INTRODUCTION OF
MACROECONOMICS MODULE
TEACHING ASSISTANTS OF MICROECONOMICS AND
MACROECONOMICS
ECONOMICS AND DEVELOPMENT STUDIES
FACULTY OF ECONOMICS AND BUSINESS
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ACKNOWLEDGEMENT
In the name of Allah, The Most Gracious, The Most Merciful
Alhamdulillah, all praises to Allah SWT, The Almighty, for giving belief, health, confidence and blessing for the writers to accomplish this Module of Introduction to Macroeconomics. Shalawat and Salam be upon our Prophet Muhammad SAW, who has brought us from the darkness into the brightness and guided us into the right way of life.
In this opportunity, we also like to express our deep thanks to Dr. Kodrat Wibowo, S.E. as the Head Department of Economics, Dr. Mohamad Fahmi, SE., MT as the Head of Undergraduate Program of Department of Economics, lecturers, and those who contributed and helped in the process of making this module. All of your kindness and help means a lot to us. Thank you very much
We realise that the contents in this module is not that perfect. Therefore, we are willing to receive and consider feedback, suggestions and constructive criticisms, and eager to implement improvements.
Hopefully this module can be the short guide for the students in order to deepen their understanding and analysis of Macroeconmics theory. Thank you.
List of the Module Writers:
1. Anissa Rahmawati 120210100091
2. Novie Pratiwi S 120210100095
3. Mariza Fitri 120210100115
4. Rani Nurfaidah 120210100155
5. Romi Ramdani 120120110034
6. Ayu Swaningrum 120120110043
7. Hanna Mustikaati 120120110049
Acknowledge and Agree, Head of Undergraduate Program of Department of Economics
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TABLE OF CONTENT
INTRODUCTION OF MACROECONOMICS MODULE 1
ACKNOWLEDGEMENT ... 2
TABLE OF CONTENT ... 3
MODULE AND LABORATORY GUIDANCE ... 4
THE TEN PRINCIPLES OF ECONOMICS AND THINKING LIKE ECONOMISTS ... 5
MEASURING NATION’S INCOME & COST LIVING ... 11
SAVING, INVESTMENT, AND FINANCIAL MARKET ... 17
UNEMPLOYMENT... 21
MONETARY SYSTEM ... 27 MONEY GROWTH AND INFLATION ...Error! Bookmark not defined.
OPEN ECONOMY MACROECONOMICS:BASIC CONCEPT ... Error! Bookmark not defined.
A MACROECONOMIC THEORY OF THE OPEN ECONOMY ... Error! Bookmark not defined.
AGGREGATE DEMAND AND AGGREGATE SUPPLY ...Error! Bookmark not defined.
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MODULE AND LABORATORY GUIDANCE
1. This module was arranged as a media to help the students deepen their understanding during the laboratory session of Introduction to Macroeconomics.
2. All of the problems in this module are provided in English.
3. The types of the problems are Fill In The Blank, True-False, Multiple Choice, and Essay.
4. This module could only be used during the laboratory of Introduction to Macroeconomics.
5. The students are not allowed to bring and copy the module unless they get permission from the Team of Teaching Assistant.
6. For any reasons, the students are not allowed to write anything in the module unless they get permission from the Team of Teaching Assistant.
7. The answers are written on the answer sheet/other paper that has been provided by the Team of Teaching Assistant.
8. The materials in each laboratory meeting is adjusted based on the material that has been given by each of the lecturers in the class.
9. During the laboratory, all of the students should obey the rules that has been made by each of the Teaching Assistant.
10. The maximum duration for Laboratory is 2.5 hours (180 minutes)
11. For any incorrect or unclear questions that you found difficult, please re-read the appropriate question or ask directly to the Teaching Assistant to clear up any confusion.
12. After successfully finishing the problems, the students can leave the laboratory room with the permission from the Teaching Assistant.
13. Here below we kindly inform the general rule during the laboratory:
The laboratory has 10 (ten) meetings. The Teaching Assistant will take only 7 (seven) best mark and one other mark that comes from the Review in the 10th meeting.
The students are not allowed to change their laboratory schedule without any permission from their Teaching Assistant.
The students are not allowed to cheat, work together, and open the book/note while solving the problems in the laboratory.
