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BM/APR 2009/MTC099

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

ECONOMIC ISSUES AND PROBLEMS MTC099 APRIL 2009 2 HOURS

INSTRUCTIONS TO CANDIDATES 1. This question paper consists of three (3) parts: PART A (20 Questions) PART B (4 Questions) PART C (3 Questions)

2.

Answer ALL questions from PART A and PART B. Answer any one (1) question from PART C. i) Answer PART A in the Objective Answer Sheet. ii) Answer PART B and PART C in the Answer Booklet. Start each answer on a new page.

3.

Do not bring any material into the examination room unless permission is given by the invigilator. Please check to make sure that this examination pack consists of: i) ii) iii) the Question Paper an Answer Booklet - provided by the Faculty an Objective Answer Sheet - provided by the Faculty

4.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 10 printed pages
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PART A

1.

Opportunity cost may be defined as the A. B. C. D. most desired good or service that is forgone in order to obtain a particular good or service. dollar price paid for a final good or service. dollar cost of producing a particular product. resources for producing a good.

2.

Which of the statements below is not true? Tariffs on imported coffee will result in: A. B. C. D. higher prices for the imported coffee. higher prices for domestic coffee. gains by workers in the domestic coffee industry. lower prices for imported coffee.

3.

Bank Negara Malaysia is A. B. C. D. a commercial bank. a central bank. both commercial and central bank. a finance company.

4.

Which of the following is NOT a function of a commercial bank? A. B. C. D. Accepting deposits from the public. Lender of last resort. Advancing loans to the public. Provide safekeeping facilities.

5.

The law of supply A. B. C. D. reflects the amount which producers will want to offer at each price in a series of prices. is reflected in an upward sloping curve. shows that the relationship between price and quantity supplied is positive. is reflected in all of the above.

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6.

The economic problem of scarcity refers to A. B. C. D. unlimited wants and unlimited resources. limited wants and limited resources. limited resources and unlimited wants. limited wants and unlimited resources.

7.

Which of the following is NOT a function of a central bank? A. B. C. D. Issuance of currency. Banker to the government. Implementing monetary policy. Issuance of credit cards.

8.

A steel mill, a corn field, and an owner of a small business are, respectively, examples of A. B. C. D. land, capital, and capital, land, and land, capital, and capital, land, and labor. labor. entrepreneurship. entrepreneurship.

9.

Microeconomics is the study of A. B. C. D. how government activities affect the economy. individual decision-making units, such as households and business firms. collective decision-making and the economic motives of voters and elected officials. the operation of the economy as a whole, and economic topic such as total output, employment, and inflation.

10.

A mixed economy is one A. B. C. D. that depends on both market and centralized decision making. where businesses decide what to produce and households decide what to buy. that is talked about in classrooms, but no mixed economies exist in the real world. none of the above.

11.

Inflation refers to A. B. C. D. high prices for all goods and services. an increase in the general level of prices. a high average price for all goods and services. an increase in the price of all goods and services.

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12.

The economic policy that focuses on changing the size of the spending stream by changing government taxes and /or expenditures is A. B. C. D. socialism. fiscal policy. monetary policy. laissez-faire capitalism.

13.

The national debt is the A. B. C. D. debt owed to foreign creditors by the government sector. difference between current government revenues and expenditures. total accumulated debt of the federal government due to deficit spending. total accumulated debt of the household, business, and government sectors of an economy.

14.

The balance of trade is A. B. C. D. a component of the current account. a component of the capital account. equal to the current account balance plus the capital account balance. equal to the current account balance minus the capital account balance.

15.

Which of the following is not a monetary policy tool? A. B. C. D. Open market operation. Statutory reserve ratio. Government expenditure. Interest rate .

16.

On her recent birthday, Aminah received RM300 from her parents. She deposited the money into her bank account. She intends to use the money to pay for her brother's birthday gift next month. This is an example of money being used as A. B. C. D. a medium of exchange. a standard of deferred payment. a store of value. a unit of account.

17.

The essential condition for an item to act as money is that A. B. C. D. it it it it is generally acceptable. is portable. is a legal tender. is backed by gold.

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18.

The basic economic problems are A. B. C. D. what, how and for whom to produce. where and when to produce. what to produce and why produce. when to produce and why produce.

19.

