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INTRODUCTION OF

MACROECONOMICS MODULE

TEACHING ASSISTANTS OF MICROECONOMICS AND


MACROECONOMICS
ECONOMICS AND DEVELOPMENT STUDIES
FACULTY OF ECONOMICS AND BUSINESS
UNIVERSITAS PADJADJARAN
2015
Team of Teaching Assistant of Introduction to Macroeconomics

ACKNOWLEDGEMENT

In this opportunity, we would like to express our gratitude to


Dr. Kodrat Wibowo, S.E. as the Head Department of Economics, Dr.
Mohamad Fahmi, SE., MT as the Coordinator of Undergraduate Program
of Department of Economics, lecturers, and those who have contributed
and helped us in the process of making this module.
We realise that the contents in this module are not perfect. Therefore,
we are willing to receive and consider feedback, suggestions and
constructive criticisms, and willing to improve in order to create a better
module in the future.
We hope that this module can be the guidance for the students
in order to deepen their understanding and analysis of Macroeconmics
theory. Thank you.

List of the Module Writers:

1. Muhammad Erfan Supradhono 120210100142


2. Agnes Dwi Prasetyo 120210110052
3. Gita Permatasari 120210120092
4. Hafiza Fadila 120120130505
5. Harumi Nimas 120210120148
6. Meinari Claudia 120210110032
7. Nanda Putra Eriawan 120210120023
8. Ridha Subagja 120210110049
9. Silvia Adhiarahmawati 120210110058

Acknowledged and Agreed,


Coordinator of Undergraduate Program of
Department of Economics

Dr. Mohamad Fahmi, SE., MT


NIP. 19731230200012100

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Team of Teaching Assistant of Introduction to Macroeconomics

TABLE OF CONTENT

ACKNOWLEDGEMENT ................................................................ 2
MODULE AND LABORATORY GUIDANCE .............................. 4
THE TEN PRINCIPLES OF ECONOMICS AND THINKING
LIKE ECONOMISTS ....................................................................... 6
MEASURING NATION’S INCOME & COST OF LIVING ........ 15
SAVING, INVESTMENT, AND FINANCIAL MARKET ........... 24
UNEMPLOYMENT ....................................................................... 29
THE MONETARY SYSTEM......................................................... 36
MONEY GROWTH AND INFLATION ....... Error! Bookmark not
defined.
OPEN ECONOMY MACROECONOMICS: BASIC CONCEPT
.......................................................... Error! Bookmark not defined.
A MACROECONOMIC THEORY OF THE OPEN ECONOMY
.......................................................... Error! Bookmark not defined.
AGGREGATE DEMAND AND AGGREGATE SUPPLY .... Error!
Bookmark not defined.
THE INFLUENCE OF MONETARY AND FISCAL POLICY ON
AGGREGATE DEMAND ............... Error! Bookmark not defined.

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Team of Teaching Assistant of Introduction to Macroeconomics

MODULE AND TUTORIAL GUIDELINES

1. This module was created as a media to help the students


deepen their understanding during the tutorial sessions of
Introduction to Macroeconomics.
2. All of the problems in this module are provided in English.
3. The types of the problems are Fill In The Blank, True-
False, Multiple Choice, and Essay.
4. This module could only be used during the tutorial
sessions of Introduction to Macroeconomics.
5. The students are not allowed to bring and copy the module
unless they obtained permissions from the Team of Teaching
Assistant.
6. For any reasons, the students are not allowed to write
anything in the module unless they obtained permissions from
the Team of Teaching Assistant.
7. The answers are written on the answer sheet/other paper
that has been provided by the Team of Teaching Assistant.
8. The materials in each tutorial meeting are adjusted based
on the materials that have been given by each of the lecturers
in the class.
9. During the tutorial, all of the students should obey the rules
that have been made by each of the Teaching Assistant.
10. The maximum duration for laboratory is 2.5 hours (180
minutes)
11. For any incorrect or unclear questions that you found difficult,
please re-read the appropriate question or ask directly to the
Teaching Assistant to clear up any confusion.
12. After successfully finishing the problems, the students can
leave the tutorial room with the permission from the
Teaching Assistant.
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Team of Teaching Assistant of Introduction to Macroeconomics

13. Here below we kindly inform the general rule during the
laboratory:
 The tutorial has 10 (ten) meetings. The Teaching
Assistant will take only 7 (seven) best mark and
one other mark that comes from the Review in the
10th meeting.
 The students are not allowed to change their tutorial
schedule without any permission from their Teaching
Assistant.
 The students are not allowed to cheat, work
together, and open the book/note while solving the
problems in the tutorial.
 Other rules could be made later on by the Teaching
Assistant with the consent of the students in each
tutorial.

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Team of Teaching Assistant of Introduction to Macroeconomics

CHAPTER 1
THE TEN PRINCIPLES OF ECONOMICS AND
THINKING LIKE ECONOMISTS

Economics is the study of how society manages its scare resources.