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Team of Teaching Assistant of Introduction to Macroeconomics
CHAPTER 1
THE TEN PRINCIPLES OF ECONOMICS AND THINKING LIKE ECONOMISTS
Individual Decision Making 1. People face trade off
2. The cost of something is what you give up to get it. 3. Rational people think at the margin.
4. People Respond to incentives
How People Interact
5. Trade can make everyone better off.
6. Markets are usually a good way to organize economic activity. 7. Governments can sometimes improve economic outcomes.
How Economy as a Whole Works
8. The standard of living depends on a country’s production. 9. Prices rise when the government prints too much money.
10. Society faces a short-run tradeoff between inflation and unemployment.
Economist try to address their subject with a scientist’s subjectivity.
Economists make assumptions in order to make the world easier to understand. Economists use different assumptions to answer different questions.
Economics divided into two broad subfields:
Microeconomics focuses on the individual parts of the
economy: How households and firms make decisions and how they interact in specific markets.
Macroeconomics looks at the economy as a whole:
Economy-wide phenomena, including inflation, unemployment, and economic growth.
A positive statement is an assertion about how the world is.
A normative statement is an assertion about how the world ought to be.
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offer conflicting advice either because of differences in scientific judgments or because of differences in values.
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CHAPTER 1
THE TEN PRINCIPLES OF ECONOMICS AND THINKING LIKE ECONOMISTS
Fill in the Blanks
1. In the short in the economy faces tradeoff between ______ and _______.
2. __________ means that society is getting the most it can from its scarce resources.
3. If government tries to distribute the benefits from resources the country has fairly among society members then the government tries to achieve its goal which is ________.
4. People face tradeoff basically because resources are __________. 5. Cost that must be given up to obtain some item is called
__________.
6. The behavior of individual, based on economics principle, depends in the incentives. Their behavior may change when the __________ and the _________ change.
7. How many labor a firm should hired is studied in the subfield of ____________.
8. Economists uses ____________ to simplify reality in order to improve our understanding of the world.
9. The _______________ is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. 10. A circular flow diagram is a usual model of the economy that
shows go dollars flow through markets among _________ and __________.
True or False
1. Due to tight assignment submission deadline, Farhan can’t go to cinema with high school friends. So for Farhan, the opportunity cost for completing his assignment on schedule is watching movies with his friends.
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3. When analyzing any policy we must consider the direct effects as well as the indirect effects that work through incentives.
4. In the market for goods and services households are seller and firms are buyer.
5. The government should raise the minimum wage is a statement of positive economics.
6. The more productive people in a nation, the lower standard of living they reach, vice versa.
7. Trade can be mutually beneficial.
8. Productivity is the ultimate source of living standard.
9. There is no trade off between inflation and unemployment in the short-run
10. Inflation is an increase in the overall level of price in the economy
Multiple Choice
1. Which one of the following that is not principles of individual decision making
a. People face trade off
b. Trade can make everyone better off. c. Rational people think at the margin. d. People respond to incentives
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b. Most of politicians concerned with government plan to increase the price of the fuel.
c. Individual with higher education level will get job with higher salary.
d. State governments should be allowed to collect from tobacco companies the costs of treating smoking-related illnesses among the poor.
4. The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices……
a. market power
b. efficiency market hypothesis c. asymmetrical information d. invisible hands
5. To boost living standards, policymakers can do the following options except……
a. Ensuring that workers are well educated.
b. Ensuring that the industry have the tools needed to produce goods and services.
c. Ensuring that citizens pay tax.
d. Ensuring that the economy have access to the best available technology.
6. Microeconomics is the subfield of economics that concerns with……
a. How households and firms make decisions b. Inflation and unemployment
c. Economic growth
d. Fluctuation in monetary indicators
7. Concepts illustrated by the production possibilities frontier a. Efficiency
b. Tradeoffs c. Equity
d. Economic Growth
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a. invisible handsb. government’s supervision c. control from the central bank d. none of the above are correct.
