Business Studies Programme (BSP)

ECO 211 – Principles of Macroeconomics

Test 2 (15%)

Answer all the following questions. The total marks for this test is 100 marks and will be
converted into 15% of the total coursework in this subject.

Section A – Choose Four (4) out of Five (5) Questions (100 marks)

Question 1 – 25 marks
The following information is used for the calculation of the Balance of Payments.

Particulars Amount
Current Account
Export of Goods $4,55,000
Imports of Goods -$3,50,000
Exports of Services $1,77,000
Imports of Services -$1,99,000
Capital Account
Net Capital Account Balance $43,000
Financial Account
Net Direct Investment $50,000
Net Portfolio Investment -$93,000
Assets Funding $22,000
Errors and Omissions $14,000

(a) Calculate the balance of current account and indicate whether the balance of current
account is in surplus or deficit. (5 marks)
(b) Calculate the balance of capital account and indicate whether the balance of capital
account is in surplus or deficit. (5 marks)
(c) Calculate the balance of financial account and indicate whether the balance of financial
account is in surplus or deficit. (5 marks)
(d) Calculate the balance of payments and indicate whether the balance of payments is in
surplus or deficit. (10 marks)

Question 2 – 25 marks
The economy of Singapore is a highly-developed free market economy. Singapore’s
economy has been ranked by the World Economic Forum as the most open in the world, the
3rd least corrupt and the most pro-business. The country has low tax-rates in terms of
purchasing power parity (PPP). The Asia Pacific Economic (APEC) is headquartered in
Singapore.
a) Briefly define and explain what is a free market economy. (2 marks)
b) Explain TWO (2) characteristics of a free market economy. (5 marks)
c) Explain THREE (3) benefits of a free market economy. (9 marks)
d) Explain THREE (3) disadvantages of a free market economy. (9 marks)

Question 3 – 25 marks
An Economist is comparing the aggregate demand of two economies – Economy A and
Economy B. Refer to the following table.

Particulars Economy A (in million) Economy B (in million)

Consumption $26.1 $31.1
Investment $40.3 $39.2
Government Spending $25.4 $81.2
Exports $49.6 $19.5
Imports $25.4 $10

(a) Using the values from the above table, calculate the aggregate demand for both,
Economy A and B. Show your calculations. (12 marks)
(b) Which economy has a higher aggregate demand and why? Justify your answer.
(13 marks)

Question 4 – 25 marks
From a conceptual perspective, the business cycle is the upward and downward movements
of levels of GDP (gross domestic product) and refers to the period of expansions and
contractions in the level of economic activities around a long-term growth trend. List and
explain the SIX (6) distinct phases of the business cycle, and indicate what happens to
production of goods and services (output), employment, and inflation in each phase of the
cycle. (25 marks)

Question 5 – 25 marks
In macroeconomics and modern monetary policy, a devaluation is an official lowering of the
value of a country’s currency within a fixed exchanged-rate system, in which a monetary
authority formally sets lower exchange rate of the national currency in relation to a foreign
reference currency or currency basket. Using examples, explain at least FOUR (4) reasons
why a country devalued their currency. (25 marks)

Note:
1. Submit your answer in a softcopy and send it to: aarti@rafflescoll.onmicrosoft.com.
Write your answer in A4 paper and save the file in PDF format. (With file name:
your full name)
2. Plagiarism is strictly prohibited in this test. Whoever copy their friend’s answer will
get zero (0) as penalty together with the answer provider.
3. This test paper will be distributed on Wednesday, 7 March 2022 at 02:00pm to your
email address & the answer must be sent back to my email before 16:00 pm on the
same day. Any late submission will be get zero (0) for this test. (04:30 pm is
considered as late submission)