CHAPTER 6 : PRODUCTION AND GROWTH

2. Suppose that society decided to reduce consumption and increase investment.

A) How would this change affect economic growth ?

B) What groups in society would benefit from this change ? What groups might be hurt ?

5. Suppose that an auto company owned entirely by German citizens opens a newfactory in Johor

A) What sort of foreign investment would this represent ?

B) What would be the effect of this investment on Malaysia's GDP ? Would theeffect on Malaysia's GNP be larger or smaller ?

8. International data show a positive correlation between income per person and the health of the population.

A) Explain how higher income might cause better health outcomes.

B) Explain how better health outcomes might cause higher income.

C) How might the relative importance of your two hypotheses be relevant for public policy.

CHAPTER 7 : SAVING, INVESTMENT AND FINANCIAL SYSTEM

04. Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment ? Saving ? Explain

A) You family takes out a housing loan and buys a new house.

B) You use your RM200 paycheck to buy stock in TM.

C) Your roomate earns RM100 and deposits it in her accountant at a bank.

D) You borrow RM1000 from a bank to buy a motorbike to use in your pizza delivery business.

05. Suppose GDP is RM8 billion, taxes are RM1.5 billion, private saving is RM0.5 billion and public saving is RM0.2 billion. Assuming this economy is closed, calculated consumption, government purchases, national saving, and investment.

06. Suppose that Intel is considering building a new integrated chip (IC) factory in Cyberjaya.

A) Assuming that Intel needs to borrow money in the bond market, why would an increase in interest rates affect Intel's decision about whether to build the factory ?

B) If Intel has enough of its own funds to finance the new factory without borrowing, would an increase in interest rates still affect Intel's decision about whether to build the factory ? Explain

CHAPTER 8 : UNEMPLOYMENT

1. The Department of Statistics, Malaysia announced that in 2005, of all adult Malaysians 10 547 500 were employed, 379 100 were unemployed, and 5 628 800 were not in the labor force. Use this information to calculate :

A) The adult population

B) The labor force

C) The labor-force participation rate

D) The unemployment rate

03. Are the following workers more likely to experience short-term or long-term unemployment ? Explain.

A) a construction worker laid off because of bad weather

B) A manufacturing worker who loses her job at a plant in an isolated area

C) A stagecoach-industry worker laid off because of competition from railroads

D) A short-order cookwho loses his job when a new restaurant opens across the street

E) An expert welder with little formal education who loses her job when the company installs automatic welding machinery

05. Consider an economy with two labor markets-one for manufacturing workers and one for service workers. Suppose initially that neither in unionized.

A) If manufacturing workers formed a union, what impact on the wages and employment in manufacturing would you predict ?

B) How would these changes in the manufacturing labor market affect the supply of labor in the market for service workers ? What would happen to the equilibrium wage and employment in this labor market ?

CHAPTER 9 : THE MONETARY SYSTEM

1. Which of the following are money in the Malaysian economy ? which are not ? Explain your answer by discussing each of the three functions of money.

A) a Malaysian Ringgit

B) A Merican Peso

C) A Picasso painting

D) A plastic credit card

6. You take RM100 you had kept under your pillow and deposit it in your bank account. If this RM100 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of deposits, by how much does the total amount of deposits in the banking system increase ? By how much does the money supply increase ?

11. The economy of Elmendyn contains 2000 RM1 bills.

A) If people hold all money as currency, what is the quantity of money ?

B) If people hold all money as current account deposits and banks maintain 100 percent reserves, what is the quantity of money ?

C) If people hold equal amounts of currency and current account deposits and banks maintain 100 percent reserves, what is the quantity of money ?

D) If people hold all money as current account deposits and banks maintain a reserve ratio of 10 percent. What is the quantity of money ?

E) If people hold equal amounts of currency and current account deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money ?

CHAPTER 10 : OPEN ECONOMY : BASIC CONCEPTS AND THE MACROECONOMY THEORY

1. How would the following transactions affect Malaysian exports, imports and net exports ?

A) A Malaysian professor spends the summer touring museums in Europe.

B) Students in Kuala Lumpur flock to see the latest movie from Hollywood U.S.A.

C) Your uncle buys a new Toyota.

D) The student bookstore at National University of Singapore sells Royal Selangor Pewter.

E) A Thai citizen shops at a store in Kota Bharu.

2. Would each of the following transactions be included in net exports or net capital outflow ? Be sure to say whether it would represent an increase or a decrease in that variable.

A) A Malaysian buys a Sony TV

B) A Malaysian buys a share of Sony stock.

C) The Japan pension fund buys a bond from the Malaysian Treasury

D) A Japanese buys some durians from a Malaysian farmer.

08. Would each of the following groups be happy or unhappy if ringgit appreciated ? Explain.

A) Hong Kong pension funds holding Malaysian government bonds

B) Malaysian manufacturing industries

C) Australian tourists planning a trip to Malaysia

D) A Malaysian firm trying to purchase property overseas

CHAPTER 11 : THEORY OF THE OPEN ECONOMY

02. If a local newspaper reported that the Malaysian government will shore up the sliding ringgit by working to cut record budget and trade deficits.

A) According to the model in this chapter, would a reduction in the budget deficit reduce the trade deficit ? Would it raise the value of the ringgit ? Explain.

B) Suppose that a reduction in the budget deficit made international investors more confident in the Malaysian economy. How would this increase in confidence affect the value of the ringgit ? How would it affect the trade deficit.

06. Suppose Indonesian suddenly develop strong taste for Kelantan Batik. Answer the following questions in words and with a diagram.

A) What happens to the demand for ringgit in the market for foreign-currency exchange ?

B) What happens to the value of ringgit in the market for foreign-currency exchange ?

C) What happens to the quantity of net exports ?

09. Suppose the Malaysian decide to increase their saving.

A) If the elasticity of Malaysian net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on Malysian domestic investment ?

B) If the elasticity of Malaysian exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the Malaysian real exchange rate ?

CHAPTER 12 : AGGREGATE DEMAND AND AGGREGATE SUPPLY

02. Explain whether each of the following events will increase, decrease or have no effect on long-run aggregate supply.

A) Malaysia experiences a wave of immigration.

B) Intel invents a new and more powerful computer chip.

C) Tenaga Nasional Berhad (TNB) invests in new electricity transmission technology.

D) A severe flood damages factories in Pahang.

05. For each of the three theories for the upward slope of the short-run aggregate-supply curve, carefully explain the following:

A) How the economy recovers from a recession and returns to its long-run equilibrium without any policy intervention.

B) What determines the speed of that recovery.

010. For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action.

A) The stock market declines sharply, reducing consumers' wealth.

B) The federal governement increases spending on national defense.

C) A technological improvement raises productivity.

D) A recession overseas causes foreigners to buy fewer Malaysian goods.

CHAPTER 13

Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. illustrate your answer with diagrams.

1.a. BNM'S securities traders buy securities in open market operations.

b. An increase in credit card availability reduces the cash people hold.

c. BNM'S reduces banks' reserve requirements.

d. Households decide to hold more money to use for holiday shopping.

e. A wave of optimism boosts business investment and expands aggregate demand.

10.in which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain.

a.When the investment accelerator is large or when it is small?

b.When the interest sensitivity of investment is large or when it is small?

11.For various reasons, fiscal policy changes automatically when output and employment fluctuate.

a. Explain why tax revenue changes when the economy goes into a recession.

b. Explain why government spending changes when the economy goes into a recession.

c. If the government were to operate under a strict balanced-budget rule, what would it have to do in a recession? Would that make the recession more or less severe?