UNIVERSITI TUNKU ABDUL RAHMAN ACADEMIC YEAR 2018/2019 DECEMBER EXAMINATION UBEA1073 PRINCIPLES OF MACROECONOMICS MONDAY, 17 DECEMBER 2018 TIME: 9.00 AM ~ 12.00 PM (3 HOURS) BACHELOR OF COMMERCE (HONOURS) ACCOUNTING BACHELOR OF BUSINESS ADMINISTRATION (HONOURS) BANKING AND FINANCE BACHELOR OF ECONOMICS (HONOURS) FINANCIAL ECONOMICS BACHELOR OF MARKETING (HONOURS) BACHELOR OF BUSINESS ADMINISTRATION (HONOURS) RETAIL, MANAGEMENT Instructions to candidates: This paper consists of TWO (2) sections. Section A: [Total: 40 marks] This section consists of ONE (1) COMPULSORY question. The question carries FORTY (40) marks. Section B: [Total: 60 marks} This section consists of THREE (3) questions. Answer ANY TWO (2) questions. Each question carries THIRTY (30) marks. Marks will be awarded for clarity and logic of arguments. Note: When candidates answer more than the required number of question, only the first TWO (2) answer written under Section B in the answer booklet will be marked. The rest of the answer or part-answer shall be struck out and ignored. This question paper consists of 4 questions on 4 printed pages.2 UBEA1073 PRINCIPLES OF MACROECONOMICS Section A (Total: 40 marks] This section consists of ONE (1) COMPULSORY question. Qa. @ () © Briefly explain the factor that will change the quantity of money demanded and the factors that will change the demand for money. (6 matks) The government of Singapore had decided to increase their spending in order to stimulate economic growth due to the high unemployment rate. At the same time, the Central Bank of Singapore implements expansionary monetary policy to accommodate the change in money demand. Explain the effects on equilibrium output, equilibrium interest rate and investment with appropriate diagrams. (17 marks) Consider the following simple open economy model for Malaysia (RM Million): 1220 04 2300 250 Autonomous saving MPC Planned Investment Government Spending Export 4000 Import = 20+0.2¥d Budget Surplus = 430 (@ Calculate the equilibrium level of income for four sectors economics with taxes. (6 marks) Gi) What level of output does Malaysia need in order to maintain a balance trade account? (4 marks) ee Willron allio (ii) Suppose government increases spending to RM 2000nd decreases tax by RM 800/Acalculate the new equilibrium output level and the new balance of trade by using the open economy multiplier approach. (7 marks) [Total: 40 marks] This question paper consists of 4 questions on 4 printed pages.UBEA1073 PRINCIPLES OF MACROEC Section B (Total: 60 marks} This section consists of THREE (3) questions. Answer any TWO (2) questions. Ql. (a) The following table shows the number of labours required to produce a pizza and a cloth in Japan and Indonesia. [ Tepe | Tad | [Pizza [20 4 [Cloth io 15 @ If each country has 14200 labours of which 70 % of its labours is allocated to pizza and remaining allocate to the production of cloth, show the total production for each country. (4 marks) (i) Identify which country has an absolute advantage and comparative advantage in the production of pizza and cloth. (6 marks) (ii) Construct a table to show the amount of goods produced after specialization and after trade if the terms of trade is 1 pizza exchange for 0.5 cloth and Indonesia would like to import 622 cloth from Japan, ‘Would these two countries gain or loss from trade? (12 marks) (>) Discuss EIGHT (8) benefits of economic growth, (8 marks) [Total: 30 marks} Q2. (@) The United State faced a Great Depression in 1930s, causing the consumption, investment, government purchases, and net exports to decline faster than capital deterioration. Graphically explain the incident by using aggregate demand (AD) and aggregate supply (AS) analysis. (10 marks) (b) “When a currency started to depreciate, the balance of trade will be worsen over time.” Do you agree? Explain your answer by using an appropriate diagram, (10 marks) () Suggest policies that can be implemented by the government to solve the unemployment problem. When the economy is under a cost shock inflation (10 marks) [Total: 30 marks] 3. (@)_Based on the following table calculates balance on current account, balance on capital account and balance of payments. (13 marks) This question paper consists of 4 questions on 4 printed pages.4 UBEA1073 PRINCIPLES OF MACROECONOMICS Section B Q3. (a) (Continued) [Net Transfer Payments Exports of services A in private US. assets abroad Goods imports Income payments on investments Imports of services Goods exports Income received on investments ‘Ain foreign private assets in U.S, Ain US. govt, assets abroad Statistical discrepancy/ foreign reserves ‘Ain foreign govt. assets in US. Net capital account transactions and financial derivatives (©) What are the TWO (2) deficits that will be faced by an economy when the economy is producing at the full-employment level of output (Full- employment budget)? (4 marks) (©) What are the THREE (3) tools that central bank can use to implement expansionary monetary policy? Explain your answer with the aid of diagram(s) on the impact of these policies to the aggregate output of an economy (13 marks) [Total: 30 marks} This question paper consists of 4 questions on 4 printed pages.