INTRODUCTION OF MACROECONOMICS MODULE

  

INTRODUCTION OF

MACROECONOMICS MODULE

TEACHING ASSISTANTS OF MICROECONOMICS AND

MACROECONOMICS

ECONOMICS AND DEVELOPMENT STUDIES

FACULTY OF ECONOMICS AND BUSINESS

PADJADJARAN UNIVERSITY

2013

  

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 Dr. Mohamad Fahmi, SE., MT NIP. 19731230200012100

  

TABLE OF CONTENT

  

  

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.

  

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND

.....................................................................................................Error! Bookmark not defined.

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 10 ^th 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.  Other rules that are agreed by the Teaching Assistant and the students in each laboratory.

  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.
• wide phenomena, including inflation, unemployment, and economic growth.

  Macroeconomics looks at the economy as a whole: Economy-

   A positive statement is an assertion about how the world is.  A normative statement is an assertion about how the world ought to be.

   When economists make normative statements, they are acting more as policy advisors than scientists. Economists who advise policymakers offer conflicting advice either because of differences in scientific judgments or because of differences in values.  At other times, economists are united in the advice they offer, but policymakers may choose to ignore it.

  

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.

  2. A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost.

  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 2. An economic advance in the computer industry shifts the production possibilities frontier …… a.

  Outward, increasing the number output the economy can produce.

  b.

  Inward, increasing the number output the economy can produce.

  c.

  Outward, decreasing the number output the economy can produce.

  d.

  Inward, decreasing the number output the economy can produce

3. Which one of the following that is an example of positive statement…….

  a.

  In order to improve labor’s welfare government should increase the minimum wage. 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 8. Adam Smith made the observation that households and firms interacting in markets act as if guided by (a/an)…… a. invisible hands b. 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

  5. How are inflation and unemployment related in the short run? Please explain!

  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!

10. Please explain each subfield of economics!

  CHAPTER 2 MEASURING N ATION’S INCOME & COST LIVING 1.

   Measuring Nation’s Income

   goods and services produced in the a country in the period.

  Gross Domestic Bruto GDP is the market value of all final

   Y = C + I + G + NX; Y=GDP; C=consumption; I= income NX= Net Export

  The components of GDP:

   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

   the goods and services bought by a typical consumer.

  Consumer Price Index (CPI) is a measure of the overall cost of

   1.

  How it be calculated?

  Fix the basket 2. Set the prices 3. Compute the overall price 4. Choose a base year 5. Compute the inflation rate

   1.

  Problems in the compute of the cost of living

  Substitution bias: 2. Introduction of new goods 3. Unmeasured quality change

   x 100

  GDP Deflator vs CPI

• GDP Deflator=
• 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.

   effect of inflation were conducted by Act or by contract

  Indexation: automatic correction the value of money against the

   Nominal Interest Rate vs Real Interest Rate - Nominal interest rate: interest rate paid by banks

• Real interest rate: Nominal Interest Rate – Inflation Rate

  CHAPTER 2 MEASURING N ATION’S INCOME & COST LIVING Fill in the Blank 1.

  9. When a nominal GDP and real GDP increased simultaneously, the GDP deflator ______.

  5. Nominal interest rates and real interest rates always move simultaneously.

  4. The increase of price appears in the deflator GDP but does not in the CPI.

  3. GDP reflects the overall price of goods and services produced domestically.

  2. Consumer Price Index (CPI) is a measure of the overall cost of the goods and services produced by a typical consumer.

  Nominal interest rate indicates how fast the amount of your money in the the bank increased within a period.

  True or False 1.

  10. A real GDP is a better measure in terms of _____ than a nominal GDP

  8. Real GDP is the production of goods and services as measured by ______ .

  CPI is a measure of the overall cost of the goods and services ______ by a typical consumer.

  7. Net exports is value of _____ minus______.

  ______is the market value of all final goods and services produced in the a country in the period.

  5. Indexation of wage to CPI either whole or in part is called ______ 6.

  4. Indexation is a automatic correction the value of money against the effect of ______ were conducted by Act or by Contract.

  _______ is used to notice changes in the cost of living over time.

  3.

  _______ is a measure of the entire cost of the goods and services purchased by firms.

  2.

  6. GDP is not a perfect measurement for welfare.

  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 ......

  a.

  Inflation b.

  CPI

  c.

  GDP d.

  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. x 100 b.

  − 100

  c. x 100 d.

  − 100

  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 b.

  Real GDP every year c. Deflator GDP every year 8. Explain 4 components of GDP!

  9.

  Why a overall of economy, income must be the same with the expenditures? 10. GDP does not measure the welfare of the people but to help people lead a better life. How do you think the statement?

  

CHAPTER 3

SAVING, INVESTMENT, AND FINANCIAL MARKET

  Financial System

• Financial Market (Direct ) 1.

  Stock Market 2. Bond Maket

   Financial Intermediariy (Indirect) 1.

  Bank 2. Mutual Fund

• 1.

  Economy divided into 2 part :

  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

• The relationship between demand for loanable funds and interest rate has negative relation.And relationship between supply for loanable funds and interest rate has positive relation.

  CHAPTER 3 SAVING, INVESTMENT, AND FINANCIAL MARKET Fill in the Blank 1.

  9. C + I + G + NX is the equation for _______ 10.

  7. Term is the length of time until the bond matures.

  6. A higher budget deficit will shift the supply curve for loanable funds to the left.

  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.

