BEEB1013 PRINCIPLES OF ECONOMICS

MATRIC NO.: _________________

PART A: 50 MARKS
This part consists of 40 Multiple choice questions. You are recommended to spend only one
hour (60 minutes) to answer this part.

1. Which of the following are NOT the macroeconomic concerns?

A. Economic growth.
B. Inflation.
C. Housing price.
D. Unemployment rate.

2. The key assumption behind the thinking of the Classical economists was that wages
were

A. flexible downward but not upward.

B. flexible upward but not downward.
C. flexible both downward and upward.
D. not flexible either downward or upward.

3. What is the proper sequence of the phases of a business cycle?

A. peak, contraction, trough, expansion, recovery.

B. peak, contraction, recovery, trough, expansion.
C. peak, contraction, trough, recovery, expansion.
D. contraction, peak, trough, recovery, expansion.

4. In calculating the consumer price index (CPI), we need to choose a year as base year.
What is a base year?
A. A year that is used for comparing with other years.
B. A year that is used for calculating the changes in price level.
C. A year that is used for comparing with other country’s price level.
D. A year that is used for ensuring the price level is the lowest.

5. In Malaysia, the CPI in year 2016 is reported to be 115.2 as compared to 110.50 of

year 2014. If Kumar is earning RM900 per month in year 2014, what is the amount of
earning that Kumar needs to have in order to “keep up with inflation”?
A. RM898.
B. RM918.
C. RM928.
D. RM938.

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

6. Roslan retired from the police force. He started working an hour or two a day at a paid job in
state high court. Roslan is considered as

A. unemployed.
B. employed.
C. self-employed.
D. outside labor force..

Question 7 is based on the following information of Malaysian economy of 2017

Total population 31,945,700

Employed 14,355,900
Unemployed 514,200
Outside labour force 7,093,800

7 What is the labour force participation rate?

A. 46.55
B. 59.84
C. 67.70
D. 96.54

8. Cyclical unemployment is the

A. total of frictional and structural unemployment.

B. total of natural and structural unemployment.
C. difference between the natural and the existing (actual) unemployment.
D. different between the structural and the existing (actual) unemployment.

9. National income accounting

A. provides a set of rules for determining macroeconomic policy.

B. provides a set of rules and definitions for measuring economic activity in the
aggregate economy.
C. is a useful tool for microeconomists.
D. can be used to measure a nation's output but not its production or consumption.

10. Double counting in the national income accounts will NOT occur if Gross
Domestic Product (GDP) is computed by summing all

A. Sales of final output.

B. Sales of final output and intermediate goods.
C. Sales.
D. Production costs.

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

11. What does annual economic growth refer to?

A. annual increases in Nominal GDP.

B. annual increases in consumption spending.
C. annual increases in investment spending.
D. annual increases in Real GDP.

12. Which of the following would NOT be counted as a final good for inclusion in
GDP?

A. A piece of glass bought by a consumer to fix a broken window.

B. A sheet of glass purchased by a commercial builder of a new home.
C. A sheet of glass produced this year and ending up in the inventory of a retail
store.
D. A home that is built this year, but is not sold.

13. To derive net domestic product (NDP) from GDP, we must subtract

A. depreciation or capital consumption allowance from GDP.

B. gross private domestic investment from GDP.
C. imports from GDP.
D. inventory investment from GDP.

14. Spending on capital equipment, inventories and structures is referred to as:

A. Consumption expenditure (C).

B. Investment expenditure (I).
C. Government expenditure (G).
D. Expenditure on net exports (X – M).

15. Personal income is

A. another term for disposable income.

B. that portion of national income that can be used for consumption and
saving.
C. the sum of all payments to suppliers of the factors of production.
D. the amount of income that individuals actually receive.