Which of the following is not a fiscal policy tool? A. B. C. D. Taxation. Subsidy. Government expenditure. Open market operations.

20.

To reduce inflationary pressures, a central bank needs to A. B. C. D. sell government securities, reduce interest rate and reduce reserve ratio. sell government securities, increase interest rate and increase reserve ratio. buy government securities, increase interest rate and increase reserve ratio. buy government securities, reduce interest rate and increase reserve ratio.

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PARTB

QUESTION 1 Based on the following table: Income (Y) 0 100 200 300 400 500 Consumption (C) 120 180 240 300 360 420 Saving (S) Investment (I) 40 40 40 40 40 40 Aggregate Expenditure (AE)

a)

Fill in the columns for Saving (S) and Aggregate Expenditure (AE). (3 marks)

b)

Find the size of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). (2 marks) Compute the size of the multiplier. (1 mark)

c)

d)

Determine the equilibrium level of income. (2 mark)

e)

State the break even level of income. (1 mark)

f)

What is the effect of an increase in investment by 40 on the equilibrium level of income? (1 mark)

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QUESTION 2 Assume that Malaysia can produce either 2 tons of rice or 4 tons of rubber with 1 unit of resource, and that Thailand can produce either 4 tons of rice or 4 tons of rubber with 1 unit of resource. a) What is Malaysia's opportunity cost of i) ii) 1 ton of rice? 1 ton of rubber? (2 marks) b) What is Thailand's opportunity cost of i) ii) 1 ton of rice? 1 ton of rubber? (2 marks) c) Which country has the comparative advantage in i) ii) rice? rubber? (2 marks) d) Suppose each country has 2 units of resource available. If each country uses 1 unit of resources for the production of rice and the other for the production of rubber, how much of i) ii) rice, and rubber (2 marks) e) If each country uses its 2 units of resources to produce the item in which it has the comparative advantage, how much of i) ii) rice, and rubber

will they produce together?

will be produced? (2 marks)

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QUESTION 3 Below is the initial simplified balance sheet of XYZ Bank before credit creation. Balance sheet of XYZ Bank Asset Liability

Cash

RM1000

Deposits

RM1000

Total

RM1000

Total

RM1000

a)

Assume that the required reserve ratio is 5 percent, how much loans can XYZ Bank give? (2 marks) Calculate the deposit multiplier. (2 marks)

b)

c)

How much loan can the whole banking system give? (2 marks)

d)

How much deposits can the whole banking system create? (2 marks) State any two assumptions on which the process of credit creation as described above is based. (2 marks)

e)

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QUESTION 4 The table below focuses on the factors that will shift either the demand curve or the supply curve of computers. In each case, determine which curve will shift, and write in demand or supply as appropriate; then write in whether the shift will be to the right or left. In addition, determine whether equilibrium price and equilibrium output (quantity) will rise or fall. The first case has been completed as an example. Shift factor Demand or supply Supply Left or Right Right Price will Output (Quantity) will Rise

Technology of computer production progresses a) Government allows income tax exemption on the purchase of computers by consumers. b) Expectation by consumers that price of computers will fall in the future. c) Labour shortage arises in the computer industry d) Cost of processors fall e) Price of software decreases

Fall

(i)

(ii)

(iii)

(iv)

(v) (ix) (xiii) (xvii)

(vi)

(vii)

(viii)

(x) (xiv) (xviii)

(xi)
(XV)

(xii) (xvi)
(XX)

(xix)

(10 marks)

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BM/APR 2009/MTC099

PARTC

QUESTION 1 a) Describe any four (4) advantages of international trade. (8 marks) b) c) Elaborate on any two (2) barriers to trade. (4 marks) Explain any four (4) arguments proposed to support protectionism. (8 marks)

QUESTION 2 a) b) Define and sketch a production possibility curve. (4 marks) Use the curve to represent i) ii) iii) iv) c) scarcity (3 marks) opportunity cost (3 marks) wastage (3 marks) growth (3 marks) Using a suitable diagram, explain a production possibility curve with a constant opportunity curve. (4 marks)

QUESTION 3 Write short notes on the following: a) b) c) d) ceiling price (5 marks) cyclical unemployment (5 marks) money supply (5 marks) balance of payments deficit (5 marks) END OF QUESTION PAPER
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