Principles Of Economics Ii

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PRINCIPLES OF ECONOMICS II

9 DECEMBER 2005

SECTION A: MULTIPLE CHOICE QUESTIONS (5 MARKS) 1.

Gross domestic product is computed by using A. B. C. D.

2.

Which of the following reason overstates GDP? A. B. C. D.

3.

Value of housework. Quality of leisure time. Air pollution. Improvements in product.

One of the reason why the AD curve slopes downward is that as the A. B. C. D.

4.

factor costs. previous year prices. base year prices. current year prices.

price level rises, purchasing power rises. price level falls, purchasing power rises. nation’s income level rises, purchasing power rises. nation’s income level rises, purchasing power falls.

Suppose consumption decreases at each price level. As a result, the aggregate demand ____________, and the AD curve shifts ____________. A. B. C. D.

increases; leftward. decreases; leftward. increases; rightward. decreases; rightward.

5. Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve? A. B. C. D.

a change in consumption a change in government expenditures a change in injections a change in the price level

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PPE0025

PRINCIPLES OF ECONOMICS II

9 DECEMBER 2005

SECTION B: TRUE / FALSE QUESTIONS (5 MARKS) 1. When equilibrium level of income (Ye) is less than full employment level (Yf), there will be an excess demand and therefore it is called an inflationary gap. 2. Real GDP is the value of the final goods and services produced in a given year when valued at current year prices. 3. When the economy is facing deflationary gap, expansionary fiscal policy should be used. 4. A depreciation of the Ringgit Malaysia (RM) tends to raise Malaysia net exports and shift the Malaysia AD curve to the right. 5. Legislative lag refers to a situation whereby a fiscal policy measure takes time to be implemented.

Multiple Choice Questions 1 . 2 . 3 . 4 . 5 .

True and False

1 . 2 . 3 . 4 . 5 .

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) )

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PRINCIPLES OF ECONOMICS II

9 DECEMBER 2005

Continued…… SECTION C: STRUCTURED QUESTION (30 MARKS) Question 1 Table 1 Year 2003 2004

Nominal GDP (million of ringgit) 7,200

Real GDP (million of ringgit)

GDP deflator 120 125

6,600

REQUIRED Calculate the following: a) Real GDP in Year 2003. (4 marks) Nominal GDP in Year 2004. Actual economic growth rate in 2004.

(4 marks) (2 marks) [Total 10 marks]

Question 2 Table 2 Personal consumption expenditures Retained earnings Corporation taxes Personal taxes Indirect taxes Exports Government consumption and investment Gross private domestic investment Imports Income payments abroad Depreciation Income earned from abroad Transfer payment

RM (millions) 500 82 100 120 40 120 150 300 100 10 100 8 30

REQUIRED From Table 2, calculate the following: a) GDP

(2 marks)

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PRINCIPLES OF ECONOMICS II

b) GNP at market price c) NNP at market price

d) National income e) Personal income f) Personal disposable income

9 DECEMBER 2005

(1.5 marks) (1 mark)

Continued…… (2 marks) (2.5 marks) (1 mark) [Total 10 marks]

Question 3 The consumption function, investment, government expenditure and taxes for a 3 sectors economy are as follows: C = 400 +0.75Yd I = 100 G = 180 T = 80 Where Yd is disposable income and Yd = Y – T a) b) c) d) e)

REQUIRED Form a consumption function in terms of Y Form a savings function in terms of Y Calculate the equilibrium level of National Income Calculate the level of consumption and saving that occurs at the equilibrium level of income Suppose I increase by 100. Calculate the new equilibrium level of income and size of the multiplier for this economy

(2 marks) (2 marks) (2 marks) (2 marks) (2 marks) [Total 10 marks]

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PRINCIPLES OF ECONOMICS II

9 DECEMBER 2005

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