Test ECO211 Covid 19 JUNE 21 PDF

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UNIVERSITI TEKNOLOGI MARAMACROECONOMICECO 2112 HOURSNAME : DAYANG SAHFITRI AZUREE BINTI MANJAHSTUDENT I : 2019273686GROUP : EC0211 GQUESTION 1a) Define national income. Discuss four (4) problems in measuring national income statistics. National income is the sum of individual income of a country’s p...

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UNIVERSITI TEKNOLOGI MARA

MACROECONOMIC ECO 211 2 HOURS

QUESTION 1 a) Define national income. Discuss four (4) problems in measuring national income statistics. National income is the sum of individual income of a country’s population or referred to as the concepts of gross domestic product (GDP) which is the total market value of all final goods and services produced within period of time by factors of production located within a country. Four (4) problems in measuring national income statistics firstly is, problems of nonmonetized sector. This problem arises in most of the third world countries since there are a large number of non-monetized activities especially in the agriculture sector which makes the computation of national income more challenging. Second, non-market transactions where it represents work such as household labour, care giving and others that does not have a monetary value but remains a vitally important part of the economy. Third, problems of expertise and modern machinery in which to deal with massive volume of data, it need a person that highly skilled but for most developing countries or less developed, it has to encounter to the shortage of this expertise which contribute to error in calculating national income Lastly, underground economy is, illegal trade, income that do not reported to tax authorities and others. As an example, incomes from smuggling, unauthorized gambling, black marketing and other illegal and immoral activities (10 marks)

b) Define fiscal policy and explain how it can be implemented to reduce the problem of inflation and unemployment. Fiscal policy is the use of government spending and tax policies to influence economic circumstances, especially macroeconomic situations that includes aggregate demand for goods and services, employment, inflation, and economic growth. It simply means that to assist stabilize the economy, the government should run large budget deficits during economic downturns and run budget surpluses when the economy is growing. Fiscal policy can be implanted to reduce the problem of inflation is by raising interest rates, reduces demand and helps to bring inflation under control. Other than that, raising the tax, control wages and the supply of money. As to reduce unemployment, the government need to pursue expansionary fiscal policy which involves cutting taxes and increasing government spending. Lowering the taxes and increase the disposable income and thus help to increase consumption, leading to higher aggregate demand (AD). With an increase in AD, there will be an increase in Real GDP. It means if firms produce more, there will be an increase in demand for workers. Hence, lower demand-deficient unemployment. Moreover, with higher aggregate demand and strong economic growth, fewer firms will go bankrupt meaning fewer job losses.

(10 marks)

QUESTION 2 a) What is the differentiation between Macroeconomics and Microeconomics. Macroeconomics is a branch of economics that studies decision-making for the company as a whole which studies how the economy behaves in broad outline while Microeconomics is the branch of economics that studies decision-making by single individual, households, firm, industry or level of government that deals with the detailed behaviour and concern on the narrow scope of economic activity. For example, Macroeconomics examines the national income whereas Microeconomics studies the wages or income of labour. Macroeconomics focuses at the total employment in the economy while Microeconomics focuses on the supply and demand of labour in an industry. As for pricing, Macroeconomics focuses on the aggregate price level whereas Microeconomics concerned on the price of individual goods and services.

(10 marks)

b) Base on the graph/diagram below, define and explain the four-sector circular flow.

Four sector economy which also known as an open economy involve an additional sector know as foreign sector which the roles played by each households, firms, government and foreign sector. Households provide factor services to the firms, the government and foreign sector and also receive factor payment in return. Households purchase goods and services from firms and pay taxes to the government. Moreover, they also purchase foreign made goods and services which is imports products. Firms receive payments from households and the government for goods and services. Firms also pay wages, dividends, interest and rent to households and pay taxes to the government.

Taxes paid by household and firms received by the government. The government also pay firms and household for goods and services which includes wages to the government workers and pays interest and transfers to households. Finally, foreign sectors receive revenue from households, firms and the government for exports of goods and services and then make payment to the households for factor services and make payment for import of goods and services from firms and the government.

(10 marks) QUESTION 3

Fill in the blank with appropriate answers. ITEMS Consumption expenditures Investment spending Government expenditures Export Import Gross domestic product at market price _____(ii)____________________________ (factor income received – factor income paid) Subsidy Gross domestic product at factor cost Income receive from abroad Income paid abroad Gross national product at factor cost _____(v)_____________ National income Undistributed profit Corporate income tax Social security contribution Transfer payment Personal income

RM MILLIONS 11,200 8,790 10,150 7,800 8,250 (i)_____ _____ 2,780 3,150 (iii)_________ 5,420 6,150 (iv)_________ 1,180 (vi)_________ 800 1,200 2,350 900 (vii)_________

(i)RM46,190 (ii) Net factor income received from abroad (iii)RM5,930 (iv)RM10,390 (v)Capital consumption (vi)RM380 (viii)(RM1,850) (7 Marks)

QUESTION 4

1.

You are given data as follows ( million ) C = 350 + 0.85 yd I = 250 G = 200 T = 40 M = 50 X = 70

C = Consumption I = Investment G = Government expenditure T = Tax M = Import X = Export Yd = Disposable income

a. Calculate the income equilibrium for the above economy using Y= C+I+G+(X-M). Y = 350 + 0.85yd + 250 + 200 + (70-50) Y = 350 + 0.85 (Y-T) +250 + 200 + 20 Y = 350 + 0.85 (Y-40) + 250 + 200 + 20 Y = 350 + 0.85Y – 40 + 250 + 200 + 20 Y = 780 + 0.85Y Y – 0.85Y = 780 0.15Y = 780 Y = RM5200 million (Eqm income) ( 3 marks ) b. Determine the value of average propensity to save ( APS ) and average propensity to consume ( APC ) APS = S/Yd = (Y-C) / (250 -40) = (5200 – 350 + 0.85 Yd) / (250 – 40) = (4850 + 0.85Yd) / 210 -0.85Yd = 4850 / 210 -0.85Yd = 23.10 / 0.85 Yd= 27.18 APS = (5200 – 350(27.18)) / 210 = (5200 – 9513) / 210 = (4313) / 210 = (20.54)

( 3 mark ) c. suppose that the government spending is cut by RM 10 million, what is the new equilibrium level of national income ( 2 marks ) RM5200 million – 10 million = RM5190 million

QUESTION 5 a) Briefly explain the five (5) functions of money in an eonomy. Five (5) functions of money in an economy firstly is for medium exchange which means money is widely accepted as a method of payment and acts a go-between that is accepted by people for buying and selling goods and services. Second, measure of value and a unit of account where money can be considered a yardstick to measure the value of all goods and services quoted in USD and cents in economic transactions. Third, store of value or wealth which money makes it easier for people to buy and sell at different times and at different places which means that people can use money for future spending or defer the consumption until the future. Forth, standard for deferred payment in which using money as a standard of deferred payment is a direct result of the store of value and unit of account functions. Lastly, the basis of credit where money enables loans. Debtors can use money to obtain goods and services when they are needed most. (10 marks) b) Differentiate the functions of commercial banks and the central bank. Commercial banks is a firm which is a profit making institution with a charter from government to engage in the business of banking whereas central bank was owned and control by government and its non-profit institution The functions of commercial banks are accepting deposits from customer, provide loans and advances and provide Financial services whereas for central banks, issue the currency and to safeguard the external value of the currency, banker to the government, banker to others bank, holder of the country stock of gold and foreign currency reserves and promoting monetary stability. (5 marks)...