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Tutorial Quiz 1

Pre-Midterm
Introductory Macroeconomics (3 Credits)
Friday, 17 March 2017

Problem 1 (30 Points)

A. Assume that Indonesia is a simple economy which produces only nine goods: bread,
apples, bicycles, shirts, sandwiches, pants, soaps, books, and fabric. One-third of all
bread production is used to produce sandwiches while half and one-fourth of all
fabric are used to produce shirts and pants respectively.

2014 2015 2016


Product Quantity Price Quantity Price Quantity Price
Bread 500 $ 3.00 550 $ 3.00 550 $ 3.25
Apples 175 $ 0.80 180 $ 0.95 165 $ 1.15
Bicycles 420 $ 95.00 420 $ 95.00 435 $ 90.00
Shirts 300 $ 25.00 345 $ 27.50 355 $ 30.00
Sandwiches 230 $ 2.25 245 $ 2.00 250 $ 2.00
Pants 180 $ 47.50 165 $ 48.00 185 $ 45.00
Soaps 345 $ 5.00 340 $ 5.25 330 $ 5.45
Books 675 $ 9.00 650 $ 8.75 650 $ 9.00
Fabric 800 $ 18.75 850 $ 19.00 900 $ 20.00

I. Use the production and price information provided above to calculate nominal
GDP for 2016

II. Calculate real GDP for 2014, 2015, and 2016 using 2014 as the best year.
What is the growth rate of real GDP from 2014 to 2015 and from 2015 to
2016?

III. Calculate real GDP for 2014, 2015, and 2016 using 2015 as the best year.
What is the growth rate of real GDP from 2014 to 2015 and from 2015 to
2016?
B. A survey arranged in country Monoprix has determined that the country has a typical
market basket of the following goods in 2015.
Quantity Price
10 pieces of bread 30 / bread
5kg of meat 100 / kg
School tuition 500
Phone service 70
In 2016, both school tuition and phone service increase as much as 10%, price of
meat increase to 110 per kg while price of bread drop to 25 per bread:

I. Calculate the CPI in year 2016

II. How much is the inflation of country Monoprix?

Problem 2 (20 Points)

A. With mathematical and descriptive analysis, prove that National Saving (S) =
Investment (I) in a Closed Economy! (Hint: Explain the identity equation of national
saving, and separately explain the GDP identity equation with no Export and Import
on the equation)

B. What is the difference between financial market and financial intermediaries? Give
two real life institution/company that acts as an financial intermediaries!

C. Governments expansive fiscal policy can be a good thing as it boosts the countrys
economic growth. But without proper planning, the policy can do more harm than
good. By using the loanable fund graph and concept, explain how the governments
budget deficit can create crowding out effect!

Problem 3 (20 Points)

The total population of The United States of America in July 2016 was 321.1 million. While,
the total labor force was 154.5 million. There were 146 million employed Americans, and 8.5
million unemployed Americans. Approximately there was 2.18 million Americans in prison.

A. Given the data above, please calculate the unemployment rate.

B. Given the data above, please do calculate the labor force participation rate.

C. If those 2.18 million Americans were not in prison, but were in the labor force and
unemployed, please do calculate what the unemployment rate and labor force
participation rate would be.
Problem 4 (30 Points)

A. The table below shows the initial condition of the T-account Amestris Bank, a
commercial bank in Disboard. Amounts are denominated in millions of Risole (Rs)

Regulations implemented by Bank Centrale de Disboard state a 11% requirement of


reserves

I. What is the minimum reserve amount that Amestris Bank has to hold? Does
Amestris Bank have a surplus, deficit, or exactly meet the requirement?

II. Can the bank increase its loans?

III. Amestris Bank decides to increase its lending by Rs 230(million). The next
day, depositors withdraw Rs 30(million). Show the changes in T-account
form. Does Amestris Bank still meet the reserve requirements?

IV. From the initial condition, Bank Centrale de Disboard decides to raise reserve
requirements to 15%. Show the changes in T-account form

B. Coruscant is the capital of the Empire. This old violet planet has a sluggish
economics growth. Unlike our country, the Imperial Central Bank is under control of
the executives. Chancellor Palpatine, as the highest rank of executive ask the central
bank to issue 3.8% more Imperial Credits to stimulate the economy. The following
data are recorded to see the effectiveness of the policy.
Year Real GDP Nominal
19 BBY x Bil. 18000 Bil.
20 BBY 9650 Bil. 17300 Bil.
I. Help the Imperial economists to determine how much the impact of the policy
towards Coruscant s GDP!

II. If the Imperial Central Bank set 2.75% interest rate, find the net gain/lose from
saving the credits.