ECO 104 Mr.

Nuruzzaman

The answer of 2nd Assignment Answer no. 1 Assume that a firm discharges waste into a river. As a result, the marginal social costs (MSC) are greater than the firms marginal (private) costs (MC). The table below shows how MC, MSC, AR, and MR vary with output. Assume that marginal private benefit (MB) is given by the price (AR). Assume also that there are no externalities on the consumption side, and therefore MSB = MB.

Output MC MSC TR AR MR

1 23 35 60 60 60

2 21 34 102 51 42

3 23 38 138 46 36

4 25 42 168 42 30

5 27 46 195 39 27

6 30 52 219 36.5 24

7 35 60 238 34 19

8 42 72 252 31.5 14

1a)

How much will the firm produce if it seeks to maximize profits? Based on the tabel output and all of cost instrumental which the firm provide, we cantrack conclussion that the firm will produce if it seeks to maximize profits when the amount of out put equal to 5. It is because the profit maximising where marginal revenue equals to marginal cost (MR=MC). It is respectivelly 27 in both of MR and MC.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

1b)

What is the socially efficient level of output? The socially efficient level of output is 4. Its situation describe the production and consumptions where marginal social benefit equals to marginal social cost (MSB=MSC) while the MSB=MB=AR. Thus, we can assume that socially efficient level happens when AR=MSC in level output 4 with 42 respectivelly in AR and MSC.

1c)

How much is the marginal external cost at this level of output? There are two type of external cost in the market include marginal cost of production and marginal cost of consumptions. However, external cost is cost of production or consumption borne by people other than the producer or consumer. Therefore, marginal cost of production will find when marginal social cost more then marginal cost (MSC>MC). In table above we can find the marginal external cost in all of level out put which is have negatif externalities cost. Output MC 1 2 21 34 15 17 3 23 38 19 4 25 42 22 5 27 46 25 6 30 52 30 7 35 60 8 42 72

2 23 MSC 2 35 13

Marginal External Cost

So, clearly we can see the gap between MSC and MC in the table.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

1d)

What size of tax would be necessary for the firm to reduce its output to the socially efficient level? The goverenment usually take actions in the market to deal with externality. In this case, the goverenment will allocate the tax in the marginal social cost through subsidies. As a result, the MC will be added by tax and the MSC will be reduced by subsidies. So, the tax neccesary when the MSC>MC to get ballance.

Answer no. 2 The United States experienced a major economic downturn in the early 1980s. Consider the data on real GDP and the price level (CPI) in the table below Year Real GDP ($ billion, 2000 Price Level (CPI)

prices) 1980 1981 1982 1983 1984 1985 5161.7 5291.7 5189.3 5423.8 5813.6 6053.7 54.1 59.1 62.7 65.2 67.7 69.7

2a)

Calculate the annual economic growth and inflation rate of the United States during the period of 1981 to 1985.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

The United States experienced a major economic downturn in the early 1980s. Real Year ($ billion, GDP 2000 Price Level (CPI) Economic growth 1985 54,1 59,1 62,7 65,2 67,7 69,7 0,025 -0,019 0,045 0,072 0,041 0,164 0,033 9,242 6,091 3,987 3,834 2,954 26,109 5,222 Inflation 1981- rate from 1980-1985

prices 1980 1981 1982 1983 1984 1985 Total Average 5161,7 5291,7 5189,3 5423,8 5813,6 6053,7

Annual Economic Growth of United States = (current year-last year)/last year Inflation rate of United States = ((current year-last year)/last year x 100)

So, the economic growt in the US start from 2,5% and always make fluktuation up to 4,1%. Its means that the growth changes positively except in year 1981.

The fluktuation only happen in the inflation rate according to the table.

2b)

Calculate the average inflation rate from 1980 to 1984 = total inflation rate/5 = 26,109/5 = 5,222

3c)

Calculate the average growth rate of real GDP form 1980 to 1985. Hint: growth rates for multiple years use the following formula: Gt (n) = 100 x [(Xt/Xt-n)1/n 1] Where: Gt (n) is the average annual growth rate of the variable X for the n years between year (t-n) and year t.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

average growth rate of real GDP form 1980 to 1985 Gt (n) = 100 x [(Xt/Xtn)1/n 1
The average growth rate of real GDP from 1980-1985 is 0,136%.

