule in Exhibit 2, the marginal propensity to save is _____________. A. B. C. D. 0.3 0.4 0.5 0.6

14. Which of the following fiscal policy actions would definitely cause an increase in the size of a deflationary gap? A. B. C. D. cuts in taxes increases in taxes and cuts in government spending cuts in taxes and increases in government spending increases in taxes and increases in government spending

Continued
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PPE0045

PRINCIPLES OF MACROECONOMICS

5 APRIL 2012

15. The multiplier effect applies to any ______________. A. B. C. D. change in autonomous investment but not autonomous consumption change in autonomous consumption but not autonomous investment change in both autonomous consumption and autonomous investment change in any source of spending other than consumption and investment

16. The presence of automatic stabilisers means that federal budget deficit is ________ than it otherwise would be in a recession and ________ than it otherwise would be in an expansion. A. B. C. D. larger; larger larger; smaller smaller; larger smaller; smaller

Refer to Exhibit 3 for questions no. 17 and 18.

Aggregate Expenditure (RM billions) Y=E N E2 E1 L K

GDP1

GDP2

National income (RM billions)

Exhibit 3 17. Refer to Exhibit 3. If the economy is currently at point N, which of the following could cause it to move to point K? A. B. C. D. household wealth falls government expenditures increase the firm's cash flow rises as profits rise households expect future income to rise

Continued
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PPE0045

PRINCIPLES OF MACROECONOMICS

5 APRIL 2012

18. Refer to Exhibit 3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is RM200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change? A. B. C. D. RM16 billion RM40 billion RM200 billion RM1,000 billion

19. If the multiplier is 10 and income increases by RM100, then saving will increase by __________. A. B. C. D. RM9 RM10 RM90 RM100

20. For the consumption function, C = Ca + bY, Ca represents __________. A. B. C. D. aggregate output the slope of the line aggregate consumption the level of consumption that is independent from income

SECTION B: STRUCTURED QUESTIONS (20 MARKS) Instruction: The answers should be written on the answer sheets provided. Question 1 Part A The components of GDP in 2002 in billion of dollars for Country Y were: Items $ (billion) Durable goods 758 Nondurable goods 1,841 Services 3,656 Nonresidential investment 1,167 Residential investment 411 Change in business inventories 44 Federal government purchases 571 Exports 996 Imports 1,253 State and local government purchases 1,058 Exhibit 4 Continued
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PPE0045

PRINCIPLES OF MACROECONOMICS

5 APRIL 2012

Refer to Exhibit 4, calculate the following: a) Consumption expenditure (2 marks) b) Gross private domestic investment (2 marks) c) Net export (1.5 marks) d) Gross domestic product at market price (3 marks) Part B Given that the Malaysia Real GDP in the year 2003 was RM232,496 million and RM249,314 million in the year 2004. Calculate the economic growth rate for year 2004. (1.5 marks) [TOTAL 10 MARKS] Question 2 Consider a 3 sectors economy in which C = RM160 billion + 0.8Yd I = RM100billion G = RM150 billion T = RM50 billion a) Form consumption function and saving function in terms of Y. b) (3 marks) Using withdrawals (W) = injections (J) approach, find the equilibrium level of national income. (2 marks) Based on (b), show the equilibrium level of national income in a diagram. (2 marks) What is the level of savings when the economy is in equilibrium? (1.5 marks) Show that at equilibrium, national income (Y) = aggregate expenditures (E). (1.5 marks) [TOTAL 10 MARKS] End of paper

c) d) e)

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