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END-OF-SEMESTER EXAMINATION SEMESTER 2, 2011/2012 SESSION KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES

Programme : T me $urat o& : : ENM/B.ECONS/BBA/BACC !."" a.m. - 11.#" a.m. 2 'r()* - #" M &()* ECON 1+1" Pr &, .le) of Ma,roe,o&om ,) Level of Study : 1-2 $ate Se,t o&()* : #"/%/2"12 : 1--

Cour)e Code : Cour)e T tle :

(T/ ) 0ue)t o& Pa.er Co&) )t) of 11 Pr &ted Page) 1 t/ 2 Part)*

INSTRUCTION (S) TO CANDIDATES DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO
1. 2. PART A: MULTIPLE CHOICE QUESTIONS (!0 MARKS) A&)2er all t/e mult .le ,/o ,e 3ue)t o&). PART ": SHORT-ESSAY QUESTIONS (!0 MARKS) A&)2er a&y #$% (2) )/ort e))ay 3ue)t o&). Any form of cheating or attempt to cheat is a serious offence which may lead to dismissal

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1he purchasin power o' the dollar: A) is the reciprocal o' the price level. billion -) &. /) nominal wa es. -) more oods than would be attainable throu h domestic production alone. /) dollar2'or2dollar with old and silver. -) is inversely related to the level o' a re ate demand.Section A: Multiple Choice Questions Instruction: Answer all Questions. C) varies directly with the cost2o'2livin inde3."#$ (b) consumption e%uals income at &1"! billion$ and (c) the level o' investment is &(! billion. In a private closed economy (a) the mar inal propensity to save is !."! billion C) &". #.. " . C) chan in the discount rate so as to encoura e or discoura e commercial ban4s in borrowin 'rom the central ban4s. C) local overnments alone. (. 1he ain 'rom international trade is: A) increased employment in the domestic e3port sector. 1he Central -an4 can chan e the money supply by: A) chan in the %uantities o' re%uired and e3cess reserves by alterin the le al reserve ratio. /) state overnments alone. C) increased employment in the domestic import sector. 6. 1he money supply is bac4ed: A) by overnment bonds. 0. Choose the best answer 1. /) has been increasin in recent years because o' economic rowth. /) doin all o' the above. -) dollar2'or2dollar with old bullion. A ri htward shi't in the a re ate supply curve is best e3plained by an increase in: A) productivity. )hat is the e%uilibrium level o' income* A) &1+.! billion /) &"0" billion ". -) state and local overnments wor4in to ether. /) tari'' revenue. 5iscal policy is carried out primarily by: A) the 5ederal overnment. -) chan in ban4 reserves throu h the sale or purchase o' overnment securities. -) business ta3es. . C) by the overnment7s ability to control the supply o' money and there'ore to 4eep its value relatively stable. C) the price o' imported resources.

"+ billion. -) the construction industry. /) import %uota. +. /) decrease by &(. -) increase by &1! billion. I' the e%uation C 8 "! 9 !. C) the vertical intercept would be ne ative$ but consumption would increase as disposable income rises. )hen economists say that money serves as a medium o' e3chan e$ they mean that it is: A) a monetary unit 'or measurin and comparin the relative values o' oods. -) a means o' payment. 1#. -) the vertical intercept would be 9!. /) the supply o' money automatically increases. /) )hen borrowers repay ban4 loans$ the supply o' money increases."+ billion. 1. )hen a commercial ban4 borrows 'rom a Central -an4: A) the commercial ban47s reserves are reduced. -) deposits at the Central -an4 and vault cash. I' the M:C is !. Country A limits other nation7s e3ports to Country A to 1$!!! tons o' coal annually.. /) a way to 4eep wealth in a readily spendable 'orm 'or 'uture use. -) voluntary e3port restriction. /) overnment securities that the ban4 holds. billion$ the e%uilibrium . 1his is an e3ample o' a(n): A) e3port subsidy. )hich o' the 'ollowin statements is correct* A) A ban47s liabilities plus its net worth e%ual its assets. 1he reserves o' a commercial ban4 consist o': A) the amount o' money mar4et 'unds it holds. ..0. C) it indicates that the commercial ban4 is unsound 'inancially.0 and the slope would be 9"!. /) it would reveal an inverse relationship between consumption and disposable income. C) declared as le al tender by the overnment. 1!.. 11. C) the ban47s net worth.0Y $ where C is consumption and Y is disposable income$ were raphed: A) the vertical intercept would be 9"! and the slope would be 9!. C) 1he actual reserves o' a commercial ban4 e%ual its e3cess reserves minus its re%uired reserves. 1". -) the commercial ban47s lendin ability is increased. . C) the health2care industry. 1(./: will: A) increase by &(. -) A sin le commercial ban4 can sa'ely lend a multiple amount o' its e3cess reserves. /urin a serious recession$ we would e3pect output to 'all the most in: A) a riculture. C) increase by &". /) the clothin industry.1! billion.6! and ross investment increases by &. C) protective tari''.

