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 new factory in Malaysia.

A)What sort of foreign investment would this represent ?

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

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 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

5.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

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.