UNIVERSITI TUNKU ABDUL RAHMAN ACADEMIC YEAR 2019/2020 SEPTEMBER EXAMINATION UBEA1073 PRINCIPLES OF MACROECONOMICS, THURSDAY, 19 SEPTEMBER 2019 TIME: 9.00 AM ~ 12.00 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 logic of arguments. Note: Where 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/part answers 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. Ql. (@ A research shows that an acceptable unemployment rate could be achieved in Thailand by increasing the aggregate output to Thai Baht ([HB) 3200, Numerically explain by using THREE (3) multiplier approaches that can enable the government to achieve this objective. Given that:- Consumption = 100+0.75Yd Planned Investment Government Spending =200 Taxes = 500 (12 marks) (b) The Central Bank has the ability to create unexpected inflation in the short run. Once people anticipate inflation, the only way to get unemployment below the natural rate is for actual inflation to be above the anticipated rate Assume that government implement expansionary fiscal policy and the changes in Aggregate Demand (AD) are greater than people’s anticipation. (@® Mlustrate the above scenario on price and unemployment level. (S marks) Gi) Based on your answer in (i), explain the effect of this policy on price and unemployment level. (15 marks) (©) Describe the modem economic growth and its THREE (3) effects. (8 marks) [Total: 40 marks] This question paper consists of 4 questions on 4 printed pages,3 UBEA1073 PRINCIPLES OF MACROECONOMICS Section B {Total: 60 marks] This section consists of THREE (3) questions. Answer ANY TWO (2) questions. Ql. @) Do you agree that expansionary policy during cost-shock inflation can overcome the unemployment problem? Justify your answer with the aid of diagram, (14 marks) (6) Consider the following simple open economic model for Malaysia (RM Million): Marginal Propensity to Save (MPS) = 0.4 Autonomous Consumption 1,800 Planned Investment =1,220 Government Spending = 2,200 Export 3,220 Import 20+0.4Yd Budget Deficit = 1,400 (i) Calculate the equilibrium level of output for an open economy with taxes. (5 marks) Gi) Using the open economy multiplier approach, calculate the new equilibrium output level if the government increases spending to RM2,800 million and decreases tax to RMS00 million. (5 marks) (©) “Ifthe government impose expansionary fiscal policy when the economy is on the low capacity of the AS curve, there will be an increase in output with little increase in the price level”. Do you agree with this statement? Justify using an appropriate diagram, (6 marks) [Total: 30 marks] Q2. (a) Suppose Japan and Thailand can produce both phone and computer only. All the information is given in the following table. Outputlabours Country Phone Computer Tapan 3 6 Thailand 8 4 @ If Japan has 22,500 labours of which 70% of its labours is allocated to the production of phone while the remaining’s allocated to the production of Computer. Thailand has 20,200 labours of which 60% of its labours is allocated to production of phone while the remaining’s This question paper consists of 4 questions on 4 printed pages.4 UBEA1073 PRINCIPLES OF MACROECONOMICS Section B Q2. (a) (i) (Continued) @. (b) @ ) © allocated to the production of Computer. Calculate the number of labours and total production of each country. (8 marks) (ii) Identify which country has comparative advantage in the production of phone and computer. Justify your answer. (4 marks) (iii) Construct a table to show the amount of goods produced after specialization and after trade if the terms of trade is 1 phone exchange for 12 computers and Thailand would like to imports 66,000 computers from Japan. Would these two countries gain or lose from trade? (12 marks) Describe aggregate supply (AS). Do you agree that AS curve will becomes vertical in the long run? (6 marks) (Total: 30 marks] The government of Japan had decided to increase their spending in order to stimulate the economic growth due to the high unemployment rate, and at the same time central bank holds money supply fixed. Assuming that, the interest rate is highly responsive to the interest rate. Discuss the effects with necessary diagrams. (16 marks) “When a currency started to depreciate, the balance of trade will be improving over time.” Do you agree? Explain your answer by using an appropriate diagram. (10 marks) List any FOUR (4) factors that will shift the aggregate supply (AS) curve to the right in the short run. (4 marks) [Total: 30 marks] This question paper consists of 4 questions on 4 printed pages.