Economics is broken down into two subfields:


1. Microeconomics focuses on individual parts of the economy; and
2. Macroeconomics looks at the economy as a wholeEconomy wide
phenomena, including inflation, unemployment, and economic
growth

Although the study of economics has many facets, the field is


unified by several central ideas. The Ten Principles of Economics
offer an overview of what economics is all about.

How People Make Decisions


1. People face trade-offs.
To get one thing, we usually have to give up another thing.
Making decisions requires trading off one goal against another.
In making decisions, they face tradeoffs among alternative goals.
2. The cost of something is what you give up to get it.
thecost of any action is measured in terms of foregone
opportunities.
3. Rational people think at the margin.
people make decisions by comparing costs and benefits at the
margin.
4. People respond to incentives.
people change their behavior in response to the incentives they
face.
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How People Interact


5. Trade can make everyone better off.
trade can be mutually beneficial.
6. Markets are usually a good way to organize economic activity.
market are usually a good way f coordinating trade amng
people.
7. Governments can sometimes improve market outcomes.
government can potentially improve market outcomes I there is
some market failure r if the market outcome is inequitable.
Market failure may be caused by externality, public goods,
imperfect information and market power.

How the Economy Works as A Whole


8. A country’s standard of living depends on its ability to produce
goods and services.
almost all variations in standard of living explained by
differences in country’s productivities.
9. Prices rise when the government prints too much money.
inflation is an increase in the overall level of prices in the
economy. One cause of inflation is the growth in quantity of
money, when the government creates large quantities of money,
the value of the money falls.
10. Society faces a short-run tradeoff between inflation and
unemployment.
the Phillips Curve illustrates the tradeoff between inflation and
unemployment.

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 Economist try to address their subject with a scientist’s


objectivity.
 Economists make assumptions in order to make the
world easier to understand.
 Economists use different assumptions to answer different
questions.
 Economist use models to simplify reality in order to
improve our understanding of the world.

- Positive Economy : assertion about how the world as it is.


- Normative Economy :assertion about how the world should be.

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CHAPTER 1
THE TEN PRINCIPLES OF ECONOMICS AND THINKING
LIKE ECONOMISTS

FILL IN THE BLANK

1. _________ is used by economist to simplify realities in order


to improve our understanding.
2. A country’s standard of living of can be measured by its
_________.
3. You buy a new book. If you didn’t buy the book, you would
have purchased a pizza instead. Economist would call the
pizza as your _______________ of buying the book instead.
4. In the short run, economy face tradeoff between
___________ and __________.
5. _________ is a/an increase in the overall level of price in the
economy.
6. Because resources are __________ people face tradeoff.
7. How many quantity of output a firm should hire to maximize
their profit is studied in the subfield of ____________.
8. Price _________ when government prints too much money.
9. ___________ illustrate the relationship between
unemployment and inflation.
10. Unemployment, Inflation, and Economic Growth are studied
in the subfields of economics that is called________.

TRUE OR FALSE

1. The government should raise the minimum wage is a


statement of Positive Economy.
2. A rational decision maker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost.
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3. Unemployment rate is high when the overall level of prices


in the economy is high.
4. Market failure may be caused by market power, perfect
information, externality and public goods.
5. Economist make assumption to simplify reality in order to
improve our understanding of the world.
6. There is tradeoff between inflation and unemployment in the
short run.
7. When analyzing any policy we must consider the direct
effects as well as the indirect effects that work through
incentives.
8. The circular-flow diagram is a visual model of the economy
that shows how output flow through markets among
households and firms.
9. Bank Indonesia raise its interest rate to reduce the quantity of
money supply, is a statement of Positive Economy.
10. The more productive people in a nation, the lower
standard of living they reach, vice versa.

MULTIPLE CHOICE
1. Which of the following is an example of an economic model?
a. the production possibilities frontier
b. the concept of opportunity cost
c. the concept of capital
d. All of the above are economic models.

2. Which one of the following that is not principles of individual


decision making?
a. People face trade off
b. Trade can make everyone better off.
c. Rational people think at the margin.
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d. People respond to incentives

3. Which of the following is an example of a positive statement?


a. Prices rise when the government prints too much money.
b. If welfare payments increase, the world will be a better place.
c. Inflation is more harmful to the economy than is
unemployment.
d. When public policies are evaluated, the benefits to the economy
of improved equity should be
considered more important than the costs of reduced efficiency

4. Microeconomics is the subfield of economics that concerns


with……
a. How households and firms make decisions
b. Inflation and unemployment
c. Economic growth
d. Fluctuation in monetary indicators

5. The opportunity cost of obtaining more of one good is shown on


the production possibilities frontier as the ……
a. amount of the other good that must be given up.
b. market price of the additional amount produced.
c. amount of resources that must be devoted to its production.
d. number of dollars that must be spent to produce it.

6. One way to characterize the difference between positive


statements and normative statements is as follows:
a. Positive statements tend to reflect optimism about the
economy and its future, whereas normative statements tend to
reflect pessimism about the economy and its future.
b. Positive statements offer descriptions of the way things are,
whereas normative statements offer opinions on how things
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ought to be.
c. Positive statements involve advice on policy matters, whereas
normative statements are supported by scientific theory and
observation.
d. Economists outside of government tend to make normative
statements, whereas government-employed economists tend
to make positive statements.

