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To be completed by student – PLEASE PRINT CLEARLY

Name(s) AHMAD FAIDHUL IRFAN BIN AHMAD MUSTAFFA KAMAL

ID Number(s) 2011567561 / ITM 120118830

Lecturer MISS NURSHUHAIDA BT ABDUL RAZAK

Lab group / Tutorial group / Tutor (if applicable)

Course and Course Code MACROECONOMICS ( ECO 211 )

Submission Date: 14 AUGUST 2013

Assignment No. / Title 1

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FKLT/06-00

PART AQuestion 1a

The table below shows consumption and income in Putraland.

Year Consumption (RM) Disposable Income (RM)2007 1700 20002008 2100 25002009 2500 30002010 2900 35002011 3300 40002012 3700 4000

i) State the consumption and saving function of Putraland.

Consumption function,

MPC = C - C˳ = 2100 – 1700 = 0.8 Y - Y ˳ 2500 – 2000

C = a + byd1700 = a + (0.8)(2000)1700 = a + 1600 a = 1700 – 1600 a = 100 Consumption function, C = 100 + 0.8ySaving function, S = -a + bydMPC + MPS = 1 0.8 + MPS = 1 MPS = 1 – 0.8 MPS = 0.2Saving function, S = -100 + 0.2y

ii) Calculate breakeven income of Putraland. Breakeven income,Y = CY = 100 + 0.8yY – 0,8y = 100

0.2y = 100 y = 100/0.2 y = 500

S = 0-100 + 0.2y = 0

0.2y = 100 y = 100/0.2 y = 500

Question 1b

You are given the following information.

Consumption ( C ) = 400 + 0.8 YdGovernment expenditure ( G ) = 200Investment = 30Taxation = 10

i) Calculate the national income equilibrium

C = 400 + 0.8 ( y – t )C = 400 + 0.8 ( y – 10 )C = 400 + 0.8y – 8C = 392 + 0.8y

Y = C + G + IY = 392 + 0.8y + 200 + 30Y = 622 + 0.8yY – 0.8y = 622

0.2y = 622 y = 622/0.2 y = 3110

ii) Calculate the government expenditure multiplier and the tax multiplier

kg = 1 = 1 = 1 1 – b 1- 0.8 0.2

kg = 5 times

kt = -b = -0.8 = -0.8 1 – b 1 – 0.8 0.2 kt = -4 times

iii) If full employment income is RM 3000 million, what problem is this country facing? Show this situation in a well labelled diagram.

Ye = RM 3110 Million, Yf = RM 3000 MillionThe problem that the country facing is INFLATIONARY GAP or INFLATION

AD y

ADee inflationary gap

e˳ ADf

GNP gap

yyf ye

3000 3110Question 2

The following table is money supply data in year 2012.

Item RM millionPrivate sector’s deposit with finance companies 21720Paper money 15000Demand deposits 90300Negotiable instruments of deposits (NID’s) placed with companies and merchant banks

15500

Bank Negara Certificate 110230Fixed and saving deposits in other commercial banks 63400Negotiable instruments of deposits (NID’s) placed with commercial banks

11800

Fiat money 20155

a) Calculatei) M1

M1 = fiat money + demand deposit = 20155 + 90300 = RM 110455 million

ii) M2M2 = M1 + BNM Certificate + fixed & saving deposits in other commercial bank + NID’s

placed with commercial banks = 110455 + 110230 + 63400 + 11800 = RM 295855 million

iii) M3M3 = M2 + NID’s placed with commercial banks = 295855 + 15500 = RM 311385 million

iv) Near quasi moneyNear quasi money / near money = M2 – M1

= 295855 – 110300 = RM 185430 million

b) Define broad quasi money

Broad quasi money is all the near money that need to be converted into cash, before we can use to make payment or settle the debts.

c) Explain TWO(2) functions of money

First function of money is a medium of exchange. Money is mostly demand for transaction purpose. Without money, exchanging of goods and services can only take place through the barter system, which bear the problem of double coincidence of wants. Money is liquid form of wealth.

Second function of money is as a store of value. Since money is not suffer from any physical deterioration, it can be stored and can be turned into other forms of wealth quickly. We can use money to buy buildings, lands or other type of wealths.