1,519 -1,968 0,506 0,797 -0,174 Total: 0,680 Average: 0,136

2d)

Can you determine in which year there was a steep business downturn or recession? The year that have steep business downturn is 1982 because in this year have smallest real GDP about 5189,3.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

Answer no.3 In the last two decades, women have worked more hours in paid jobs and fewer hours in unpaid housework. 3a) How would this increase in work hours affect GDP? Of course, the increasing in work hours will be affected the GDP because the goverenment will get the tax from wage the employement and also minimum wage and equilibrium wage directly will affect the GDP. Related to the women, they unpaid houdsework before and then became paid/worker in the office etc, thus they get their own wage from the firm. Therefore, the firm wil produce more and expand their injection to the goverenment, the household save more tax in any level output of employement and set rising the GDP. Finally the injection will be affected the GDP. Hence, to calculate GDP is as thetotal of factor earnings (wages, interest, rents, andprofits) that are the costs of producing societys final product.

3b)

Explain why this increase in measured GDP will overstate the true increase in output! Also explain how a set of augmented national accounts which includes home production would treat this change from nonmarket work to market work? Any level of output set fall or increasing the GDP based on two type to determine the GDP approach. First, using withdrawals and injection approach and second using income and expendixture approach. Increasing in measured of GDP will overstate the true increse in output because the higher injection will affected to higher GDP. The relationship is, when the firm produce more, it will need more labor or employemen and other resources. Household income, consumption and production will rise again. There will multiplier effect in rising income and employement. The injection rise, withdrawals fall and GDP rise.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

Home production definitelly will change the nationl account of GDP. Suppose that household non market is the housework unpaid which do not donate any number of GDP. Afterwards, its change to market housework because of the wife as housework before get jobs and wage and then they pay another person to replace their job in the house. Thus, its will be home productin or housework paid and support the number change of nationall account. The gross domestic product is defined as the total money value of the flow of final products produced by the nation. National accountants use the market prices as weight valuing different commodities because market prices reflect the relative economic value of diverse goods and services and the household activities.

3c)

Explain the paradox, when a person marries his or her gardener, GDP goes down Suppose in a home there are gardener who work with he paid avery month. And then the boss ask him to married and be her gardener unpaid. If before, the gardener get wage and adding the injections, but now he just reduce the injection set the deflatioanary gap. The unemployement rate rising and the GDP goes down.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

Answer no. 4 Plot the rate of growth of real GDP and the unemployment rate in Indonesia from 2000 to 2009. Do you observe any relationship between the two? If so, can you explain this relationship? (Note: You can obtain data of Real GDP and Unemployment Rate in Indonesia from BPS website)

Real GDPIndonesia Unemployement (contains Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 rate 15 8 10.6 8.7 9.2 11.8 12.5 9.1 8.4 8.1 price) 5.35 3.643 4.499 4.78 5.031 5.693 5.501 6.345 6.014 4.576

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations R -0.03591 0.817587 10 0.281412 0.079193

http://www.indexmundi.com/indonesia/gdp_real_growth_rate.html http://www.indexmundi.com/g/g.aspx?c=id&v=74

Based on the table and chart above, we can get conclusion that the relationship between real GDP (contains price) with unemployment rate (%) just 0.0791 that explained There is lurking variable such as inflation, economic growth, sustainable economic growth and satisfactory balance of payment which significantly affected the GDP, thus it just 8% shown the relationship between both.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

Answer no. 5 5a) What is (are) the main objective(s) of the Central Bank of Indonesia (Bank Indonesia)? The aims of Central Bank of Indonesia is achieving and maintaining the stability of the value of the rupiah through the monetary stability and the development of stability of the financial system for the development of national long-term sustainability.