1. /) all o' the above. -) its absolute cost in terms o' real resources used is least. -) is desi ned to e3pand real . ate demand curve ri htward. ". "!. -) e3cess reserves o' &6# billion. C) ban4s hold currency e%ual to the value o' their chec4able deposits. C) le'tward shi't in the economy7s a re ate supply curve. Money 'unctions as: A) a store o' value. -) a medium o' e3chan e. "".. /) involves an e3pansion o' the nation7s money supply. C) e3cess reserves o' &1! billion. An increase in net e3ports will shi't the: A) a re ate e3penditures curve downward and the a le'tward. Chec4able deposits are classi'ied as money because: A) they earn interest income 'or the depositor. /) the production possibilities line lies 'urther to the ri ht than the tradin possibilities line. )hich o' the 'ollowin best de'ines national income* A) income received by households less personal ta3es -) the be'ore2ta3 income received by households C) the mar4et value o' the annual output net o' consumption o' 'i3ed capital /) all incomes earned by >. /) liabilities o' &1! billion. C) a unit o' account. -) they are ultimately the obli ations o' the 1reasury. C) its absolute money cost o' production is least. resource suppliers 'or their current contributions to production 1+. C) a re ate e3penditures curve upward and the a re /) a re ate e3penditures curve upward and the a re re ate demand curve re ate demand curve ate demand curve le'tward. -) ri htward shi't in the economy7s a re ate demand curve. "1. /) movement alon an e3istin a re ate demand curve.10. In the theory o' comparative advanta e$ a ood should be produced in that nation where: A) its cost is least in terms o' alternative oods that mi ht otherwise be produced. -) a re ate e3penditures curve downward and the a ri htward. A e3pansionary 'iscal policy is shown as a: A) le'tward shi't in the economy7s a re ate demand curve. 16.. <3pansionary 'iscal policy is so named because it: A) necessarily e3pands the si=e o' overnment. /) they can be readily used in purchasin oods and payin debts.# billion and a net worth o' &1! billion must have: A) liabilities o' &6# billion. ( .S./:. C) is aimed at achievin reater price stability. A ban4 that has assets o' &.

1he (#2de ree line on a chart relatin consumption and income shows: A) the amounts households will plan to save at each possible level o' income. )hich o' the 'ollowin sources would be the most e3pansionary* A) creatin new money -) additional ta3es on corporate pro'its C) additional ta3es on personal incomes /) borrowin 'rom the public "0."(. I' the overnment increases its spendin durin recession to assist the economy$ the 'unds 'or such e3penditures must come 'rom some source. "6. C) all the points at which consumption and income are e%ual. 5iscal policy re'ers to the: A) 'act that e%ual increases in overnment spendin and ta3ation will be contractionary. C) decreases the money supply by decreasin monetary multiplier. # . /) consumption spendin will be &1. -) manipulation o' overnment spendin and ta3es to achieve reater e%uality in the distribution o' income. . /) all points where the M:C is constant. -) all points at which savin and income are e%ual. -) increases the money supply by decreasin monetary multiplier. C) savin will be &"$#!!.. e3cess reserves and decreasin the e3cess reserves and decreasin the e3cess reserves and decreasin the e3cess reserves and increasin the ". 1he primary purpose o' the le al reserve re%uirement is to: A) provide a means by which the monetary authorities can in'luence the lendin ability o' commercial ban4s. -) consumption spendin will be &1#$#!!. I' her actual disposable income is &10$!!!$ his level o': A) consumption spendin will be &1($#!!. "+. ?amid7s brea42even level o' income is &1!$!!! and her M:C is !. C) manipulation o' overnment spendin and ta3es to stabili=e domestic output$ employment$ and the price level. C) provide a dependable source o' interest income 'or commercial ban4s.6#.!. /) prevent commercial ban4s 'rom earnin e3cess pro'its.$!!!. Suppose that the economy is in the midst o' a recession. )hich o' the 'ollowin policies would be consistent with active 'iscal policy* A) a reduction in 5ederal ta3 rates on personal and corporate income -) a reduction in a ricultural subsidies and veterans7 bene'its C) a Con ressional proposal to incur a 5ederal surplus to be used 'or the retirement o' public debt /) a postponement o' a hi hway construction pro ram "#. An increase in the le al reserve ratio: A) decreases the money supply by increasin monetary multiplier. /) alterin o' the interest rate to chan e a re ate demand. -) prevent ban4s 'rom hoardin too much vault cash. /) increases the money supply by increasin monetary multiplier.