7. Which of the following areas of study typifies macroeconomics as


opposed to microeconomics?
a. the effects of rent control on the availability of housing in
New York City
b. the economic impact of tornadoes on cities and towns in
Oklahoma
c. how tariffs on shoes affects the shoe industry
d. the effect on the changes of the on the nation’s unemployment
rate

8. Concept illustrated by the production possibilities frontier is….


a. Efficiency
b. Tradeoffs
c. Equity
d. Economic Growth

9. Which of these statements about economic models is correct?


a. For economists, economic models provide insights about the
world.
b. Economic models are built with assumptions.
c. Economic models are often composed of equations and
diagrams.
d. All of the above are correct

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10. The ability of a single economic actor (or small group of actors)
to have a substantial influence market prices……
a. market power
b. efficiency market hypothesis
c. asymmetrical information
d. invisible hands

ESSAY

1. What are two subfields of economics? Explain what each


subfield studies
2. List and briefly explain the four principles of individual
decision making!
3. What is the difference between positive and normative
economy? Give example of each
4. Explain the definition of inflation! What are factors that
cause it?
5. Draw and explain a production possibilities frontier for an
economy that happens to this frontier if disease kills half of
the economy’s cow population?
6. How are inflation and unemployment related in the short
run? Please explain
7. Why there is tradeoff between efficiency and equity?
8. Draw and explain a production possibilities frontier for an
economy that produces milk and cookies. What happens to
this frontier if disease kills hlf of the economy’s cow
population?
9. Why is productivity related to the standard of livng?
10. Classify the following topics as relating to microeconomics
and macroeconomics
a. A worker’s decision about how many hours to work
b. The effect of government spending on the nation’s
unemployment rate
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c. The impact of the new technology in the market for


DVD recorders
d. The relationship between education and economic
growth
e. The optimal choice of output for a firm that produces
electric heater

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CHAPTER 2
MEASURING NATION’S INCOME & COST OF LIVING

1. Measuring Nation’s Income


 Gross Domestic Bruto GDP is the market value of all final
goods and services produced within a country in a given
period of time.
 For an overall of economy, income must be the same with
the expenditures.
 The components of GDP:
Y = C + I + G + NX
where: Y=GDP; C=consumption; I= income; G=government
expenditure; NX= Net Export
 Real GDP vs Nominal GDP
Real GDP: the production of goods and services as measured
by fixed prices.
Nominal GDP: the production of goods and services as
measured by current prices.
 GDP Deflator is a measure of the price level calculated as
the ratio of nominal GDP to real GDP times 100
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
GDP Deflator = 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 x 100

2. Measuring Cost of Living


 Consumer Price Index (CPI) is a measure of the overall cost
of the goods and services bought by a typical consumer.
 How it be calculated?
1. Fix the basket: do a survey of consumers to determine the
basket of goods purchased by a typical consumer.
2. Set the prices: set the priceof each goods in each year.
3. Compute the overall price of the contents of the basket
every year.
4. Choose a base year: to compute the CPI each year.
5. Compute the inflation rate: use the CPI to compute the
inflation rate from the previous year.

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 Inflation rate is the percentage change in the price index


from the preceding period
𝐶𝑃𝐼𝑡 − 𝐶𝑃𝐼𝑡−1
Inflation = 𝐶𝑃𝐼 x 100
𝑡−1
 Problems in computing the cost of living
1. Substitution bias: the prices do not change proportional
year by year, then the CPI has ignored the possibility of
consumer substitution
2. Introduction of new goods: when there is a new goods on
the market, consumer will have more choice, so the CPI
does not reflect the change in the purchasing power of
money.
3. Unmeasured quality change: something that is difficult to
measure.

3 GDP Deflator vs CPI


 GDP Deflator: the prices of all goods and services which is
produced in the country; comparing the prices of goods and
services which is produced in the current year toward the
price of base year.
 CPI: the prices of all goods and services which is consumed
by typical consumer in the country; comparing the prices on
the basket of fixedly goods and services the price of base year.

4 Indexation: automatic correction the value of money against the


effect of inflation were conducted by Act or by contract.

5 Nominal Interest Rate vs Real Interest Rate


 Nominal interest rate: interest rate paid by banks
 Real interest rate: Nominal Interest Rate – Inflation Rate

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CHAPTER 2
MEASURING NATION’S INCOME & COST OF LIVING

FILL IN THE BLANK

1. Based on its economic scope, statistics such as GDP, the


unemployment rate, the rate of inflation, and the trade balance
are since they tell us something about the economy
as a whole.

2. Gross Domestic Product is defined as the total of all


goods and services produced within a country in a given
period of time.

3. The circular flow model shows that consumer goods and


services produced by business firms are sold in the _____.

4. Counting both final and intermediate goods in GDP would


production.

5. is spending on capital equipment,inventories,


and structures, including household purchases of new
housing

6. A price index based on a sample of goods and services


purchased by business firms is known as the ________

7. rate is the percentage change in the price index


from the preceding period

8. Three problems in computing the of the cost of living are


substitution bias, introduction of new goods and
.

