CONFIDENTIAL Aabnhastructure PXeeainiversity na FINAL EXAMINATION JUNE SEMESTER 2022 MACROECONOMICS (ECON 1310) (TIME : 3 HOURS) ———— MATRIC NO. Al IC. / PASSPORT NO. :[ LECTURER : MOHD AZHAR BIN HAMZAH. GENERAL INSTRUCTIONS “This question booklet consis of 14 printed pages including this page Answer ALL questions inthe ANSWER BOOKLET. TOLD TODOSO. PLEASE DO NOT TURN THIS PAGE AND START THE EXAM UNTIL YOU ARE, CONFIDENTIAL Page 1 of 14INSTRUCTIONS: ‘rine: sours SECTION A (MARKS) ‘There are FORTY (40) questions inthis section, Answer ALL Questions in the Answer Bookiet. |, Te firms set prices and then Keep them fixed fora period of time, thir fixed prices imply hat, ‘A) the agercgate price level is fixed and that aggregate demand determines the ‘quantity of goods and services sod BB) prices ae set by aggregate demand and supply. the aggregate price evel adjusts continuously. 'D) the ageregate price level i xed and that aggregate supply determines the quantity ‘of goods and services sol, 2 Aconsumption function shows a; 'A) negative (inverse) relationship between consumption expenditure aud saving. ) postive (direc) relationship between consumption expenditure and price level (C) negative inverse) relationship between consumption expenditure and disposable income. ) positive (det) relationship between consumption expenditure and disposable 3. A movement along the consumption function 10 higher levels of consumption ‘expenditure arises because; ‘A the level of disposable income decease, BB) household wealth rises. (©) the level of disposable income increases. D) the level of deste saving rises, 4. Suppose that in 2010, firms discover that their inventories are faling below ther target levels. Which ofthe following statements is CORRECT? {A) The level of agaregate savings must equal the level of desired investment. 'B) Even though firms are trying, they are unable to maximize profits. (©) Agaregate demand is tess than aggregate soppy. D)Real GDP is less than equilibrium expenditure. BCONTSTOTune2022 Page 2of 14Realopr[ ¢ [7 @_|_ax 2500 | 1430_|~s40_[400__[ 90 2400 | 1360 [$4040 | 100 2300__|1290—| sao | 400_[ 110 ‘2200—[-1220—| sao | —400__[ 120, ‘2100 —[11s0|_540 [400130 5, In the above table, C is consumption expenditure, is investment, Gis goverment expenditure, and NX is net exports. Allenties are in dollars. The equibrium level of real GDP is: 4)82,500. B) $2,400, ©) 82,200, )$2,200. 0 aaa a0 ato lob tof 200 dln) 6, Inthe above figure, real GDP is greater than $300 billion, inventors will be; 'A) below target levels so firms increase production, B) below target levels so firms deerease production, CC) above target levels so firms increase production, ) above target levels so firms decrease production “BEONTSTO m0eon pnd won "ite 2 cr) et oF inf 200 an ‘The figure shows Tropical Isle's ageregate planned expenditure curve. When agregate. planned expenditure is $2 trillion, aggregate planned expenditure is than real GDP, firms inventories and firms their production ‘A) greater; increase; decrease B) less; derease; increase CC) less increase; decease ) greater; decrease; increase i ya i £ ma ier a = ee Se rg cect Orta pawtene Re Tee aarp Seek kan caxoinoren etornorey ————— ORT Page 12 of 4SECTION B (60 MARKS) ‘There are THREE (3) questions inthis section. Answer ALL questions inthe Answer Booklet. QUESTION 1 15 MARKS) Inthe economy of Keynesian Island, autonomous consumption expenditure is RMSO milion, and the marginal propensity to consume is 0.8. Investment is RM160 million, government ‘xpenditure ie REM190 millon, and net taxes are RM2SO million Investment, povernment Dprchases, and taxes are constant-they do not vary with income. The island does not trade with the rest ofthe world, 8) Draw the aggregate expenditure curve. (rmasks) (CLOLPLOI:C3) (CLO2-PLO2:C4) 'b) What is equilibrium real GDP for Keynesian Island? marks) (CLOL-PLOL:C3) (CLO2:PLO2:C4) ©), Whats the size ofthe multipli ‘in Keynesian Island's economy? G marks) (CLOLPLOIC3) (CLO2PLO2:C4) 4) If the government increases its purchases by $200 milli, what willbe the change in ibm real GDP? G mails) (CLOLPLOL:C3) (CLO2:PLO2:C4) BCONTSTOT e027 Page sarisQUESTION 2 (25 MARKS) 18) The Covid-19 pandemic has signifigantly effect the economy around the world and the suitable policy to be implemented is expansionary fiscal policy. Suppose the ‘goverment i focusing more on tax component instead of the other components. Explain in detils how tax can impact both aggregate demand and agaregate supply inthis situation. Give an example ofeach (15 marks) (CLOLPLOLC4) (CLO3:PLOL:CA) ') 1actual employment is lesser than full employment, what fiscal policy actions could climinae the gap? Is there any possible ew problem will oceur with the policy taken by the government to eliminate the gap? Mlustate and explain what adjustments, if any, take place? (10 marks) (CLOL-PLOL:C4 (CLO3:PLOL:C4) 20 MAI 8) Explain how the central bank's response to inflation works its way thwough the economy to ultimately affecting real GDP and the price level (10 marks) (CLOS:PLO6:C4) (CLO3:PLOL:C4) ) When a customer takes cash from a drawer in his home and deposits it ino his checking account, the composition ofthe money supply will change immediately and the size of the money supply may eventually change, Explain the process by which this action may change the money supply in economy. (10 marks) (CLO%:PLO6:C4) (CLO3:PLOL:CA) ‘st END OF QUESTIONS *** eS ECONTSTOTneI02 Page 14 of Mt