9. A curve that shows the short-run tradeoff between inflation and unemployment is……
a. Labor Market Curves b. Circular flow diagram
c. The production possibility frontier d. Phillip Curve
10. Four managers of the Demigod Company are discussing a possible increase in production of Greek gods figurines. Each suggests a way to make this decision. Who do you think is right? a. Percy: We should examine whether our company’s
productivity—gallons of potion per worker—would rise or fall.
b. Grover : We should examine whether our average cost—cost per worker—would rise or fall.
c. Annabeth: We should examine whether the extra revenue from selling the additional potion would be greater or smaller than the extra cost.
d. Rachel: We should examine a possible merger with other company to boost our revenue.
Essay
1. Give three examples of important tradeoffs that you face in your life!
2. Why there is tradeoff between efficiency and equity?
3. Please mention and explain briefly the principles of how the economy as a whole works!
4. Study the following case:
a. How people might response to the new regulation of applying tax on purchasing new cars.
b. The existence of fuel subsidies in Indonesia from the perspective of equity and efficiency
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6. Classify the following case as relating to microeconomics or macroeconomics!
a. The amount of money the central bank should supply. b. Demand for labor in the labor markets.
c. Firm’s decision on how much output they should produce to maximize their profit.
d. International trade agreement between two countries in the same region.
e. Government decision to enact new tax regulation in automotive industry.
7. Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy’s cow population? 8. Draw a circular-flow diagram. Identify the parts of the model that
correspond to the flow of goods and services and the flow of dollars for each of the following activities.
a. Sam pays a storekeeper $1 for a quart of milk.
b. Sally earns $4.50 per hour working at a fast food restaurant. c. Serena spends $7 to see a movie.
d. Stuart earns $10,000 from his 10 percent ownership of Acme Industry.
9. What is the difference between positive and normative economics? Give an example of each!
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CHAPTER 2MEASURING NATION’S INCOME & COST LIVING
1. Measuring Nation’s Income
Gross Domestic Bruto GDP is the market value of all final goods and services produced in the a country in the period.
The components of GDP:
Y = C + I + G + NX; Y=GDP; C=consumption; I= income NX= Net Export
Real GDP vs Nominal GDP
Real GDP: the production of goods and services as measured by fixed prices
Nominal GDP: the production of goods and services as measured by current prices
2. Cost of Living
Consumer Price Index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer.
How it be calculated? 1. Fix the basket 2. Set the prices
3. Compute the overall price 4. Choose a base year
5. Compute the inflation rate
Problems in the compute of the cost of living 1. Substitution bias:
2. Introduction of new goods 3. Unmeasured quality change
GDP Deflator vs CPI
- GDP Deflator=𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
𝑅𝑒𝑎𝑙𝐺𝐷𝑃 x 100
- CPI: the prices of all goods and services which is consumed in the country; comparing the prices on the basket of fixedly goods and services the price of base year.
Indexation: automatic correction the value of money against the effect of inflation were conducted by Act or by contract
Nominal Interest Rate vs Real Interest Rate - Nominal interest rate: interest rate paid by banks
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CHAPTER 2MEASURING NATION’S INCOME & COST LIVING
Fill in the Blank
1. CPI is a measure of the overall cost of the goods and services ______ by a typical consumer.
2. _______ is a measure of the entire cost of the goods and services purchased by firms.
3. _______ is used to notice changes in the cost of living over time. 4. Indexation is a automatic correction the value of money against the
effect of ______ were conducted by Act or by Contract.
5. Indexation of wage to CPI either whole or in part is called ______ 6. ______is the market value of all final goods and services produced
in the a country in the period.
7. Net exports is value of _____ minus______.
8. Real GDP is the production of goods and services as measured by ______ .
9. When a nominal GDP and real GDP increased simultaneously, the GDP deflator ______.
10.A real GDP is a better measure in terms of _____ than a nominal GDP
True or False
1. Nominal interest rate indicates how fast the amount of your money in the the bank increased within a period.
2. Consumer Price Index (CPI) is a measure of the overall cost of the goods and services produced by a typical consumer.
3. GDP reflects the overall price of goods and services produced domestically.
4. The increase of price appears in the deflator GDP but does not in the CPI.
5. Nominal interest rates and real interest rates always move simultaneously.
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7. GDP is a first steps in to develop a macroeconomics.
8. Consumption is expenditure of goods and services by household, includes buy a new house.
9. Real GDP reflects the ability of the economy in fulfilling the needs and desires of the peoples.
10.Deflator GDP measures the level of prices in the base year relative to current prices.