9. Automatic correction the value of money against the effect of


inflation were conducted by Act or by contract is called
______.
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10. rate tells you how fast the number of


dollars in your bank account rises over time.

TRUE OR FALSE

1. Both apples that we buy at the grocery store and apples we grow
in our garden are part of GDP.

2. When you pay to watch a movie in a cinema, you are buying a


service, and the ticket price is part of GDP.

3. To calculate GDP using the expenditure approach, in part it is


necessary to substract exports and add imports.

4. GDP includes the value of final goods and not intermediate


goods because the value of intermediate goods is already
included in the value of final goods.

5. Real GDP is a better gauge of economic well-being than is


nominal GDP.

6. The consumer price index is used to monitor changes in the cost


of living over time.

7. For any given year, the CPI is the price of the basket of goods
and services in the base year divided by the price of the basket in
the given year, then multiplied by 100.

8. Substitution bias becomes one of the problems in measuring cost


of living because the CPI does not reflect the change in the
purchasing power of money when consumers have greater
variety of products.

9. When the price of Superjet 100 produced by Sukhoi and sold to


the Russian Air Force rises, the price increase shows up in the
consumer price index but not in the GDP deflator.

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10. The real and nominal interest rates always move together,
therefore when the nominal interest rate is high, the real interest
rate must also high.

MULTIPLE CHOICE

1. If Nike, an American corporation, produces sneakers in Thailand


this would
a. count as part of U.S. GDP since it is a U.S. corporation.
b. count for both Thailandʹs GDP and U.S. GDP.
c. add to Thailandʹs GDP but not to U.S. GDP.
d. add to neither U.S. GDP nor Thailandʹs GDP.

2. GDP counts only final goods and services because this


a. method avoids including any goods that are produced this
year and sold next year.
b. method avoids double counting of goods going through
several stages of production.
c. amount can be more easily determined in the marketplace.
d. method avoids understating the value of GDP produced
during a given year.

3. In 2003, nominal GDP was roughly $10,000 and the GDP


deflator was 110. According to this information, real GDP was
closest to which of the following
a. $9,890
b. $9,091
c. $11,000
d. $11,000,000

4. The expenditure approach to computing GDP involves summing


which of the following?
a. The values added of each intermediate good used in the
production of a final good
b. Consumption, investment, government purchases, and net
exports
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c. Wages, salaries, interest income, rent, and profit


d. The value of intermediate plus final goods and services

5. What is the basket of goods used to construct the CPI?


a. a random sample of all goods and services produced in the
economy.
b. the goods and services determined by the Foods and Drugs
Association to be most healthy.
c. the goods and services typically bought by consumers
d. the least expensive goods and services in each major
category of consumer expenditures.

6. The steps involved in calculating the consumer price index


include, in order:
a. fix the basket, set the prices, compute the basket's cost,
choose a base year to compute the index, and compute the
inflation rate.
b. choose a base year, set the prices, fix the basket, compute
the basket's cost to compute the index and the compute
inflation rate.
c. fix the basket, set the prices, compute the inflation rate,
choose a base year to compute the index, and compute the
basket’s cost.
d. choose a base year, fix the basket, compute the inflation rate,
compute the basket's cost, and set the price to compute the
index.

7. The CPI in the first year is 125, in the second year is 150, and
in the third year is 200. What is the inflation rate between the
first and second year and between the second and third year?
a. 20 percent between the first and second year, 33 percent
between the second and third year.
b. 50 percent between the first and second year, 100 percent
between the second and third year.
c. 25 percent between the first and second year, 75 percent
between the second and third year.

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d. 25 percent between the first and second year, 50 percent


between the second and third year.

8. In 2010, a country’s nominal GDP is $525 and real GDP is $525.


While in 2011, a country’s nominal GDP is $700 and real GDP
is $625. From the data, we can know that ...
a. The prices level increases 12%
b. The prices level decreases 12%
c. The prices level decreases 112%
d. The prices level increases 112%

9. Billy takes a university teaching job as an assistant professor in


1990 at a salary of $10,000. By 2014, he has been promoted to
full professor, with a salary of $50,000. The price index in 1990
is 50, and the price index in 2014 is 125. What is Billy's 1990
salary in 2014 dollars?
a. $125,000
b. $50,000
c. $25,000
d. $10,000

10. Belinda saves money of $ 7000 in a bank. After one year, she
takes all her savings amounting to $ 7840 with an inflation rate
is 3%, what percentage of additional goods and services that can
be purchased?
a. 12%
b. 9%
c. 0.9%
d. 10%

ESSAY

1. What is the relationship shown by the circular flow among


income, total expenditure, and GDP?

2. Neither intermediate goods nor used goods are included in GDP.


Explain why these expenditures are not included in GDP.

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3. What is the difference between real and nominal GDP and why
do economists make this distinction?

