Final Examination Semester 2 / Year 2012 COURSE : MACROECONOMICS COURSE CODE : ECON1013 TIME : 2 1/2 HOURS DEPARTMENT : MANAGEMENT LECTURER : CHING YANN PENG Student s ID : Batch No. : Notes to candidates: 1) The question paper consists of 2 sections and 6 pages. 2) Answer ALL questions in Section A and Section B. 3) Return the question paper with your answer booklet.
Section A MACROECONOMICS Instruction: Answer ALL questions in this section. This section carries a total of 40 marks (2 marks each question). Please write down your answers in the answer booklet. 1) M1 includes A) currency in circulation, checking account balances at banks, the value of traveler's checks. B) currency in circulation, savings accounts, checking account balances at banks. C) currency in circulation, savings accounts, checking account balances at banks, traveler's checks. D) coins, savings account balances at banks, traveler's checks. 2) If households in the economy decide to take money out of checking accounts and put money into savings accounts this will A) decrease M1 and increase M2. B) decrease M1 and decrease M2. C) decrease M1 and not change M2. D) increase M1 and decrease M2. 3) A bank is legally required to keep a certain fraction of its as. These are called. A) deposits; reserves; required reserves B) loans; reserves; required reserves C) loans; deposits; excess reserves D) deposits; loans; excess reserves 4) Lowering the discount rate will A) decrease reserves, encourage banks to make less loans, and decrease the money supply. B) decrease reserves, encourage banks to make less loans, and increase the money supply. C) increase reserves, encourage banks to make more loans, and increase the money supply. D) increase reserves, encourage banks to make more loans, and decrease the money supply. 1/6
5) The velocity of money is defined as A) the average number of times each dollar is used to purchase goods and services. B). M PxY C) the total number of times each dollar is used to purchase goods and services. D) P Y. 6) The Fed's two main monetary policy targets are A) the money supply and the inflation rate. B) the money supply and the interest rate. C) the interest rate and real GDP. D) the inflation rate and real GDP 7) If the Fed buys Treasury bills, this will A) shift the money supply curve to the right. B) shift the money supply curve to the left. C) shift the money demand curve to the right. D) shift the money demand curve to the left. 8) If the Fed pursues expansionary monetary policy, A) aggregate demand will rise, and the price level will rise. B) aggregate demand will fall, and the price level will fall. C) aggregate demand will rise, and the price level will fall. D) aggregate demand will fall, and the price level will rise. 9) When the Fed uses contractionary policy, A) the price level rises higher than it would if the Fed did not pursue policy. B) the price level rises less than it would if the Fed did not pursue policy. C) it does not change the price level. D) it causes inflation. 10) Inflation targeting is a framework for carrying out monetary policy whereby A) the central bank adopts a rigid target for inflation and ignores declines in output. B) the central bank commits to achieving a publicly announced level of inflation. C) the central bank commits to achieving a target level of inflation which is never announced publicly. D) the central bank commits to a monetary growth rule. 2/6
11) Fiscal policy is defined as changes in and to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment. A) taxes; interest rates B) taxes; the money supply C) interest rates; money supply D) taxes; purchases 12) Expansionary fiscal policy should A) shift the aggregate demand curve to the left. B) shift the aggregate demand curve to the right. C) shift the short run aggregate supply curve to the left. D) shift the short run aggregate supply curve to the right. 13) A(n) in private expenditures as a result of a(n) in government purchases is called crowding out. A) increase; decrease B) decrease; decrease C) decrease; increase D) increase; increase 14) If policy makers implement expansionary fiscal policy and do not take into account crowding out, A) equilibrium GDP is likely to be at potential GDP. B) equilibrium GDP is likely to be above potential GDP. C) equilibrium GDP is likely to be below potential GDP. D) equilibrium GDP is likely to cause an inflationary gap. 15) The federal government debt when the federal government runs a deficit and when the federal government runs a surplus. A) increases; increases B) decreases; increases C) increases; decreases D) decreases; decreases 3/6
16) Suppose that the exchange rate between the Japanese yen and the U.S. dollar is currently 125 = $1, then an individual could trade A) 10 yen for $8. B) 10 yen for $1.25. C) 10 yen for $.08. D) 10 yen for $.125. 17) An excess supply of the dollar in exchange for yen will cause A) no change in the exchange rate of the yen to the dollar. B) the dollar to appreciate. C) the yen to depreciate. D) the dollar to decline in value relative to the yen. 18) Which of the following explanations are consistent with the graph of the above? A) a recession in the European Union B) an increase in U.S. interest rates C) an increase in incomes in the European Union D) speculators think that the value of the dollar relative to the euro will rise 19) If the dollar appreciates against the yen, we would expect A) net exports to decline, aggregate demand to decline, and real GDP to decline. B) net exports to decline, aggregate demand to increase, and real GDP to increase. C) net exports to increase, aggregate demand to increase, and real GDP to increase. D) net exports to increase, aggregate demand to decline, and real GDP to decline. 20) In an open economy, monetary policy has A) a smaller impact on aggregate demand as compared to a closed economy. B) the same impact on aggregate demand as compared to a closed economy. C) a larger impact on aggregate demand as compared to a closed economy. D) no impact on aggregated demand. 4/6
Section B Instruction: Answer ALL questions in this section. This section carries a total of 60 marks. Please write down your answers in the answer booklet. 1. (a) What are the functions of money? (8 marks) (b) How are M1 and M2 measured in Malaysia? (8 marks) 2. Suppose that the bank has the following balance sheet: (a) If the required reserve ratio is 10%, what is the excess reserve? (b) What is the maximum amount that the bank can loan out? (c) Suppose that the bank intends to loan that out (your answer in part (b)). Show the immediate impact of the loan on the bank's balance sheet (4 marks) 3. Using the demand and supply for Ringgit Malaysia in exchange for U.S. dollars, explain how an increase in the price level in the United States will influence the $/RM exchange rate. Will Ringgit Malaysia appreciate or depreciate? (10 marks) 5/6
4. The following are hypothetical data on the U.S. balance of payments. You can assume the balance on capital account is zero. Use the data to calculate the following: (a) the balance on the current account (b) the balance of trade (c) the balance on the financial account (d) statistical discrepancy Account Billions of Dollars Exports of Goods $866 Imports of Goods -$1,118 Exports of Services $335 Imports of Services -$266 Net Income on Investments $76 Net transfers -$59 Capital Inflows $1,191 Capital Outflows -$1,050 5. What are the effects of expansionary and contractionary fiscal policies on AD curve, real GDP, and price level? Support your answer with two separate dynamic model diagrams. (18 marks) 000 6/6