INTI COLLEGE MALAYSIA UNIVERSITY FOUNDATION PROGRAMME ECO 183 : FOUNDATION ECONOMICS (MACROECONOMICS) RESIT EXAMINATION : AUGUST 2002 SESSION

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1 ECO 183 (R) / Page 1 of 9 INTI COLLEGE MALAYSIA UNIVERSITY FOUNDATION PROGRAMME ECO 183 : FOUNDATION ECONOMICS (MACROECONOMICS) RESIT EXAMINATION : AUGUST 2002 SESSION Section A : Answer ALL questions. 1. Gross national product is the total A. market value of all final goods and services sold within a given period B. market value of all goods and services produced within a given period by factors of production owned by a country s citizens C. market value of all final goods and services produced within a given period by factors of production owned by a country s citizens. D. market value of all goods and services produced within a given period by factors of production located within a country, regardless of who owns the factors of production. 2. Which of the following is a final good or a service? A. scissors and hairdryers purchased by a hair saloon B. chicken bought by Mac Donald s C. a computer puchased by a student D. table and chairs purchased by a college For questions 3 5, refer to the data below. The following data is for US. Consumption of fixed capital 438 Indirect business taxes 350 Compensation of employees 2347 Rents 14 Interest 287 Proprietor s income 242 Corporate income taxes 86 Dividends 83 Undistributed corporate profits 128 Personal Consumption Expenditures 2582 Gross private domestic investment 669 Government purchases 815 Net exports -78 Net foreign factor income earned in the US The GDP is A. $3988 B C D. 4884

2 ECO 183 (R) / Page 2 of 9 4. Net domestic product is A B C D National income is A B C D For questions 6 7, please refer to the table below. The following is the table for Country A:- Year Units of output Price per unit $ If 1990 is the base year, the GDP deflator for 1993 is A. 180 B. 125 C. 153 D In 1994, nominal GDP would be A. $60 B. $90 C. $160 D. $ If the real GDP in a year was $3668 billion and the price index was 112, then nominal GDP in that year was approximately A B C D The consumption schedule shows the relationship of household consumption to the level of: A. saving. B. investment C. disposable income D. marginal propensity to consume 10. As income decreases A. APC tends to rise B. APC tends to fall C. MPC tends to fall D. MPS tends to fall

3 ECO 183 (R) / Page 3 of If the slope of the consumption schedule is 0.75, then the slope of the saving schedule is A B C D. cannot be determined 12. The saving schedule would be shifted upward by.. A. a decrease in real and financial assets B. expectations of rising incomes C. expectations of rising prices D. a decrease in taxes 13. The value of the multiplier is likely to fall if there is a fall in A. investment B. national income C. government spending D. the marginal propensity to consume 14. If the government raises its expenditure by $50 billion and at the same time imposes a lump sum tax of $50 billion, the net effect on the economy will be to A. increase GDP by less than $50 billion B. increase GDP by more than $50 billion C. increase GDP by $50 billion D. make no change in GDP 15. The marginal propensity to consume in an economy is 0.8, the government could eliminate a recessionary gap of $100 billion by decreasing taxes by A. $80 billion B. $100 billion C. $125 billion D. $130 billion 16. Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be A. less than saving B. greater than saving C. equal to $15 billion D. equal to $125 billion

4 ECO 183 (R) / Page 4 of The investment demand curve will shift to the right as a result of: A. increase in the excess productive capacity available in the industry B. decrease in the acquisition and maintenance of cost of capital goods C. decrease in the confidence of business leaders about the economy D. increase in taxes businesses pay to government 18. An increase in the interest rate will: A. shift the investment demand curve to the right B. shift the investment demand curve to the left C. shift the investment schedule upward D. decrease the amount of investment spending 19. If the consumers experience a decrease in wealth, then this will shift A. upward both the consumption and saving schedules B. downward both the consumption and saving schedules C. the consumption schedule upward and the saving schedule downward D. the consumption schedule downward and the saving schedule upward 20. A decrease in taxes will shift A. upward both the consumption and saving schedules B. downward both the consumption and saving schedules C. the consumption schedule upward and the saving schedule downward D. the saving schedule upward and the consumption schedule downward 21. Which would most likely increase aggregate supply? A. an increase in the prices of imported products B. an increase in productivity C. a decrease in business subsidies D. a decrease in net export 22. The aggregate demand curve A. is vertical B. is horizontal C. slopes downward toward the right D. slopes upward toward the right