4. List and discuss various types of goods and services omitted from
measured GDP.

5.
Year Kit Kat Cadbury
P Q P Q
2012 £2 100 £4 50
2013 £4 150 £6 100
2014 £6 200 £8 150
According to table in above, calculate: (2012=100)
a. Nominal GDP every year
b. Real GDP every year
c. Deflator GDP every year

6.
Year Potato Eggs Broccoli
P Q P Q P Q
2011 $1 500 $2 250 $2 300
2012 $2 500 $4 250 $3 300
2013 $3 500 $6 250 $5 300
a. Calculate the CPI every year with 2011 as the base year.
b. What is the level of inflation between 2012 and 2013?

7. Which do you think has a greater effect on the consumer price


index: a 10 percent increase in the price of eggs or a 7 percent
increase in the price of Wagyu beef? Explain why?

8. Suppose that Kezia borrows some money from a bank and agree
on the nominal interest rate to be paid on a loan. Then inflation
turns out to be lower than they both expected.
a. Is the real interest rate on this loan higher or lower than
expected?
b. Does the lender gain or lose from this unexpectedly low
inflation? Does the borrower gain or lose?

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9. Explain why is indexation important in measuring the cost of


living?

10. Are the gross domestic product and the consumer price index
perfect measure of the nation’s income and the cost of living?
Briefly explain why or why not.

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CHAPTER 3
SAVING, INVESTMENT, AND FINANCIAL MARKET

Financial System
 Financial market (direct)
1. Stock market
2. Bond market
 Financial intermediary (indirect)
1. Bank
2. Mutual fund
Economy is divided by 2:
1. Closed economy
2. Open economy
GDP for closed economy:
Y=C+I+G
GDP for open economy:
Y = C + I + G + NX
Private saving
S = (Y – C – T)
Public saving
S = (T – G)
When (T>G)  budget surplus
(T<G)  budget deficit
National Saving
I=Y–C–G ;I=S
S=Y–C–G
S = (Y – C – T) + (T – G)
Nasional saving = Private Saving + Public Saving
Loanable Fund
The relationship between demand for loanable funds and interest rate
is negative, and relationship between supply for loanable funds and
interest rate is positive.

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CHAPTER 3
SAVING, INVESTMENT, AND FINANCIAL MARKET

FILL IN THE BLANK


1. ________________ are the through which a person who wants to
save can directly supply funds to a person who want to borrow.
2. __________ consist of those institution in the economy that help
to match one person’s saving with another person’s investment.
3. ___________ are a claim to ownership in a company, and
therefore a claim to the profits the firms makes.
4. A ____________ is used to monitor overall prices in the stock
market by looking at the total companies.
5. Institutions that sell shares to the public and use the proceeds to
buy a variety of stocks and bonds fortofolio called ___________.
6. Two financial intermediary institutions are ________ and
_________.
7. _________is an economy that does interact with another
economy.
8. __________ total amount of savings generated within the
economy.
9. C + I + G + NX is the equation for _________.
10. _________ net inflow of funds into a country.

TRUE OR FALSE
1. If tax revenue exceeds goverment spending, the goverment runs
budget surplus.
2. Date of maturity is the date at which the principal amount of the
bond becomes due and is repaid to investor.
3. Increasing in national saving will shift supply curve for loanable
fund to right .
4. M2 consist of savings + time deposits + money market funds.
5. The financial intermediary that has the primary job to take in
deposit from people who want to save and use these deposits to
make loans to people who want to borrow are bank.
6. A higher budget deficit will shift the supply curve for loanable
funds to the right.
7. Capital gain is a payment made by a corporation to its shareholder.
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8. The fall in investment because of goverment borrowing is called


crowding out.
9. If tax revenue equal goverment spending, the goverment runs
budget deficit.
10. JIBOR is the rate for short term loans between banks.

MULTIPLE CHOICE
1. Equation for public saving is..............
a. C + I + G +NX c. T – G
b. T + G d. C + I +G
2. Financial institutions through which savers can directly provide
funds to borrowers are called:
a. Financial markets c.Saving and loan associations
b. Mutual funds d. Bank
3. Which of the following are true, regarding bonds?
a. Open economy c. Closed economy
b. International trade d. Financial system
4. There are three components of GDP in closed economy
except ........
a. Consumption c. Invesment
b. Goverment spending d. Net export
5. .......... is a letter of the debt.
a. Bond c. Stock
b. Check d. Mutual fund
6. Supply for loananble fund comes from.........
a. Goverment spending c. Invesment
b. Consumption d. Saving
7. Which one alter the demand for loananble fund?
a. Goverment budged deficit c. Taxes and investment
b. Goverment budged surplus d. Taxes and saving
8. Increasing interest rate will be followed by ............ in supply of
loanable fund.
a. Decreasing c. Constant
b. Increasing d. Stagnant
9. Assuming a closed economy, which of the following is FALSE
in the market for loanable funds?

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Team of Teaching Assistant of Introduction to Macroeconomics

National saving provides the supply of loanable


a. funds.
Domestic investment provides the demand for
b. loanable funds.
The loanable funds market determines the interest
c. rate in the economy.
The amount of funds loaned depends on national
d. saving alone.
10. Which of the following is NOT true about mutual funds?
Mutual funds typically hold a wide assortment of
a. stocks and/or bonds.
Mutual funds pool together the money of many
b. different savers.
Mutual funds typically accept deposits and allow
c. depositors to write checks on their deposits.
Mutual funds allow people with limited funds to
d. diversify.