Multiple Choice
1. The following are steps to calculate the CPI, except .... a. Fix the basket
b. Introduction a new goods
c. Changes in consumer preferences d. Unmeasured quality change
2. The following are the problems in compute the cost of living, except ...
a. Substitution bias
b. Introduction a new goods
c. Changes in consumer preferences d. Unmeasured quality change
3. When CPI ..., most consumers should spend ... money to sustain their standard of living in order to remain stable
a. decrease, more b. increase, more c. stable, less d. increase, less
4. A different between real interest rate with nominal interest rate is called ...
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c. GDPd. None of the above
5. In 2010, a country's inflation rate is 4% with the nominal interest rate is 6%. what is the level of the real interest rates?
a. 2 % b. 10% c. 1,5 % d. 24 %
6. Fariz saves money of $ 5000 in a bank that offers an interest rate is 15% per year. After one year he takes all his savings, amounting to $ 5750 with an inflation rate is 5%, what percentage of additional goods and services that can be purchased?
a. 3% b. 10% c. -10% d. 0,3%
7. In 2010, a country’s nominal GDP is $400 and real GDP is $100. In 2011, a country’s nominal GDP is $600 and real GDP is $200. From the data, we can know that ...
a. The prices level increases 300% b. The prices level increases 100% c. The prices level decreases 100% d. The prices level decreases 300%
8. We can calculate a deflator GDP with formula...
a. 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
𝑅𝑒𝑎𝑙𝐺𝐷𝑃 x 100
b. 𝑛𝑜𝑚𝑖𝑛𝑎𝑙𝐺𝐷𝑃 − 𝑅𝑒𝑎𝑙𝐺𝐷𝑃 𝑥100
c. 𝑅𝑒𝑎𝑙𝐺𝐷𝑃
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃 x 100
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9. The production of goods and services as measured by fixed prices is ...
a. Real GDP b. Nominal GDP c. Deflator GDP d. Net Export
10. Thing that was not included in GDP is... a. Consumption
b. Investasi c. Net export
d. Quality of environment
Essay
1. Explain the steps of compute of the CPI clearly!
2. Why does the value of money from various time not reflect the legitimate ratio of purchasing power?
3. Explain the difference between the deflator GDP and the CPI! 4. Explain why do nominal interest rates and real interest rates not
always move simultaneously? 5.
Year Rice Potato
P Q P Q
2009 $3 100 $6 50
2010 $4 200 $7 60
2011 $5 300 $8 70
Calculate the CPI every year with 20120 as the base year! 6. According to the table no 5, what is the level of inflation in 2010
and 2011!
7. According to the table no 5, calculate: a. Nominal GDP every year
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9. Why a overall of economy, income must be the same with the expenditures?
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CHAPTER 3SAVING, INVESTMENT, AND FINANCIAL MARKET
Financial System
Financial Market (Direct ) 1. Stock Market
2. Bond Maket
Financial Intermediariy (Indirect) 1. Bank
2. Mutual Fund
Economy divided into 2 part : 1. Closed economy
2. Open economy
GDP for Closed Economy : Y = C + I + G
GDP for open Economy: Y = C + I + G + NX
Private Saving S = (Y – C – T)
Public Saving S = (T-G)
When (T > G) => Budget Surplus (T < G) => Budget Defisit
National Saving I = Y – C – G ; I = S S = Y – C – G
S =( Y – C – T)+(T – G)
Nasional saving = Private Saving + Public Saving
Loanable Fund
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CHAPTER 3SAVING, INVESTMENT, AND FINANCIAL MARKET
Fill in the Blank
1. ______ are the through which a person who wants to save can diretly supply funds to a person who want to borrow.
2. _______ consist of those institution in the economy that help to match one person’s saving with another person’s investment. 3. _____ and ____ are product of financial market.
4. __________ are the through which a person who wants to save can indiretly supply funds to a person who want to borrow.
