P
Universitas Padjadjaran
Departement of Economics, Faculty of
Economics and Business
CODE
B
Principles of Macroeconomics Review
Time : 90 Minutes
Closed books and Notes
Permitted materials: Non – programmable calculator;
Dictionary
General Instructions
1.
Read the brief instructions before answering the questions
2.
Read the questions carefully and don’t panic!
3.
Do not ever cheat during the test in any way. Any illegal
actions will get an appropriate punishment
4.
Do not write anything on the question paper. The question
paper is used.
Multiple Choice (30%)
1. When the interest rate increases…
a. people will hold less money, and use it more frequently (therefore the velocity will be higher).
b. people will hold more money and use it more frequently (therefore the velocity will be higher).
c. people will hold less money and use it less frequently (therefore the velocity will be lower).
d. people will hold less money and use it more frequently (therefore the velocity will be higher).
2. People holding money… a. Only to hold wealth
b. To make transactions and to hold wealth c. Only to make transactions
d. To know the value of goods and to hold wealth
3. If the economy produce 16.000 kilogram of radish and sells by Rp 12.000 per kilogram while the money supply Rp 6.000.000.
Calculate the value of money a. 6,25 x 10!!
b. 8,33 x 10!!
c. 8,33 x 10!!
d. 6,25 x 10!!
4. The goal of monetary injection is to …… a. Stimulate production
b. Decrease money supply c. Decrease inflation d. Raise real wage
5. In open economy system, American GDP in 2014 is $17512 which consists of consumer spending for $5762, saving for $6118, and net export for $4235. How much the government spends their money for national activity?
a. $1397
b. $5632 (correct answer) c. $7159
d. $7515
6. Suppose that Rp9800 = $1, and Є0,000063 = Rp1. If the price of dress in USA is $57, how much it will cost in France?
a. Є35,2 (correct answer) b. Є46,5
7. If Malaysia capital outflow is about 6707 in 2013 and its inflow is about 5823. What does this means and how much its net foreign investment?
a. Trade surplus, 884 b. Trade deficit, -‐884
c. Budget surplus, 884 (correct answer) d. Budget deficit, -‐884
8. Which statement is incorrect?
a. Budget surplus is a situation in which export exceeds import b. Net foreign investment must equal to net export
c. In an open economy, net foreign investment is zero d. Close economy occurred in North Korea
9. If there is a surplus of loanable funds in Indonesia, the quantity of loanable funds demanded in Indonesia is
a. greater than the quantity supplied and the interest rate will rise b. greater than the quantity supplied and the interest rate will fall c. less than the quantity supplied and the interest rate will rise d. less than the quantity supplied and the interest rate will fall
10.Suppose that the U.S. citizen start to invest more. What does this imply about the demand of loanable funds and the equilibrium real interest rate? What happen to the real exchange rate?
a. the demand of loanable funds will increase, the equilibrium of the real interest rate rise, and the real exchange rate of dollar will appreciates
b. the demand of loanable funds increase, the equilibrium of the real interest rate falls, and the real exchange rate of dollar will appreciates
c. the supply of loanable funds increase, the supply of loanable funds will decrease, the equilibrium of the real interest rate falls, and the real exchange rate of dollar will depreciates
d. the supply of loanable funds increase, the demand of loanable funds will increase, the equilibrium of the real interest rate falls, and the real exchange rate of dollar will appreciates
11.Suppose that there are large amount of capital flight from United States because of political crisis that is happening there. What will happen to their real interest rate, domestic investment, net capital outflow, real exchange rate of dollar and their trade balance condition? (Answer this question with the exact sequences)
a. falls, falls, falls, appreciates, falls b. rises, falls, falls, appreciates, falls c. rises, falls, rises, depreciates, rises d. falls, rises, falls, depreciates,rises
12.Most economists use aggregate supply and aggregate demand model primarily to analyse…
b. the effects of macroeconomic policy on the prices of individual goods c. the long run effects of international trade policies
d. Productivity and economic growth
13.Suppose a rise in stock prices makes people feel richer. The increase in wealth would induced people to…
a. Increase consumption, shifting aggregate demand curve to the right b. Increase consumption, aggregate demand curve moving to the right c. Decrease consumption, shifting aggregate demand to the left
d. Decrease consumption, the aggregate demand curve moving to the left
14.Which of the following would cause shift both short run and long run aggregate supply right?
a. An increase in actual price level b. An increase in expected price level c. An increase in the capital stock d. An increase in money supply
15.What will government do to make slow economic growth of a country? a. Decrease tax rate and decrease government expenditure
b. Decrease tax rate and increase government expenditure c. Increase tax rate and decrease government expenditure d. Increase tax rate and increase government expenditure
Essay
(70%)Instruction : YOU MUST done ALL of COMPULSORY questions and CHOOSE ONLY ONE OPTIONAL questions.