ESSAY
1. What is a financial system?
2. What is the different between financial market and financial
intermediary? Give the example of them and explain it!
3. Explain the factor of market loanable fund?
4. Explain the difference between bond market and stock market!
5. Explain which one are more risk, stock or bond!
6. What is the meaning of national saving, public saving, and private
saving?
7. When one country use a close economy system with :
C = $ 450 G = $ 600
I = $ 1100 T = $ 700
Calculate :
a. GDP
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Team of Teaching Assistant of Introduction to Macroeconomics

b. National saving
c. Public saving
d. Private saving
8. Calculate its goverment budget. Does it has budget deficit or
budget surplus?
9. Now, consider the country is open economy, and it has import =
300 and export = 350. Do the calculation as in number 7!
10. Explain the relationship between financial market with economic
activity!

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Team of Teaching Assistant of Introduction to Macroeconomics

CHAPTER 4
UNEMPLOYMENT

1. Identifying Unemployment

Labour force = Number of people employed +


Number of people unemployed

Unemployment rate = Number of unemployed x 100


Labour force

Labour-force = Labour force_____ x 100


Participation Rate Adult population

Employment-to- = Number of people employed x 100


population ratio Adult Population

2. Types of Unemployment

Frictional Unemployment the normal labour turnover—


from people entering and leaving the labour force and from
the ongoing creation and destruction of jobs.

Structural Unemployment the unemployment that arises


when changes in technology or international competition
change the skills needed to perform jobs or change the
locations of jobs.

Natural Rate of Unemployment the normal rate of


unemployment around which the unemployment rate
fluctuates.

Cyclical Unemployment the deviation of unemployment


from its natural rate, due to the movement of business cycle.

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Team of Teaching Assistant of Introduction to Macroeconomics

Full Employment situation in which the unemployment rate


equals the natural unemployment rate.

3. The Theory of Efficiency Wages

Efficiency Wages above-equilibrium wages paid by firms in


order to increase worker productivity.

 Worker Health
 Worker Turnover
 Worker Effort
 Worker Quality

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Team of Teaching Assistant of Introduction to Macroeconomics

CHAPTER 4
UNEMPLOYMENT

FILL IN THE BLANK


1. The percentage of the labour force that is unemployed is
called ________.
2. Labour force is the sum of the____ and ______.
3. The deviation of unemployment from its natural rate is called
_________.
4. _________ is the normal rate of unemployment around which
the unemployment fluctuates.
5. If the minimum wage is set above market equilibrium, the
demand for workers will be _______ and resulted in
_________.
6. After searching for a job for years and unable to get one,
Fredy decided to not looking for a job and be a househusband
instead, albeit he was keen to work. Fredy is called as a
________.
7. The labour-force participation rate is the percentage of the
__________ in ___________.
8. In a developed country, when people become unemployed,
they are entitled to a government program that partially
protects workers’ income that called ______________.
9. Given the following information of Uganda:
Adult Population : 40 million
Labour Force : 17.4 million
Unemployment : 10 million
The number of labor-force participation rate in Uganda is
_______.
10. Firms decide to increase the amount of worker’s wage in
order to increase worker _________.

TRUE OR FALSE
1. It is possible to have 0 percent unemployment rate.
2. Unemployment rate has nothing to do with business cycle.
3. Full employment is the condition when the unemployment rate
reached 0 percent.
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Team of Teaching Assistant of Introduction to Macroeconomics

4. The purpose of the theory of efficient wages that the firm pay
more wages to the workers in order to increase the workers’
income.
5. If the labour force is 50 million and employment rate is 40%, so
the number of unemployed is 25 million.
6. Children under 15 years old who were not in school are
considered unemployed.
7. Structural unemployment happens because it takes time for
workers to search for the jobs that best suit their tastes and skills.
8. Recession will reduce cyclical unemployment.
9. Frictional unemployment happens because there are changes in
technology or international competition that change the skills
needed to perform jobs or change the location of jobs.
10. Collective bargaining is the organised withdrawal of labour from
a firm by union.

MULTIPLE CHOICE
1. Unemployment that happened because of the movement is
business cycle is called…
a. Cyclical
b. Seasonal
c. Frictional
d. Structural
2. Full employment is the situation when unemployment is in its…..
a. Natural rate
b. Highest
c. Lowest
d. Equilibrium
3. Which of the following is NOT included in labour force?
a. 23-years-old that pursuing postgraduate courses in
university
b. Housewife that works part-time in Burger King
c. 70-years-old that works as university professor
d. Unemployed that has looking for a job for 5 years and
still looking for a job
4. These are the reasons of why firm pays an efficiency wages,
EXCEPT….
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Team of Teaching Assistant of Introduction to Macroeconomics