5b)

Why keeping inflation rate in moderate level can help in improving the welfare of the ociety? The reason why keeping the inflation will help to improve the welfare of the society are : At first, the empirical evidence shows that in the long run monetary policy can only affect the rate of inflation, monetary policy cannot affect real variables, such as output growth or unemployment rate so that the Central Bank of Indonesia should keep the kestbilan system of finance. Secondly, achieving low inflation is a prerequisite for the achievement of macroeconomic objectives, such as growth at the level of full-capacity (full employment) and the provision of the widest breadth of employment opportunities. Thirdly, most importantly, the determination of the rate of inflation low as the ultimate goal of monetary policy will be the nominal anchor of various economic activities. Thirdly, most importantly, the determination of the low inflation rate as the ultimate goal of monetary policy will be the nominal anchor of various economic activities. Strategies used by BI in achieving the targets of low inflation, is reviewing the effectiveness of the instruments:-monetary and monetary policy transmission lines. -determining the final goal of monetary policy. -identify the variables that lead to inflationary pressures. -formulate monetary policy response. Inflation rates reflected the soaring prices of goods in General. High inflation rates have an impact on the welfare of society is declining due to the purchasing

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

power of money belonging to the top/goods/services acquired will plummet. How far the deterioration of the value of the currency over the value of the goods is intended by the turmoil of inflation. Theoretically to cope with inflation relatively easily, i.e. by means of overcoming the main base, which reduces the amount of money in circulation. Therefore, to be able to achieve and maintain levels of low inflation and stable, it takes the cooperation and commitment of all economic actors, both governmental and private. Without the support and commitment is undoubtedly a very high inflation rate as long as it will be difficult to control. Next the rupiah exchange rate determined by the strength of demand completely and panawaran that took place in the market. What can be done by BI is to keep the value of the rupiah fluctuate is not too sharp. Finally, by keeping the movement of inflation remains low, the cost of production of goods and services was low so the process of increasing job creation and fulfillment tools available that are capable of is owned by society.

5c)

What are the 3 main tasks of Central Bank of Indonesia? How the 3 main tasks of Bank Indonesia may help BI to achieve its objective? To achieve these goals Bank Indonesia is supported by three pillars which are the three areas of its work. The third area of this task are:-establish and implement monetary policy. Organize and maintain smooth payment system, as well as organize and supervise banking-in Indonesia. All of these need to be integrated in order to maintaining the stability of the value of the rupiah can be achieved effectively and efficiently. In order to maintain the stability of the rupiah BankIndonesia do settings and management of National payment system (NPS) will be smooth that is supported by a reliable infrastructure. So, the more smoothly and hadal nes, then it will be more smoothly as well as transmission of monetary policy that is time critical. When monetary policy is in full swing and its origin is the stability of the exchange rate.

Sampoerna School of Business-Saepul Solihin & Wery Astuti

ECO 104 Mr. Nuruzzaman

As the Monetary Authority, the central bank has the right to set and enforce policy, authorizes the NPS and licensing as well as conduct surveillance (oversight) for nes, mengelurkan, revoke and destroy money rupiah in circulation. It is done with the settlement system between banks via the Central Bank of Indonesia (CBI) infrastructure-Real Time Gross Settlement (RTGS-CBI) Armed with the authority, any set of policies of CBI components NPS. For example, determine what means of payment may be used in Indonesia and is the default. In the end of BI related policy setting must also control risk, efficiency as well as governance NPS. In the framework of the task set up and oversee banking, Bank Indonesia regulation sets out, giving and revoking permits for certain business activities or institutional bank, carries out supervision over banks, and put on sanctions against the bank in accordance with the provisions of the legislation in force. In the implementation of these tasks, Central Bank of Indonesia authorities stipulate provisions banking with upholding the principle of prudence. Pertaining to authority in the field of license, besides giving and repeal business permit bank, Central Bank of Indonesia also able to grant permission opening, closure and relocation office bank, provide his approval to ownership and management of bank, and grant permission to banks to run certain business activities. In the field of supervision, Central Bank of Indonesia to conduct surveillance directly or indirectly. Direct supervision is carried out either in the form of an examination at regular intervals and at any time when needed. Indirect monitoring is done through research, analysis and evaluation of the reports submitted by the bank.

Sampoerna School of Business-Saepul Solihin & Wery Astuti