ECO2202 (F) / Page 1 of 4

INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME

BACHELOR OF BUSINESS ADMINISTRATION (HONS) PROGRAMME
BACHELOR OF INTERNATIONAL BUSINESS (HONS) PROGRAMME
ECO2202: MACROECONOMICS
FINAL EXAMINATION: AUGUST 2014 SESSION

Instructions: This paper consists of SEVEN (7) questions. Answer any FOUR (4) questions in
the answer booklet provided. All questions carry equal marks.

Question 1

a) Explain how NNP at factor cost can be calculated from GDP at market price
(7 marks)

b) Explain how economist deal with the following item when calculating GDP
i. Taxes and subsidies
ii. Appreciation of stocks
iii. Ownership of dwelling (owner-occupied housing)
iv. Goods that start being produced before the beginning of the begins
(10 marks)

c)
A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of
these goods for the last several years are shown below. The base year is 2009.
Prices and Quantities
Year Price of Quantity of Price of Quantity of
Movies Movies Popcorn Popcorn
2008 $10.00 400 $5 800
2009 $11.00 500 $4 900
2010 $12.00 600 $5 1000
2011 $12.00 600 $6 900

i) In which year was this country’s nominal GDP highest? (2 marks)

ii) In which year was this country’s real GDP highest? (2 marks)

iii) What was this country’s GDP deflator in 2010? (2 marks)

iv) What was this country’s GDP deflator in 2011? (2 marks)

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Question 2

a) Use the table below to answer the following questions:

Real Disposable Consumption C

income (Yd) )
300 290
310 298
320 306
330 314
340 322
350 330
360 338
380 346

Planned investment I= 140

Government expenditure G = 160
Tax function (T) = -50 + 0.25Y
Full employment national income (Yf) = 1050
(i) Calculate autonomous expenditure, MPS, MPC out of national income.
(6 marks)
(ii) Calculate saving function in terms of national income.
(3 marks)
(iii) What is the aggregate expenditure function of the economy
(3 marks)
(iv) What is the equilibrium national income
(3 marks)

b) Using the equilibrium in (a) suppose if full employment Yf = 1050 calculate and show on
a graph the inflationary or recessionary gap.
(5 marks)

c) “Taxation and wealth are some of the determinants of consumption among other
determinants”. Explain how the two determinants affect consumption function.
(5 marks)

Question 3

a) Illustrate how monetary policy is affected by aggregate supply? (10 marks)

b) Briefly discuss how the manipulation of the money supply by central bank could influence
the level of the economic activity in a country in case inflation and recession.
(9 marks)
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c) Explain the THREE (3) motives that people wish to hold money.
(6 marks)

Question 4

a) Differentiate between equilibrium natural rate of unemployment and disequilibrium rate of

unemployment
(9 marks)

b) How are the tools of fiscal and monetary policies controlled in order to overcome cyclical
unemployment?
(10 marks)

c) Explain TWO (2) costs of unemployment (6 marks)

Question 5

a) When the society is faced with a pessimistic expectation of the economy, people may
engage in saving more of their income to safeguard future. The act of saving may itself
cause hardship in peoples live than to preserve”
(10 marks)

b) Explain the following terms

i. Balanced Budget Multiplier (5 marks)

ii. Tax Multiplier (5 marks)

iii. Cost Push Illusion (5 marks)

Question 6

a) Explain the THREE (3) functions of financial intermediaries. (9 marks)

b) Explain the THREE (3) functions of central bank. (10 marks)

c) Explain THREE (3) functions of money (6 marks)

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Question 7

a) Consider the impact of the following changes upon the value of the Ringitt Malaysia.
Provide a sketch for change

(i) A rise in interest rate in Malaysia

(6 marks)
(ii) A substantial current account deficit of Malaysia’s balance of payment
(6 marks)

b) “Countries that adopted fixed exchange rates are known to lose flexibility of the
monetary policy”.
(8 marks)

c) Suppose that US is experiencing higher inflation than Britain. Explain with appropriate
diagrams how inflation will affect the dollar price of sterling ($/£).
(5 marks)

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