a. Worker demand
b. Worker health
c. Worker turnover
d. Worker effort
5. Workers that are giving up looking for jobs but are willing to get
a job is called …..
a. Discouraged workers
b. Seasonal unemployed
c. Frictional unemployed
d. Cynical unemployed
6. After graduated with economic degree, John Keynes was looking
for a job. Several firms offer him a job. He takes an offer and it
will decrease …
a. Frictional unemployment
b. Cyclical unemployment
c. Structural unemployment
d. Seasonal unemployment
7. Government in DPR Korea gives their citizen a social security to
people who unemployed as much as 50000 won for each. Kim
Jong-Nam, a citizen and a jobseeker has been offered a clerk
position in local administration office with salary 100000 won a
month. Given this condition Kim choose to takes a job because…
a. The amount of salary is higher than the amount of
social security
b. C
c. The incentives to remain as an unemployed is higher
than to be employed
d. Kim Jong-Nam is not in labor force
8. Which of the following is an example of seasonal unemployment?
a. A retired police officer
b. A full time student who cannot take a part time job
regarding his rapid schedule at campus
c. A teacher who has been offer a job as politician and
decide not to take that
d. A farmer who waiting harvest time
9. Minimum wage laws is government policy to….
a. Increase labor participation rate in the country
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Team of Teaching Assistant of Introduction to Macroeconomics

b. Preventing wages from failing below equilibrium


level
c. Make unemployment in the natural rate
d. Make a good image
10. Donald has a wedding organiser while he still work for J.P.
Morgan. After a year he decided to focus in his wedding organiser
and left the company. In this case, the unemployment rate will…
a. Remain the same
b. Decrease
c. Increase
d. None of the answers right

ESSAY
1. Why is the unemployment rate never zero, even at full
employment?
2. The CIA World Factbook give data regarding the population of
DPR Korea:
Labour-force participation rate = 90%
Employment = 11 million
Adult population = 12.6 million
Natural rate of unemployment = 5%
Calculate the number of:
a. Labour force!
b. Employment rate
c. Unemployment
d. Unemployment rate
3. What is the natural unemployment rate?
4. Explain briefly about the theory of efficiency wages and the
reasons why the firm uses this.
5. How does the unemployment rate fluctuate over the business
cycle?
6. Study these following case:
a. Megan graduate from University of Canterbury and
continue to master degree in the same institution. Her
study time increase from 6 hours per day to 8 hours
per day. What will happen to the labor force?

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Team of Teaching Assistant of Introduction to Macroeconomics

b. Tim will getting married and decided to resign from


his office. What will happen to unemployment rate
and labor force?
c. Because severe recession, Nick was fired. What kind
of unemployment is this?
d. Tom sells tangerine in the market. Because it is
winter, he couldn’t harvest his tangerine yet and
become unemployed for that reason. What kind of
unemployment is this?
7. Are the following workers more likely to experience short-
term or long-term unemployment? Explain.
a. A construction worker laid off because of bad
weather
b. A bus driver laid off because of competition from the
railway
c. A cook who loses his job when a new restaurant
opens across the street
d. An expert welder with little formal education who
loses her job when the company installs automatic
welding machinery
8. The Bureau of Labor Statistic announced that in January 2010, of
all adult American, 141.481.000 were employed, 4.209.000 were
unemployed and 78.463.000 were not in labor force. Use this
information to calculate:
a. Adult population
b. Labor force
c. Labor force participation rate
d. Unemployment rate
9. Define frictional unemployment, structural unemployment, and
cyclical unemployment. Give examples of each type of
unemployment.
10. In the New Orleans metropolitan area in August 2005, the labour
force was 634,512 and 35,222 people were unemployed. In
September 2005 following Hurricane Katrina, the labour force
fell by 156,518 and the number employed fell by 206,024.
Calculate the unemployment rate in August 2005 and in
September 2005.
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Team of Teaching Assistant of Introduction to Macroeconomics

CHAPTER 5
THE MONETARY SYSTEM

Economics needs a tool of payment which accepted by people such


as money.
Money is the set of assets in an economy that people regularly use to
buy goods and services from other people.

Money has three functions in the economy:


• Medium of exchange is an item that buyers give to sellers when
they want to purchase goods and services.
• Unit of account is the yardstick people use to post prices and
record debts.
• Store of value is an item that people can use to transfer
purchasing power from the present to the future.

The Kinds of Money


• Commodity money takes the form of a commodity with intrinsic
value. Examples: Gold, silver.
• Fiat money is used as money because of government decree.It
does not have intrinsic value. Examples : Coins, currency, check
deposits.

The FED is the central bank which regulates the US’s monetary
system. The Federal Reserve serves as the nation’s central bank.
Three Primary Functions of the Fed:
• Regulates banks to ensure they follow federal laws intended to
promote safe and sound banking practices.
• Acts as a banker’s bank, making loans to banks and as a lender
of last resort.
• Conducts monetary policy by controlling the money supply.