Question 3

Given the following data of a country, for the year ended December 2010.ITEMS RM million

Manufacturing 540Corporate profit 1000

Forestry 360Fishing 240

Agriculture 820Factor income from abroad 900Factor payment to abroad 800

Wages and salaries 1600Physical increase in stock 600

Construction 800Banking and insurance services 540

Capital consumption 400Other services 140

Tax on expenditure 480Subsidies 500

Calculate :

a) Gross Domestic Product (GDP) at market price

GDPmp = Manufacturing + Forestry + Fishing + Agriculture + Physical increase in stock + Construction + Banking and insurance services + Other services

= 540 + 360 + 240 + 820 + 600 + 800 + 540 + 140 = RM 4040 million

b) GDP at factor cost

GDPfc = GDPmp + Subsidies - Tax on expenditure = 4040 + 500 – 380 = RM 4060 million

c) GNP at factor cost

GNPfc = GDPfc + Factor income from abroad - Factor payment to abroad = 3060 + 900 – 800 = RM 4160 million

d) Net National Product (NNP) at factor cost

NNPfc = GNPfc – Capital consumption = 4160 – 400 = RM 3760 million

e) List FOUR(4) problems calculating national income

1) Problem of “double-counting”2) Lack of data3) Unpaid activities4) Allowance for depreciation

f) List TWO(2) uses of calculating national income

1) To measure the economic growth2) To assist the government in the planning

PART BQuestion 1a

Based on the following information, answer the question below (all figures are in RM million).

Consumption = 100 + 0.75YdInvestment = 50Government expenditure = 100

Tax = 0.1Y

i) Calculate the national income equilibrium.

C = 100 + 0.75YdC = 100 + 0.75( y – t )C = 100 + 0.75 ( y – 0.1y )C = 100 + 0.75 ( 0.9y )C = 100 + 0.675y

Y = C + I + GY = 100 + 0.675y + 50 + 100Y = 250 + 0.675yY – 0.675y = 250

0.325y = 250 y = 250/0.325 y = RM 769.23 million

ii) Using AD = AS approach, draw a diagram to show the equilibrium income.

ADy

e c = 250 + 0.675y

250

Income (y) Ye = 769.23

iii) If full employment income level is RM 900 million, what problem is the country facing? Using the multiplier concept, calculate how much should the government increase its expenditure to solve the problem?

Ye = RM 769.23 million, if Ye = RM 900 millionSince Ye is less than the value of Yf,The problem that the country facing is recession ( recession gap )

kg = 1

1 – b + bt

kg = 1 1 – 0.75 + (0.75)(0.1)

kg = 3.08 times

Ynew = Yold + y 900 = 769.23 + y y = 900 – 769.23 = 130.77

y = kg x g130.77 = 3.08 x g g = 130.77/3.08

= 42.46

Government should increase its expenditure by RM 42.46 million in order to solve the problem.

Question 1b

The table below shows the money supply for country Z in 2006.Items RM million

Paper money 5200Bank Negara Certificates 12000Negotiable certificates of deposits commercial banks 7500Fixed and saving deposits in other financial institutions

6000

Fixed and saving deposits in other commercial banks 10000Current deposits in commercial banks 85000Fiat money 7555

a) Calculate

i) M1M1 = Fiat money + Current deposits in commercial banksM1 = 7555 + 85000M1 = RM 92555 million

ii) M2M2 = M1 + Bank Negara Certificates + Negotiable certificates of deposits commercial banks +

Fixed and saving deposits in other commercial banksM2 = 92555 + 12000 + 7500 + 10000M2 = RM 122055 million

iii) M3M3 = M2 + Fixed and saving deposits in other financial institutionsM3 = 122055 + 6000M3 = RM 128055 million

iv) Near quasi moneyNear quasi money = M2 – M1

= 122055 – 92555= RM 29500 million

Question 2

The table below shows items from the national income account of a country for the year 2011.ITEMS RM MILLION

Mining and Quarrying 7200Banking, insurance and other services 13800Manufacturing 23200Subsidies 790Wholesale, retail trade, hotel and restaurant 14400Agriculture, forestry and fishing 15600Transport, storage and communication 9800Construction 2200Electricity, gas and water 1100Taxes on expenditure 14200Factor income paid abroad 10000

Factor income received from abroad 18250Capital consumption 20200Government consumption 10000

a) Calculate :

i) Gross Domestic Product (GDP) at market price

GDPmp = Mining and Quarrying + Banking, insurance and other services + Manufacturing + Wholesale, retail trade, hotel and restaurant + Agriculture, forestry and fishing + Transport, storage and communication + Construction + Electricity, gas and water

= 7200 + 13800 + 23200 + 14400 + 15600 + 9800 + 2200 + 1100= RM 87300 million

ii) Gross National Product (GNP) at market price

GNPmp = GDPmp + Factor income received from abroad - Factor income paid abroad= 87300 + 18250 – 10000= RM 95550 million

iii) Gross National Product (GNP) at factor cost

GNPfc = GDPmp + Subsidies - Taxes on expenditure = 87300 + 790 – 14200 = RM 82140 million

iv) National Income

NI = GNPfc – Capital consumption = 82140 – 20200 = RM 61940 million

b) Give TWO(2) example of transfer payment

1) Pension2) Scholarship