CONFIDENTIAL BAJJAN 2018/ECO415 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE ECONOMICS COURSE CODE ECO415 EXAMINATION : JANUARY 2018 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of two (2) parts: PART A (2 Questions) PART B (4 Questions) 2 ‘Answer ALL questions from PART A and any three (3) questions from PART B in the ‘Answer Booklet. Start each answer on a new page. 3 Do not bring any material into the examination room unless permission is given by the invigilator. 4 Please check to make sure that this examination pack consists of: i) the Question Paper ii) an Answer Booklet — provided by the Faculty 5. ‘Answer ALL questions in English. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. This examination paper consists of 5 printed pages (© Hak Cipta Universiti Toknolog! MARA CONFIDENTIALCONFIDENTIAL 2 BAIJAN 2018/EC0415, PART A QUESTION 1 Johari: Govt to consider ceiling for oil price KUALA LUMPUR: The setting of a ceiling is one of the options the government is considering to tackle the issue of escalating oil price. Second Finance Minister Datuk Seri Johari Abdul Ghani said in certain advanced countries, the governments would leave oil prices afloat, and the oil and gas (O&G) industry players would determine them. "It is up to the government to set a ceiling which is deemed fair for all. “When we (the government) have decided on the ceiling price, whether they (O&G industry players) want to sell the oil at lower prices for promotional purposes, we leave it to them This is one of the options we are looking at,” he said. He said the government has also to be mindful whether the policy would be a problem for those living outside the city. "We are afraid the industry players would pay more attention in obtaining revenue from consumers in the city, and don’t want to do the same for those in the outskirts. We have to be wary of this too,” he said. On the reintroduction of fuel subsidies, Johari said, it would not be good for the Malaysian economy and were not sustainable. "We are aware of the oil prices. We will monitor them. If they keep on increasing and if there is additional revenue, | think the government can consider a different form of assistance to the lower groups, but not those who are well-off,” he said, He said the government would come out with a mechanism. "However, as of now there isn't a formula yet, but the government has already decided that it can't reverse this (subsidy) policy.” Adapted from New Straits Times, Thursday Feb 9th, 2017. a) Define price elasticity of demand. (2 marks) b) Based on the article above, identify and explain the degree of price elasticity of demand for oil. (4 marks) c) Using an appropriate diagram, explain the impact of the imposition of ceiling price on oil prices towards the market equil (6 marks) d) Briefly explain two (2) disadvantages of imposing ceiling price. (4 marks) e) Assume that oil market is free from government intervention. Based on your answer in (b), explain strategy should sellers adopt if they wish to increase their revenues. (4 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 3 BAJJAN 2018/ECO415 QUESTION 2 Malaysia's GDP at 3.8pct in 2017, says Standard Chartered KUALA LUMPUR: Global banking group Standard Chartered expects Malaysia's gross domestic products (GDP) to moderate in 2017 to 3.8 per cent from a projected 4.2 per cent in 2016 on the back of slower domestic demand. “We expect domestic demand, the main source of growth, to soften and moderate further in 2017. While domestic demand should partly offset weak external demand, it is likely to soften,” said Edward Lee, Standard Chartered head of Asean Economic Research, at the bank's global research briefing here today. “The resilience in consumer demand this year has been due to one-off measures, and labour metrics appear to be weakening as unemployment grows and we expect all these will play out in the second half of the year.” "We now expect Bank Negara to cut its policy rate by 25bps to 2.75 per cent in May 2017 Inflation is not a concern for the central bank although we are factoring a rise in inflation to 2.5 per cent in 2017 from two per cent in 2016 on the dissipation of low cil prices and the goods and services tax (GST) effect,” said Lee. “We think another rate cut would support household debt servicing without causing a surge in household leverage, and market volatility is a potential swing factor for Bank Negara next year. We expect the central bank | to weigh the short-term cost of loose monetary policy against the need to provide long-term growth support via lower interest rates amid volatile market conditions.” The bank expects the local market to continue to be driven by private investments. “Government consumption may remain steady and is unlikely to provide upside for growth. The government has maintained its fiscal consolidation stance for 2017, targeting a smaller deficit of 3 per cent of GDP (versus 3.1 per cent in 2016). It has to strike a balance between a challenging revenue environment and the need to support growth,” Lee said. Adapted from New Straits Times, Wednesday Jan 11th, 2017. a) Distinguish between Gross Domestic Product (GDP) and Gross National Product (GNP). (4 marks) b) With reference to the above article, state the reason behind the resilience in consumer demand in 2017. (2 marks) ©) ‘We expect the central bank to weigh the short-term cost of loose monetary policy against the need to provide long-term growth support via lower interest rates amid volatile market conditions". Based on this sentence, explain how a loose monetary policy may help to control deflation. (4 marks) (© Hak Cipta Universiti Teknologi MARA. CONFIDENTIAL,CONFIDENTIAL 4 BAJJAN 2018/ECO415 d) Briefly explain two (2) types of unemployment. (4 marks) ) Explain three (3) uses of national income data, (6 marks) (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL, 5 BAIJAN 2018/ECO415, PART B QUESTION 1 a) Define economics. Using an example, explain the three (3) basic economic concepts. (10 marks) b) Firm in monopoly market will earn supemormal profit in the long run due to the barriers to entry. Discuss four (4) barriers to the monopoly market. (10 marks) QUESTION 2 a) With illustration discuss the stages of production in the short run. (10 marks) b) Using an appropriate diagram, explain why the long-run average cost (LRAC) curve is U-shaped. Discuss any two (2) sources of economies of scale. (10 marks) QUESTION 3 a) Discuss four (4) monetary policy tools used to control inflation. (10 marks) b) Explain four (4) macroeconomics objectives. (10 marks) QUESTION 4 a) __ Describe any four (4) measures to correct a deficit in balance of payment. (40 marks) b) —_Using diagrams explain cost-push inflation and demand-pull inflation. (10 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA. CONFIDENTIAL