UNIVERSITI TUNKU ABDUL RAHMAN ACADEMIC YEAR 2018/2019 SEPTEMBER EXAMINATION UBEA1073 PRINCIPLES OF MACROECONOMICS TUESDAY, 18 SEPTEMBER 2018 ‘TIME: 2.00 PM — 5.00 PM (3 HOURS) BACHELOR OF COMMERCE (HONS) ACCOUNTING BACHELOR OF BUSINESS ADMINISTRATION (HONS) BANKING AND FINANCE BACHELOR OF ECONOMICS (HONS) FINANCIAL ECONOMICS BACHELOR OF MARKETING (HONS) BACHELOR OF BUSINESS ADMINISTRATION (HONS) 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 logie of arguments. Note: ‘When candidates answer more than the required number of question, only the first TWO (2) answers 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 This section consists of ONE (1) COMPULSORY question. [Total: 40 marks} Ql. (@) The following table shows the production possibilities of book and computer for two countries before specialization. Country [Outputiworker ‘Numbers of workers ae [book | computer. book computer | A {500 | 180 9 50 B [320 [800 20 10 j (i) Explain absolute advantage and comparative advantage. Determine which country has absolute advantage in which good and which country has comparative advantage in which good? (10 marks) Gi) Construct a table to show the amount of goods produced after specialization by country. Justify your answer. B marks) (iii) Assume that the terms of trade is 1 computer exchange for 1.5 book. Country B imports 15000 book from Country A. Would these two countries gain or loss from the trade? (6 marks) (b) Table below shows receipts and expenditure for United State in 2017 in Billion of Dollars). What type of budget/(saving) faced by United State in 2017? (11 marks) Subsidies 220.20 ‘Corporate income taxes 253.20 [Transfer payments to the rest of the world 667.20 [ts nerestofthe world 667.20 Linterest payments 658.30 [Consumption expenditure 556.90 [Personal income taxes 1152.30, Taxes from the rest of the world [99.20 ‘Current surplus of government enterprises -226.50__| Employers social insurance contribution [323.60 Grants-in-aid to state and local governments, 554.30 [Transfer payments to persons a 1523.60 Excise taxes and customs duties [1175.20 Interest receipts and rents and royalties 225.50 | Current transfer receipts from business and persons [367.20 (c) List and explain TWO (2) factors that affect exchange rate. (6 marks) (Distinguish between automatic stabilizers and fiscal drag, (4 marks) [Total: 40 marks] This question paper consists of 4 questions on 4 printed pages.UBEA1073 PRINCIPLES OF MACROECONOMICS Section B [Total: 60 marks] ‘This section consists of THREE (3) questions. Answer any TWO (2) questions. Ql. (@) __ Differentiate economic growth and modern economic growth. (4 marks) (b) Discuss FIVE (5) costs of economic growth. (10 marks) (©) Do you agree with this statement? “Crowding-out effect is an increase in the government spending that will cause reductions in the private investment spending”. Describe your answer with an appropriate diagram(s). (16 marks) [Total: 30 marks) 2. (a) Do you agree that the’ long-run AS curves is vertical because the wage fully adjusts to higher prices in long run? Explain your answer by using an appropriate diagram. (13 marks) (b) Assume that economy is currently operating at natural level of output. Recently, investors are pessimistic about the fiture due to the corruption problem, What is the effect of investors’ pessimistic view to the price level and output in the short run and long run without the government intervention? Explain your answer by using an appropriate diagram. (13 marks) (c) Explain Trade Feedback Effect and Price Feedback Effect. (4 marks) [Total: 30 marks] Q3 (a) __ Consider the following simple open economic model for Singapore is in (SGD Million): Autonomous Consumption = 1360 MPS 02 Planned Investment 2250 Government Spending 1050 Export = 6000 Import 30+0.4Yd Budget Surplus 0 (i) Calculate the equilibrium level of income for four sectors economy with taxes. (5 marks) (ii) Calculate the balance of trade when the economy is at equilibrium. __G marks) ~ This question paper consists of 4 questions on 4 printed pages.4 UBEA1073 PRINCIPLES OF MACROECONOMICS Section B Q3. (a) (Continued (b) (ii) What level of output does Singapore need in order to maintain a balance trade account? G marks) (iv) Suppose government increases spending to SGD 3000 million and decreases tax by SGD 1000 million, calculate the new equilibrium output level and the new balance of trade in open economy by using the multiplier approach. (7 marks) Assuming a system of flexible exchange rates between Singapore and Japan. Ilustrate impacts of the following events to the SGD Dollar currency, by using an appropriate diagram, () Growth rate of Singapore has decrease. (6 marks) Gi) Bank of Japan implements contractionary monetary policy. (6 marks) [Total: 30 marks] This question paper consists of 4 questions on 4 printed pages.