5. Institutions that sell shares to the public and use the proceeds to buy a variety of stocks and bonds fortofolio called ___
6. two financial intermediary institutions are_____ and _____
7. _____ is an economy that does not interact with another economy. 8. Economy interact with economies in the world are called ______. 9. C + I + G + NX is the equation for _______
10.National saving is the total of ______ and _________
True or False
1. If tax revenue exceeds goverment spending, the goverment runs budget deficit.
2. Interest rate represent the amount that borrower pay for loans. 3. Reduce in national saving will shift supply curve for loanable fund
to right .
4. The tax on interest income will shift demand curve for loanable fund.
5. The financial intermediary that has the primary job to take in deposit from people who want to save and use these deposits to make loans to people who want to borrow are bank.
6. A higher budget deficit will shift the supply curve for loanable funds to the left.
7. Term is the length of time until the bond matures.
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9. If tax revenue equal goverment spending, the goverment runs budget surplus.
10.The tax on interest income substantially reduced the future payoff from current saving and reduces the incentive for people save.
Multiple Choice
1. ... is a letter of the debt.
a. Bond c. Stock
b. Check d. Mutual fund
2. Supply for loananble fund comes from... a. Goverment spending c. Invesment b. Consumption d. Saving
3. The probabability that the borrower will fail to pay some of interest or prinsiple called...
a. Credit risk c. Mutual fund
b. Term d. Coupon
4. Equatin for public saving is...
a. C + I + G +NX c. T – G b. T + G d. C + I +G
5. Which one alter the demand for loananble fund?
a. Goverment budged deficit c. Taxes and investment b. Goverment budged surplus d. Taxes and saving
6. Increasing interest rate will be followed by ... in supply of loanable fund.
a. Decreasing c. Constant b. Increasing d. Stagnant
7. Institution of financial intermediate ...
a. Stock bond c.Indonesian stock exchange b. Bond stock d. Bank
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a. Consumption c. Invesment b. Goverment spending d. Net export
9. Coorporation pay out some of their profits to their stockholder with ...
a. Dividend c. Sharing profit b. Interest d .Price earning ration 10.The economy that is not interact with other economy is called as
...
a. Open economy c. Closed economy b. International trade d. Financial system
Essay
1. What is a financial system?
2. What is the different between financial market and financial intermediary? Give the example of them and explain it! 3. What is the meaning of market loanable fund?Graph it! 4. Explain what is meaning of the bond market and stock market! 5. Explain what is the meaning of mutual funds!
6. What is the meaning of national saving, public saving, and private saving?
7. When one country use a close economy system with : C = $ 450 G = $ 600
8. Calculate its goverment budget. Does it has budget deficit or budget surplus?
9. Now, consider the country is open economy, and it has import = 300 and export = 350. Answer the same question like in number 7! 10.Suppose that goverment passed a law giving a tax reduction to any
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CHAPTER 4 UNEMPLOYMENT1. Labor Force
the total number of workers, including both the employed and the unemployed
2. Unemployment rate
the percentage of the labor force that is unemployed
𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑟𝑎𝑡𝑒= 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 × 100
3. Labor-force participation rate
the percentage of the adult population that is in the labor force
𝑙𝑎𝑏𝑜𝑟𝑝𝑎𝑟𝑡𝑖𝑐𝑖𝑝𝑎𝑡𝑖𝑜𝑛𝑟𝑎𝑡𝑒= 𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒
𝐴𝑑𝑢𝑙𝑡 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 × 100
4. Natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates.
5. Cyclical unemployment
the deviation of unemployment from its natural rate. 6. Discourage workers
are individuals who would like to work but have given up looking for a job.
7. Frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that best suits their tastes and skills.
8. Structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide job for everyone who wants one.
9. Efficiency wage theory
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CHAPTER 4 UNEMPLOYMENTFill in the Blank
1. ____________ are individuals who would like to work but have given up looking for a job.
2. The percentage of the labor force that is unemployed ______________.
3. Given the following information of Country Z: population: 35 million
number of employed : 23 million number of unemployed : 6 million
The number of labor force of country Z is __________.
4. Firms decide to increase the amount of wage they paid to the workers in order to ___________.
5. Fayza, a fresh graduate from Padjadjaran University just got hired by a consultant firm based on Jakarta. This condition will leads to __________ of employment rate.