The FED controls the money supply through open-market


operations when it buys government bonds from or sells government
bonds to the public. The Fed also influences the money supply with
reserve requirements, and discount rate.
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Team of Teaching Assistant of Introduction to Macroeconomics

The money multiplier is the amount of money the banking system


generates with each dollar of reserves. The money multiplier is the
reciprocal of the reserve ratio: M = 1/R

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Team of Teaching Assistant of Introduction to Macroeconomics

CHAPTER 5
THE MONETARY SYSTEM

FILL IN THE BLANK


1. A _____ is anything that is readily acceptable as payment.
2. Fiat money, e.g _____, is the money that has not an intrinsic value.
3. ______are balances in bank accounts that depositors can access
on demand by writing a check.
4. Currency, demand deposits, and ______ are various kind of M1.
5. Monetary policy is undertaken by ______.
6. To increase the money supply, the Fed ______ government bonds
from the public.
7. ______ is the interest rate of the money lent by central bank to the
banks.
8. Savings that are accepted by a bank but it’s not used to be lent is
______.
9. When a bank makes a loan from its reserves, the money supply
______.
10. The number of money created by the banking system for each
reserve one dollar is called ______.

TRUE OR FALSE
1. A medium of exchange is an item that people can use to transfer
purchasing power from the present to the future.
2. Commodity money is money that has intrinsic value.
3. Savings deposits, small time deposits, money market mutual
funds, and everything in M1 are various kind of M2.
4. Monetary policy is setting of money demand by policy makers in
the government.
5. To decrease the money supply, the Fed sells government bonds to
the public.
6. Open market operation is the only way to change the quantity of
money supply.
7. The higher reserve ratio, bank can’t create much money.
8. Bank Indonesia can not to conduct monetary policy by controlling
the money supply.
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Team of Teaching Assistant of Introduction to Macroeconomics

9. Decreasing the discount rate, will decreases the money supply.


10. A bank that has a reserve requirement = 20%, money multiplier
is 5.

MULTIPLE CHOICE
1. The main function of money are .....
a. Unit of account, means of transactions, paying debt
b. Store of value, unit of account, reserves
c. Medium of exchange, reserves, store of value
d. Medium of exchange, unit of account, store of value
2. Three Primary Functions of the Central Bank are, except .....
a. Conducts fiscal policy by controlling tax and subsidies
b. Designed to oversee the banking system.
c. Acts as a banker’s bank, making loans to banks and as a
lender of last resort.
d. Conducts monetary policy by controlling the money
supply
3. Money supply is .....
a. The stock of money which available in the central bank
b. The stock of money which available in the economy
c. The stock of money which demanded by people in the
economy
d. The stock of money which demanded in the large scale
economy
4. Money multiplier is the reciprocal of .....
a. Discount rate
b. Open market operation
c. Reserve ratio
d. Fiscal policy

5. Monetary policy is undertaken by…


a. Financial department
b. Central bank
c. Local government
d. Central government

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Team of Teaching Assistant of Introduction to Macroeconomics

6. Central bank is the institution that is set to control the banking


system and set manage the money supply in the economy. Which
one of these banks that is not included into central bank?
a. Federal Reserves
b. Bank Indonesia
c. Bank Sentral Swiss
d. Asian Development Bank
7. To reduce inflation, central bank makes policy, unless .....
a. Increasing interest rate
b. Decreasing reserve requirement
c. Increasing reserve requirement
d. Open market sale
8. Regulation on the minimum amount of reserve that banks must
hold against deposit is .....
a. Discount rate
b. Open market operation
c. Fiscal policy
d. Reserve requirement
9. Various kind of M1 are …
a. Currency, demand deposits, and traveler’s check
b. Currency, savings deposits, and traveler’s check
c. Currency, small time deposits, and traveler’s check
d. Currency only
10. If BTN has 1 million rupiah deposit with 20% reserve ratio in its
pasiva, how much loan it can allow in BTN?
a. Rp 800.000,-
b. Rp 850.000,-
c. Rp 600.000,-
d. Rp 500.000,-

ESSAY
1. Explain about money and its main function!
2. Explain briefly about money supply, fiat money, and comodity
money! (give the example)
3. Mention and explain three tools of monetary policy from central
bank!

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Team of Teaching Assistant of Introduction to Macroeconomics

4. Define the 𝑀1 and 𝑀2 . What are included in 𝑀1 ? What are


included in 𝑀2 but that’s not included in 𝑀1 ?
5. What is discount rate? What if central bank increase the discount
rate?
6. What is the meaning of the “the lender of last resort”?
7. Explain about the reserve ratio and how its works?
8. Explain about the relationship between the increasing of interest
rate and the money exist on the economy!
9. In the economy of Indonesia, there are 10000 pieces of
Rp100.000.
a) If the society holds the money as cash, how much is the
money in the economy?
b) If the society saves their money as the bank accounts
and keeps the reserve ratio by 100%, how much money
in the economy?
c) If the society holds money in cash and bank account in
the same number, while bank reserve ratio is 100%, how
much is the money in the economy?
d) If the society saves all their money in bank, and bank
keeps the reserve ratio by 10%, how much is the money
now?
10. Fill in the table below and how much the reserve ratio?

First National Bank


Aktiva Pasiva
Reserve $ .... Deposits $ 36000
Loan $ 30600
Second National Bank
Aktiva Pasiva
Reserve $ .... Deposits $ 30600
Loan $ ....
Third National Bank
Aktiva Pasiva
Reserve $ .... Deposits $ 26010
Loan $ ....

41