-) relatively stable. -) reater than one.$!!! new school buildin s C) an increase in soil conservation subsidies to 'armers /) an increase in the si=e o' income ta3 e3emptions 'or each dependent ..1. . Assume that a re ate demand in the economy is e3cessive$ causin demand2pull in'lation. C) movement alon an e3istin a re ate demand curve. C) involves a contraction o' the nation7s money supply. A contractionary 'iscal policy is shown as a: A) le'tward shi't in the economy7s a re ate demand curve. /) necessarily reduces the si=e o' overnment. C) chan e in e%uilibrium . C) downslopin .. /) less than =ero. 0 ..(. -) is e3pressly desi ned to contract real ./: resultin 'rom a chan e in spendin . /) rate o' in'lation. In the a re ate e3penditures model$ the si=e o' the M:C is assumed to be: A) reater than =ero$ but less than one.".#. . /) relatively unstable./:. . Contractionary 'iscal policy is so named because it: A) is aimed at reducin a re ate demand and thus achievin price stability. -) level o' business inventories. In contrast to the investment schedule$ the consumption schedule is: A) hori=ontal.0. /) ri htward shi't in the economy7s a re ate supply curve. -) ri htward shi't in the economy7s a re ate demand curve. 1he multiplier is use'ul in determinin the: A) 'ull2employment unemployment rate. C) two or more. )hich o' the 'ollowin would be most in accord with appropriate overnment 'iscal policy* A) an increase in 5ederal income ta3 rates -) passa e o' le islation providin 'or the construction o' . .

C) are per unit subsidies desi ned to promote e3ports. C) persistent 'ull employment. )hich o' the 'ollowin is a tool o' monetary policy* A) chan es in ban4in laws -) chan es in overnment spendin C) open mar4et operations /) chan es in ta3 rates (1. (".a n 4 s " @ e se rv e s S e c u ritie s A oans BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB . 1he commercial ban4s have e3cess reserves o': A) &10.. . (!. @e'er to the above balance sheets. 1he ma3imum money2creatin potential o' the commercial ban4in system is: A) &16.. 1ari''s: A) may be imposed either to raise revenue (revenue tari''s) or to shield domestic producers 'rom 'orei n competition (protective tari''s).>se the 'ollowin to answer %uestions .+. C) durables purchases are nonpostponable. C) &1". 6 . /) &. . -) &"(.: C O N S O L ID A T E D B A L A N C E S H E E T : C O M M E R C IA L B A N K IN G S Y S T E M A sse ts L ia b ilitie s a n d n e t w o r t & 6 " C h e c 4 a b le d e p o s its &"(! 1 1 ! A o a n s 'ro m 5 e d e ra l 0 ! @ e se rv e . -) uninterrupted economic rowth. C) &"(. /) the producers o' nondurables have monopoly power. -) producers o' durables are hi hly competitive.0. /) are e3cise ta3es on oods e3ported abroad. /) &"". 1he production o' durable oods varies more than the production o' nondurable oods because: A) durables purchases are postponable.. -) &(.6. /) occassional instability o' employment and price levels..62. Mar4et economies have been characteri=ed by: A) declinin populations. -) are also called import %uotas. @e'er to the above balance sheets.

C) &0!. C) overnment consumption oods and public capital oods. )hich o' the 'ollowin best de'ines disposable income* A) the mar4et value o' the annual output net o' consumption o' 'i3ed capital -) the be'ore2ta3 income received by households C) income received by households less personal ta3es /) all income earned by resource suppliers 'or their current contributions to production (6. -) net investment is =ero. -) !. 1he M:C is: A) !.!. /) the economy7s stoc4 o' capital is rowin . -) public capital oods only. C) an economic investment. /) &6(!. #!. C) the economy7s stoc4 o' capital may be either rowin or shrin4in . -) di''erent amounts o' s4illed labor. I' depreciation e3ceeds ross investment: A) the economy7s stoc4 o' capital is shrin4in . (#. C) total consumption e3penditures.+Y $ where C is consumption and Y is disposable income. /) either real .+!. (.overnment purchases include overnment spendin on: A) overnment consumption oods$ public capital oods$ and trans'er payments.. -) nominal . /) !. C) di''erent levels o' technolo ical 4nowled e. /) overnment consumption oods only. I' you are estimatin your total e3penses 'or school ne3t semester$ you are usin money primarily as: A) a unit o' account.>se the 'ollowin to answer %uestions (. /i''erences in production e''iciencies amon nations in producin a particular ood result 'rom: A) di''erent endowments o' 'ertile soil. . At an &. /) a medium o' e3chan e. .!! level o' disposable income$ the level o' savin is: A) &1. (+.#!. -) a store o' value./: or real . . C) !.. <conomic rowth is best de'ined as an increase in: A) wealth in the economy. ((. (0."!./: per capita.. @e'er to the above data. -) &1. @e'er to the above data. /) all o' the above./:. (.2((: Answer the ne3t %uestion(s) on the basis o' the 'ollowin consumption schedule: C 8 "! 9 !.(#.

