Departement of Economics, Faculty of Economics and Business

  CODE B  

  P       Universitas  Padjadjaran   Departement  of  Economics,  Faculty  of   Economics  and  Business  

  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.   If  you  have  given  up  on  all  questions,  please  just  leave  the   room  and  get  some  fresh  air!  

  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?   b. Є46,5  

  c. Є80,1  

  d. Є92,3  

  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  

  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    

  (70%) Essay    

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.     they   would   soon   succumb   to   the   pressures   of   falling   home   prices,   fewer   jobs   and   shrinking   paychecks.   Now,   they   appear   to   have   given   in.   On   Wednesday,   the   Commerce  Department  reported  that  the  economy  continued  to  stagnate  during  the   first   three   months   of   the   year,   with   a   sharp   pullback   in   consumer   spending   the   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:   Y   is   $10   billion   and   Y   is   $20  

  1

  2

  billion.   (Remember:   both   real   GDPs   hold   only   if   the   money   supply   is   unchanged   between  years)  

  A   B   C   P   Y   Y  

  1

  2

  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:  

  Less  than  $4!   i. Equals  $4!   ii. 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.