  4. The tax on interest income will shift demand curve for loanable fund.

  3. Reduce in national saving will shift supply curve for loanable fund to right .

  2. Interest rate represent the amount that borrower pay for loans.

  If tax revenue exceeds goverment spending, the goverment runs budget deficit.

  True or False 1.

  National saving is the total of ______ and _________

  8. Economy interact with economies in the world are called ______.

  ______ are the through which a person who wants to save can diretly supply funds to a person who want to borrow.

  _____ is an economy that does not interact with another economy.

  6. two financial intermediary institutions are_____ and _____ 7.

  5. Institutions that sell shares to the public and use the proceeds to buy a variety of stocks and bonds fortofolio called ___

  __________ are the through which a person who wants to save can indiretly supply funds to a person who want to borrow.

  4.

  _____ and ____ are product of financial market.

  3.

  _______ consist of those institution in the economy that help to match one person’s saving with another person’s investment.

  2.

  8. The fall in investment because of goverment borrowing is called crowding out.

  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.

  c. Stock Bond b.

  d. Mutual fund Check 2.

  Supply for loananble fund comes from.........

  a.

  c. Invesment Goverment spending b.

  d. Saving Consumption 3.

  The probabability that the borrower will fail to pay some of interest or prinsiple called.......

  a.

  c. Mutual fund Credit risk b.

  d. Coupon Term 4.

  Equatin for public saving is..............

  a.

  c. T

• – G C + I + G +NX b.

  d. C + I +G T + G 5.

  Which one alter the demand for loananble fund? a.

  c. Taxes and investment Goverment budged deficit b.

  d. Taxes and saving Goverment budged surplus 6.

  Increasing interest rate will be followed by ............ in supply of loanable fund.

  a.

  c. Constant Decreasing b.

  d. Stagnant Increasing 7.

  Institution of financial intermediate .......

  a. c.Indonesian stock exchange Stock bond b.

  d. Bank Bond stock 8.

  There are three component of GDP in closed economy except .........

  a. c. Invesment

  Consumption b.

  d. Net export Goverment spending 9.

  Coorporation pay out some of their profits to their stockholder with ........

  a.

  c. Sharing profit Dividend

  b. d .Price earning ration Interest 10.

  The economy that is not interact with other economy is called as .......

  a.

  c. Closed economy Open economy b.

  d. Financial system International trade

  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 I = $ 1100 T = $ 700 Calculate : a.

  GDP b.

  National saving c. Public saving d.

  Private saving 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 firm building.What will happen to the equilibrium interest rate? Which curve shifting?Graph it!

  CHAPTER 4 UNEMPLOYMENT 1. 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 =

• × 100 3.

   Labor-force participation rate

  the percentage of the adult population that is in the labor force

• × 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 a theory that states firms paid an above-equilibrium wages to increase workers productivity

  CHAPTER 4 UNEMPLOYMENT Fill 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.

  3. As long as the economy is always in changing, frictional unemployment is never exists.

  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. 6. rate is :

  Unemployment × 100

  = 7. Labor-force participation rate =

  × 100 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 2.

  Randi got his bachelor degree in computer science six months ago and already seek for job right after he graduated. Several firms offer him a position, most of them in marketing. Because it is not his specialization Randi refuses to take that offering. We can his case as… a. discourage workers.

  b. frictional unemployment.

  c. structural unemployment.

  d. job seeker.

  3. Which one of the following that is an example of seasonal unemployment case? 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 a.

  Degree of regional concentration of industry 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 b.

  641,24 c. 6412,4 d.

  64,124 10. Higher demand of labor makes the labor demand curves _______ to the _______ makes the equilibrium in the labor markets move into higher level of wage and greater amount of workers hired.

  a. moves, left.

  b. shifts, right.

  c. move, right.

  d. shifts, left.

  Essay 1.

  What is structural unemployment? Explain briefly and give the example!

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 please calculate the number employment!

  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?

  10. Please explain why firms may want to pay a high wages!

  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:

  M = 1/R

  CHAPTER 5 MONETARY SYSTEM Fill in the Blank 1.

  Money multiplier shown by R.

  8. The money supply refers to the quantity of money available in the economy.

  7. Monetary policy is the setting of the money supply by policy makers in the central bank.

  The greater the reserve ratio, the greater the money multiplier.

  5. Money is the most liquid assets that other assets 6.

  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.

  3. Bank Indonesia is one of central bank in Indonesia.

  2. Fiat money is money that has intrinsic value.

  True or False 1.

  As ___ money roles as the measure to determine prices and record the bill.

  10. R= 5%, then the amount of money multiplier is _____

  9. The number of money created by the banking system for each reserve one dollar is called _____

  _____ the reserve requirement will increasing the money supply.

  8.

  ___ 7. Money supply ____ when the bank central buy the government bonds.

  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

  3. Money that the intrinsic value equal to uts nominal value is ____ .

  2. Gold is one example of ____ money because of its intrinsic value.

  9. If ∆D = $300 and R = 30%, so Money supply is $1500.

  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.

  d.

  Conducts monetary policy by controlling the money supply

  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 b.

  Bank Indonesia c. Bank Sentral Malaysia d.

  Asian Development Bank

  Essay

  1. 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 Aktiva Pasiva

  Reserve Deposits $ $ .... 500.000 Loan $ 400.000

  Second National Bank Aktiva Pasiva