6. In unemployment term population can be determined as the amount of ___________ and non-labor force.
7. When the wage is set above the equilibrium , the quantity of labor demanded will be ________ and will cause ________.
8. Given the information of country X in number 3, the unemployment rate is ___________.
9. The _____________ is the percentage of the adult population that is in the labor force.
10.The process by which workers find appropriate jobs given their tastes and skills.
True or False
1. Employment rate never falls to zero, it fluctuates around the natural rate of unemployment.
2. Changes in the composition of demand among industries of regions cannot temporarily cause unemployment.
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4. When the labor and the union ask for a higher wage though the firm cannot fulfill their request, the union will organize withdrawal of labors from a firm. This action called collective bargaining. 5. Strike is a process by which unions and firms agree in the terms of
employment.
8. Cyclical unemployment is unemployment that results because the number of jobs available in some labor markets is insufficient to provide job for everyone who wants one.
9. Full-time students and retiree are categorized as unemployed because they have no jobs.
10.Unemployment insurance is a government program that partially protects worker’s
Multiple Choice
1. Workers who has given up in trying to find any jobs is called … a. discourage workers
b. cyclical unemployment c. job seeker
d. union member
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a. Computer engineer who has been offer a job as public relation manager and decide not to take that.
b. A farmer who became unemployed due to a long wait for harvest season.
c. A full time student who cannot take a part time job regarding his rapid schedule at campus.
d. A retired navy.
4. Why some frictional unemployment is inevitable?
a. Because sometimes there are firm that permanently decides to stop operating.
b. Because the wage asks by the workers is too high for the firm to pays.
c. Simply because the economy is always changing. d. Because the labor union can commit a strike.
5. Government in country Z gives their citizen who has no job a social security fund as much as 2 million for each citizen. Tariq a citizen and a jobseeker has been offered a clerk position in local administration office with salary 1.5 million a month. Given this condition Tariq choose not to take that job and remains an unemployed. The most rational reason of his decision is because… a. Clerk position doesn’t suit his skill.
b. The amount of social security is too high for the citizens. c. The incentives to remain as an unemployed is higher than to be
employed.
d. Tariq is not in labor force.
6. Cyclical unemployment Occurs…
a. when the economy moves into recession.
b. when there are too many supply of labor but not enough job available.
c. when the labor union commits a strike.
d. when the firm applied the efficiency wage theory.
7. The level of structural unemployment depends upon the following factors, except
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b. Changes in the environmental and nature related factor that makes changes in the industry.
c. Speed of change of demand and supply in economy d. Mobility of labor
8. When the labor supply increase, wage in labor markets…. a. falls
b. increase c. stagnant
d. none of the above are correct
9. Given the number of labor force is 93.48 million and total of adult population is 145,78 million. What is the labor participation rate? a. 6,412 into higher level of wage and greater amount of workers hired. a. moves, left.
2. Explain briefly regarding these term below: a. strike
b. discourage workers c. unemployment insurance d. sectoral shifts
e. job search
3. Given the following information: unemployment rate = 47,4 million labor force = 278 million
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4. Explain clearly why in an economy there are always some people unemployed!
5. Explain about labor union and give your opinion about the existence of labor union!
6. Explain the role of minimum wage requirement in labor markets! To whom those policy usually gives benefit?
7. The labor union in Orange County ask for raise. But in other hand the firm is unable to fulfill that request. What do you think would happen in the labor markets?
8. Given the following information: unemployment : 7,45 million employment : 98,4 million population : 120,7 million
Please calculate the number of non-labor force! 9. Study these following case:
a. Ardi graduate from high school and continue to higher education by attending college. His study time increase from 8 hour per day to 10 hour per day. What will happen to the labor force?
b. Because of severe recession in economy Mr. Ken get fired from his company. What kind of unemployment is that?
c. Because of getting married Diana decide to resign from her office. What will happen to the unemployment rate?
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CHAPTER 5 MONETARY SYSTEM● Money is the set of assets in an economy that people regularly use to buy goods and sevices from other people.
● Three function of money:
1. As a medium of exchange (It provides the item used to make transaction).
2. As unit of account (It provides the way in which prices and other economics values are recorded).
3. As a store of value (It provides a way transferring purchasing power from the present to the future).
● Two types of money: 1. Commodity Money
Is money that has intrinsic value (it would be valued even if it were not used as money) such as gold.