<3plain in words what this means. "#ESTION $ a) (i)1he mar inal propensity to consume 'or Malaysia as a whole is rou hly !. Suppose that the mar inal propensity to save 'or Malaysia in year "!11 increased by !. ?ow would chan es in the stoc4 mar4et a''ect the consumption 'unction* <3plain and illustrate your answer usin the consumption 'unction.#. )hat would happen to savin * (6 marks) c) @ead the 'ollowin statement and answer the %uestion below: “The biggest annual jump in the CPI since 1991 has fanne fears ab!ut gr!"ing pressures !n c!nsumers# The $c!n!mic Planning %nit rep!rt c!nfirms "hat e&er' c!nsumer in (ala'sia has kn!"n f!r m!nths) Inflati!n is s!aring an it*s ha&ing an a &erse effect !n the ec!n!m'#+ <3plain and draw a raph to illustrate the e''ect o' a rise in the price level on e%uilibrium a re ate e3penditure. (.!ART B: ESSAYS Instruction: Answer Any 1wo Questions. there "ill be n! effect !n e/uilibrium 01P#+ 1rue or 'alse* <3plain. in year "!1!. as compared to year "!1!$ calculate the e3penditure multiplier value 'or Malaysia in year "!11.1. <ach Question worth "# mar4s. marks) d)“If ta-es an g!&ernment spen ing are increase b' the same am!unt. (5 marks) b) Chan es in the value o' sharesCbonds may play a bi role in the consumption decisions o' individuals. (6 marks) "#ESTION % + .

el -*ri)e inde.a)Suppose a 'amilyDs annual disposable income is &1" !!! o' which it saves &" !!!. (. (3 marks) "#ESTION 0 a) Consider the case o' an e3pansionary monetary policy.#! . Show and e3plain how your answer could solve the problem usin both the A re ate <3penditure Model and the A re ate /emand E A re ate Supply Model dia rams./ . mar4s) 1! .! 1"! 0! (i) <3plain why wonDt the "!! inde3 be the e%uilibrium price level* /iscuss the implications o' the above dise%uilibrium (when price is "!!) on output and employment. (i) )hat is their A:C* (2 marks) (ii) I' their income rises to &1#$!!! and they plan to save &". marks) d)<3plain some o' the steps that a overnment would wish to adopt in an in'lationary environment.!! !ri)e le.!!$ what are their M:C* (2 marks) b)I' there is a recessionary e3penditure ap o' &10! billion and the M:C is !.!! "#! "!! 1#! A&o'nt o( real do&esti) o't*'t s'**lied+ billions &"(! "(! 1.! "(! . (i) <3plain what is meant by an e3pansionary monetary policy ( .##$ by how much must ta3es be reduced to eliminate the recessionary e3penditure ap* (6 marks) c) Suppose the a re ate demand and supply schedules 'or a hypothetical economy are as shown below: A&o'nt o( real do&esti) o't*'t de&anded+ billions & 0! 1"! 1.

mar4s) (iii) State three monetary policy tools which can be used to implement this policy . ( 6 mar4s) "#ESTION 1 a) b) <3plain the direct and indirect e''ects o' tari''s.* (( mar4s) (iii) <3plain why trade should ta4e place and what will each country e3port* (6 mar4s) 11 .and . (+ mar4s) b) (i) <3plain how an e3pansionary monetary policy a''ects interest rate and investment. (i) )hich country has the absolute advanta e in apricots* In apples* (( mar4s) (ii) )hat is the opportunity cost o' a 4 o' apples in country -* in country .$ 1! 4 s o' apricots re%uires " hours o' labour$ and 1! 4 s o' apples re%uires ( hours. mar4s) (iv) <3plain how the three monetary policy tools in (iii) are used to implement e3pansionary monetary policy. Illustrate your answer usin a dia ram.(ii) <3plain why it is used.. In country . (. In country -$ 1! 4 s o' apricots re%uires ( hours o' labour$ and 1! 4 s o' apples re%uires 0 hours. Illustrate your answer usin a dia ram(s). (1! mar4s) Suppose that labour is the only 'actor o' production in two countries$ . (.

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