1. Other things being constant, what will be the effect of each of the following on consumption and saving schedules? Illustrate and explain each cases separately using both the consumption and saving schedule.

a)Credit card companies increase the interest-free periods on their cards.

b)Concern grows over overall rising prices.

c)A weakening of the housing market lowers home values.

d)The real interest rates have fallen.

e)The government executed its plan for tax cuts.

2. A hypothetical data shows that, in a year, of all the adult population, 20,500,000 were employed, 755,000 were unemployed, 45,000 were workers with part-time jobs looking for full-time jobs, 25,000 were discouraged workers and 8,500,000 were not in the labor force.

a)Use the above information and calculate the labor force participation rate and the unemployment rate.

b)Suppose that the natural rate of unemployment is 1.5 percent and the potential GDP is RM 850 billion, how much would be the actual GDP achieved in the above case?

c)Suppose that 2,500,000 students graduated from higher education institutions and begin to look for jobs. Ceteris paribus, determine the new unemployment rate if none of the students have found jobs yet. How this will change your answer in (b)?

d)Now suppose that 1,500,000 of the students whom graduated in (c) find jobs and the remaining are not yet employed. Ceteris paribus, determine the new unemployment rate. Clearly show your working for all calculations.

e)Simulate a scenario in which both employment and unemployment could both possibly increase.

3. Billions of RM

Transfer payments 16

Government purchases 80

Personal taxes 38

Corporate income taxes 28

Taxes on production and imports 15

Social Security contributions 8

Undistributed corporate profits 19

Proprietors' income 25

Compensation of employees 258

Personal consumption expenditures 322

Consumption of fixed capital 4

Rents 10

Malaysia'sExports 14

Corporate profits 70

Interest 12

Dividends 23

Imports to Malaysia 17

Gross private domestic investment 63

Net foreign factor income 10

Statistical discrepancy 35

Compute:

a)Gross Domestic Product (GDP)

b)Net Domestic Product (NDP)

c)National Income (NI)

d)Personal Income (PI)

e)Disposable Income

f)Net exports