Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECO2103 Macroeconomics

Question 1

(a) The following table shows economic data for Japan in 2021 based on 2015 prices.

Expenditure                    Yen (billon)

Consumption                  ¥ 283,903.0 b

Investment                     ¥ 106,253.2 b

Government                    ¥ 142,373.7 b

Net exports                     ¥ - 4,332.1 b

Source: www.stat.go.jp

Required:

(i) State the formula for the expenditure approach and use it to calculate the real GDP of Japan in 2021. (3 marks)

(ii) Identify TWO (2) types of expenditure that would NOT have been included in the table above for the purpose of calculating GDP. Provide a reason why for each type of expenditure given. (4 marks)

(iii) If the population size of Japan was 126 million in 2021, calculate the real GDP per capita. (3 marks)

(iv) Discuss if the real GDP per capita computed is a good indicator of the standard of living in Japan in 2021. (6 marks)

(b) The following table shows information on the labour market in Japan for 2021.

Employed                                   67,124,200

Unemployed                               1,945,800

Working-age population               110,224,060

Source: https://data.worldbank.org

Required:

(i) Calculate the size of the labour force of Japan in 2021. (2 marks)

(ii) Calculate the labour force participation rate in Japan in 2021. (2 marks)

(iii) Calculate the unemployment rate in Japan in 2021. (2 marks)

(iv) Identify ONE (1) type of unemployment that Japan could be facing and explain how this type of unemployment can be reduced. (3 marks)

Question 2

(a)

(i) State the formula for private savings. Identify and explain a factor of consumption that would lead to a rise in private savings. (4 marks)

(ii) With the aid of a saving-investment diagram, illustrate and explain the effect of a rise in private savings on equilibrium interest rate and quantity of saving and investment. (4 marks)

(b) The information given below is relevant to an economy:

C = 20,000 + 0.8Yd

IP = 15,000

G = 12,000

T = 1,250

X = 30,000

M = 16,000

Y* = 250,000

Where C = consumption, Yd = disposable income, IP = planned investment, G = government spending, T = lump sum tax, X = exports, M = imports, Y* = potential output

Required:

(i) Derive the equation for planned aggregate expenditure (PAE) and calculate the equilibrium level of output. (4 marks)

(ii) Calculate the size of the output gap that the economy faces and use the PAE diagram to illustrate this gap. (5 marks)

(iii) Calculate the spending multiplier of the economy. (2 marks)

(iv) Use your answer to part b(iii) to calculate the change in government spending required to close the output gap. (2 marks)

(v) Calculate the tax multiplier of the economy. (2 marks)

(vi) Use your answer to part b(v) to calculate the change in tax required to close the output gap. (2 marks)

Question 3

(a) Use information in the extract to answer the questions below.

Bank Indonesia plans to raise the reserve requirement ratio for banks to 9 per cent in September from the previously announced 6.5 per cent, Governor Perry Warjiyo said in a briefing.

Source: www.bussinesstimes.com.sg

(i) Calculate the money multiplier if the central bank of Indonesia raises the reserve requirement ratio to 9%. Explain if this new money multiplier is higher or lower than before. (4 marks)

(ii) Explain the effect of the rise in the reserve requirement ratio on money supply. (4 marks)

(iii) Use the money market diagram to explain and illustrate the effect of the rise in the reserve requirement ratio on equilibrium interest rate. (4 marks)

(iv) Use your answer to part a(iii) to explain the effect of the change in the reserve requirement ratio on GDP. (2 marks)

(v) Identify another monetary tool that the central bank of Indonesia can adopt to bring about the same effect on GDP. (2 marks)

(b)

(i) Assume that an economy is initially at long run equilibrium. A possible recession causes consumers to reduce consumption. Use the AD-AS diagram to analyse the short run effects on the economy and identify the type of output gap the economy will experience. (5 marks)

(ii) Based on the output gap identified in part b(i), use a separate AD-AS diagram to explain how the economy returns to long run equilibrium through self-correction. (4 marks)

Question 4

(a) The following table shows the output of crude oil and steel by two countries, using the same amount of resources.

Country               Crude Oil               Steel

Macroland               80                      20

Microland                50                      20

Required:

(i) Based on the theory of comparative advantage, identify the country that should specialise in the production of crude oil and the country that should specialise in the production of steel. Show all necessary workings. (4 marks)

(ii) Explain TWO (2) benefits arising from specialisation and trade. (4 marks)

(iii) Explain TWO (2) reasons why both countries may decide not to specialise and trade. (4 marks)

(b) Use the information in the extract to answer the questions below.

Turkey’s picturesque Cappadocia region has attracted over 2.5 million tourists in the first eight months of this year, breaking its all-time record, according to official figures.

Source: www.dailysabah.com

(i) Explain the effect of the high tourist arrivals on the value of the currency of Turkey, the Turkish lira. Use a demand and supply diagram to illustrate your answer. (4 marks)

(ii) Use your answer to part b(i) to state the effect of the currency change on the value of Turkey’s net export. (1 mark)

(c) Using the IS-LM diagram, illustrate and explain the effects of the following events in an economy:

(i) A contractionary fiscal policy. (4 marks)

(ii) A rise in the general price level. (4 marks)