Compulsory Questions (@25%)
1. In 2013, Indonesia’s GDP is about $1 Trillion and the value of Net Export is $2,5 Billion. In the same time, Indonesia’s real interest rate is 3% and loanable fund is about $170 Billion. All of the variables are in equilibrium condition. (Indonesia is an open economy)
a. Draw the graph to illustrate the equilibrium condition of Indonesian Economy in 2013.
b. Let’s say, in 2014, Indonesians have higher level of disposable income (Ceteris Paribus). Draw the graphto illustrate the effect of that condition to Indonesian economy and explain the process.
primary factor at play. … Americans cut back on a wide variety of discretionary purchases. … As real estate prices plunge, so does the ability of home owners to borrow against the value of their homes, crimping a major artery of spending. As banks grow tighter with their dollars in a period of uncertainty, families are running up against credit limits, forcing many to live within their incomes. As companies lay off employees and cut working hours, paychecks are effectively shrinking. … Consumer spending fell for a broad range of goods and services, including cars, auto parts, furniture, food and recreation, reflecting a growing inclination toward thrift. …
The New York Times, May 1, 2008 a. Explain and draw a graph to illustrate the effect of a fall in consumption
expenditure on real GDP and the price level in the short run.
b. If the economy had been operating at a full-‐time employment equilibrium, describe the effect of the fall in consumer spending to the full-‐time employment equilibrium. Draw a graph to describe.
Optional Questions (20%)
3. The table below provides information about the demand for money in Anatoria. Column A is the price level, P. Column B and C show the quantity of money demanded at two values of real GDP in two years: Y1 is $10 billion and Y2 is $20
billion. (Remember: both real GDPs hold only if the money supply is unchanged between years)
A B C
P Y1 Y2
1 1.0 1.5 2 1.5 2.0 3 2.0 2.5 4 2.5 3.0 5 3.0 3.5 6 3.5 4.0 7 4.0 4.5
a) Initially, real GDP is $20 billion and the quantity of money supplied is $3 billion. Graph the money market curve! Give your analysis on what happens in Anatoria if the price level:
i. Less than $4! ii. Equals $4!
Do people buy or sell bonds? Will the price level rise or fall? b) If the price level is $21, calculate the velocity of money in year 1!
c) In year 2, the quantity of money is one third of its level in year 1. Calculate the quantity of money, the price level, real GDP, and the velocity in year 2!
4. The price of 1kg of eggs in Indonesia is Rp 16000 while the price of 1 kg of eggs in some countries are:
Country The Price of 1 kg of eggs
Exchange Rate China ¥ 8 Rp 1800/¥ South Africa R 12 Rp 1000/R Malaysia RM 6 Rp 3500/RM Mexico $ 25 Rp 800/$ Sweden kr 11 Rp 1700/kr
Source: Example
a. Does the purchasing power in each country is equal? Support your argument(s) with calculation
b. Does the theory of purchasing power parity applicable in aforementioned case? If not, what is the important implications that can be taken from this theory?
5. The 1990s economic boom creating almost 24 million jobs, rising productivity gains month over month; and causing gross domestic product growth month over month and unprecedented investment in the stock market (Wall Street added $10 trillion in wealth over the decade).This prosperity, combined with the Budget Acts of 1990 and 1993 (which raised taxes and restrained spending), allowed the federal government to go from a $290 billion deficit in 1992 to a record $236.4 billion surplus in 2000.
a. Explain how changes in tax system and government spending in this period would affect the aggregate demand and money market! Draw a graph to illustrate the effects.
b. Despite of that, the prosperity of the 1990s was not evenly distributed over the entire decade. The economy was in recession from July 1990 -‐ March 1991 GDP growth and job creation remained weak through late-‐1992. Unemployment rose from 5.4% in January 1990 to 6.8% in March 1991, and continued to rise until peaking at 7.8% in June 1992. Suppose, in order to promote growth, the United States federal government increase their spending on direct stimulus measures. The resources that government spends must be obtained through borrowing or taxation. Taxpayers may view the government borrowing as delayed taxation. Explain this statement and give an example.