2. Fiat Money
Is money without intrinsic value (it would be worthless if it were not used as money) such as paper dollars.
● Central Bank is responsible for regulating the monetary system and controls the money supply.
● Monetary control by bank central through open market operation, reserve requiremnets, and discount rate).
● The money multiplier is the amount of money the banking system generates with each dollar of reserves. The money multiplier is the reciprocal of the reserve ratio:
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CHAPTER 5 MONETARY SYSTEMFill in the Blank
1. As ___ money roles as the measure to determine prices and record the bill.
2. Gold is one example of ____ money because of its intrinsic value. 3. Money that the intrinsic value equal to uts nominal value is ____ . 4. One of the principles of economy states that prices increase when
____
5. Monetary policy is undertaken by _____
6. Savings that are accpted by a bank but it`s not used to be lent is ___
7. Money supply ____ when the bank central buy the government bonds.
8. _____ the reserve requirement will increasing the money supply. 9. The number of money created by the banking system for each
reserve one dollar is called _____
10.R= 5%, then the amount of money multiplier is _____
True or False
1. Money multiplier shown by R.
2. Fiat money is money that has intrinsic value. 3. Bank Indonesia is one of central bank in Indonesia.
4. The central bank decided to buy government bonds would cause the number of bonds in the community is reduced and the money supply increases.
5. Money is the most liquid assets that other assets
6. The greater the reserve ratio, the greater the money multiplier. 7. Monetary policy is the setting of the money supply by policy
makers in the central bank.
8. The money supply refers to the quantity of money available in the economy.
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10.The central bank decided to buy government bonds would cause the number of bonds in the community is reduce and the money supply decreases.
Multiple Choice
1. Regulation on the minimum amount of reserves that banks must hold against deposit is ...
a. Discount Rate b. Reserve Requirement c. Open market purchase d. Open market sale
2. Policy by central bank to reduce inflation is written bellow, except ...
a. Increase subsidy b. Reduce tax
c. Reserve Requirement d. Discount Rate
3. The institution who regulate the monetary system .... a. Private bank
b. Central bank c. Ministry of finance
d. Gold standard judgment federation
4. Money multiplier is the reciprocal of .... a. Medium of exchange, paying debt b. Unit of account, means of transaction
c. Medium of exchange, store of value, unit of account d. Medium of exchange, unit of account, reserve
5. Three Primary Functions of the Central Bank are, except .... a. Designed to oversee the banking system.
b. Conducts fiscal policy by controlling tax and subsidies
c. Acts as a banker’s bank, making loans to banks and as a lender of last resort.
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6. Money supply is ....a. The stock of money which available in the central bank
b. The stock of money which demanded by people in the economy c. The stock of money which available in the economy
d. The stock of money which demanded in the large scale economy
7. Suppose Jacob use $80 to buy something from Edward. After the loan is paid, Edward saves its money in teh Second National Bank. With reserve minimum requirement of 20%, how much is the loan in Third National Banks?
a. $ 72,9 b. $ 4 c. $ 51,2 d. $ 56,4 e. $ 60
8. If central banks increase the interest rate, what happened to the economy?
a. Increase in money supply b. The decrease of reserve in bank
c. The decrease in investment in real sector d. The demand of bond increases
9. The banking system which bank just have a half from the saving in the reserve form is ....
a. Fractional reserve banking b. Reserve requirement c. Reserve ratio
d. Discount rate system
10.Which one of these banks that is not included into central bank? a. Federal Reserves
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Essay1. Explain about money and its function!
2. What is discount rate? What if central bank increase the discount rate?
3. Explain about the reserve ratio and how its works?
4. Explain about the relationship between the increasing of interest rate and the money exist on the economy!
5. Why the money multiplier has function 1/r? 6. Fill in the table below and how much reserve ratio?
First National Bank
7. What’s the meaning of the ―The lender of last resort‖?
8. What is the difference between money demand and money supply? Explain briefly!
9. Explain about the relationship between the increasing of interest rate and the money exist on the economy!
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a. If the society holds the money as cash, how much is the money in the economy?
b. If the society saves their money as the bank accounts and bank keeps the reserve ratio by 50%, how much money in the economy?