5 ECO 183 (R) / Page 5 of Which of the following should be expected to shift the aggregate demand curve to the right? A. an increase in government spending B. a reduction in net exports C. a reduction in the labour force participation D. an increase in taxes 24. A trough in a business cycle occurs when: A. cyclical unemployment is at a minimum point B. employment and output reach their lowest level C. the natural rate of unemployment is at a minimum point D. structural and frictional unemployment are at their highest levels 25. A headline reads steel industry suffers slump as import competition increases, unemployment rises. This types of unemployment can be characterized in economic terms as A. frictional B. structural C. cyclical D. natural 26. The best example of a frictionally unemployed worker is one who: A. reduces productivity by causing frictions in a business B. is laid off during a recessionary period in the economy C. is in the process of voluntarily switching jobs D. is discouraged and not actively seeking work 27. The expansion or contraction of business activity which occurs over a long period of time (e.g 25, 50, or 100 years is referred to by economists as: A. a secular trend B. fluctuation variations C. seasonal business cycles D. long term business adjustment 28. A headline reads, Economy still in recession. The type of unemployment most closely associated with this economic condition would be: A. search B. cyclical C. frictional D. structural

6 ECO 183 (R) / Page 6 of The full employment unemployment rate is also called the: A. potential rate of unemployment B. cyclical rate of unemployment C. frictional rate of unemployment D. natural rate of unemployment 30. Inflation is a rise in A. the general level of prices over time B. the standard of living over time C. industrial production D. real GDP 31. Inflation that occurs when total spending is greater than economy s ability to produce output at the existing price level is: A. anticipated inflation B. demand-pull inflation C. cost push inflation D. unanticipated inflation 32. The functions of money are to serve as a: A. unit of account, store of value and medium of exchange B. resource allocator, method for accounting and means of income distribution C. determinant of consumption, investment and government spending D. factor of production, exchange and aggregate supply 33. What function of money is serving when you deposit money in a savings account? A. store of value B. unit of account C. checkable deposit D. medium of exchange 34. Which definition of money supply includes only items which are directly and immediately usable as medium of exchange? A. M1 B. M2 C. M3 D. M1 and M2 35. Which one of the following is liability to a commercial bank? A. loans to individuals B. special deposits at the central bank C. deposit account of customers D. overdraft incurred by small traders

7 ECO 183 (R) / Page 7 of Assuming a required reserve ratio of 20 percent, a small bank which receives a cash deposit of $2,000 is in a position to A. lend out $1000 B. lend out $1600 C. lend out $800 D. lend out $ Banks can create money A. only by illegally printing additional dollar bills B. by paying interest to their depositors C. by making loans that result in additional deposits D. any of the above 38. When central bank wishes to increase the quantity of money held by the public, it A. sells bonds B. buys bonds C. sells goods or services D. does none of the above, since its function is not to change the quantity of publicly held money 39. The discount rate is A. bank charge on large loans B. the charge for cashing a cheque at Central Bank C. the rate of interest paid on government bonds D. the interest rate charged on commercial banks for loans from Central Bank 40. Open market operations involve A. clearing cheques B. accepting deposits from member banks C. the Central Bank purchase and sale of bonds D. lending money to member banks

8 ECO 183 (R) / Page 8 of 9 SECTION B : Choose any THREE of the following questions. 1. (a) Distinguish between gross domestic product and gross national product. (4 marks) (b) Distinguish between nominal GDP and real GDP. (5 marks) (c) When the GDP of a country increases, does that mean that the welfare of citizens has also increased? (11 marks) 2. Use the following information to answer this question. The savings function is : S= Yd Gross Investment is $ 100 million, government expenditure is $50 million and the government imposes the following tax: Y. (a) Derive the consumption function in terms of national income. (2 marks) (b) What is the equilibrium level of national income? (2 marks) (c) What is the level of consumption and saving at the equilibrium income level? (5 marks) (d) What is the multiplier? (2 marks) (e) (f) If investment increases to $110 million, what is the change in national income and what will be the new equilibrium level of income? (3 marks) If the full employment level f national income is $500 million, what would be the size of the inflationary or deflationary gap? Use your answer in part (e). (3 marks) (g) What should the government do to overcome the problem in (f)? (3 marks) 3. (a) What is inflation? (5 marks) (b) Explain using a diagram how an increase in the per unit production cost, causes inflation? (15 marks) 4. (a) Explain the following: (i) M1 (3 marks) (ii) M2 (3 marks) (iii) M3 (3 marks) (b) What is easy money policy? How can Central Bank implement easy money policy? (11 marks)

9 ECO 183 (R) / Page 9 of 9 5. (a) Explain the factors that might increase aggregate demand. (8 marks) (b) Explain what happens at the horizontal and vertical ranges of aggregate supply when demand increases. (12 marks) - THE END - eco183r(2)u02.doc winword/nisa