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

In billions of Ringgit
Malaysia
Consumption 3600
Investment 800
Transfer payments 750
Government expenditures 1000
Exports 650
Imports 450
Net foreign factor income -30

16. Calculate GDP using the table above.

A. RM5570.
B. RM5600.
C. RM6050.
D. RM6320.

17.If Re lf aggregate output (Y) is greater than aggregate expenditure (AE),

A. there will be an increase in saving.

B. there will be an increase in inventories.
C. firms will then increase production.
D. firms will then increase prices.

18. Suppose the GDP in a country is $450 million and the population of that country is
150 million. What is the per-capita GDP of that country?

A. $300 million.
B. $30 million.
C. $3 million.
D. $0.3 million.

19. Autonomous consumption is

A. the change in consumption that results as a person's (or nation's) income

increases or decreases.
B. that portion of total consumption that is dependent upon the level of
income.
C. the steady increase in the consumption of goods and services that
automatically occurs as a person grows from a child to an adult.
D. that portion of total consumption that is independent of the level of income.

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

20. A rise in the marginal propensity to consume (MPC) makes the aggregate
expenditure (AE) curve __________ and __________ the multiplier.

A. steeper; raises
B. steeper; lowers
C. flatter; raises
D. flatter; lowers

21. As disposable income increases, consumption spending

A. increases by the same amount

B. decreases by the same amount
C. increases by less than the increase in disposable income
D. decreases by less than the increase in disposable income

22. When the consumption function lies above the 45-degree line, households

A. spend on consumption an increasing percentage of any increase in income.

B. spend on consumption a decreasing percentage of any increase in income.
C. are dissaving.
D. save all of any increase in income.

23 When government expenditure increases, equilibrium real GDP

A. decreases by an equal amount to offset the unplanned portion.

B. increases by an equal amount.
C. decreases by a greater amount due to the multiplier.
D. increases by a greater amount due to the multiplier.

24. If a person uses money to buy a pair of shoes, money is functioning as

A. a unit of account.
B. a store of value.
C. a medium of exchange.
D. none of the above

25. Which of the following statements is TRUE?

A. Savings deposits are a part of M2, but not M1.

B. M1 is sometimes referred to as the “broad definition of the money supply”.
C. Time deposits are a part of M1, but not M2.
D. M1 is a larger dollar amount than M2.
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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

26. You deposit $4,000 in currency in your checking account. The bank holds 20
percent of all deposits as required reserves. As a direct result of your deposit, your
bank will create
A. $200 of new money.
B. $800 of new money.
C. $1,600 of new money.
D. $3,200 of new money.

27. Bank Negara Malaysia holds RM285 million in checkable deposits and RM35
million in reserves. With a required reserve ratio of 11 percent, how much in excess
reserves is Bank Negara holding

A. RM250 million
B. RM3.65 million
C. RM35.2 million
D. RM31.35 million

28. To a bank, a checkable deposit is classified as

A. an asset.
B. a liability.
C. vault cash.
D. excess reserves.

29. If the required reserve ratio is 0.2, and the Central Bank buys RM3,000 of Malaysia
government securities, the maximum amount by which the money supply can
increase is
A. RM1,500
B. RM2,000
C. RM6,000
D. RM15,000

30. Which of the following is NOT the function of the Central Bank?

A. holding the deposits or reserves of commercial banks.

B. acting as fiscal agents for the Federal government
C. controlling the demand for money.
D. the collection or clearing of checks among commercial banks.

31. Which of the following refers to qualitative monetary policy tools?

A. interest rate and required margin rate.

B. interest rate and moral persuasion.
C. Moral persuasion and required reserve ratio
D. Required margin rate and moral persuasion.

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

32. Which of the following leads to an increase in the interest rate?

A. a decrease in nominal aggregate output.

B. a sale of government securities by Central Bank.
C. a decrease in the price level.
D. a decrease in the discount rate.

33. Money demand curve, when plotted against the interest rate, is downward sloping
because

A. at higher interest rates the opportunity cost of holding money is lower.

B. banks typically want more savings when the interest rate is higher.
C. at higher interest rates the opportunity cost of holding money is higher.
D. individuals dislike putting money in the bank

34. Assume Alice borrow RM100 at a 2% interest rate. Then, this interest rate refers to

A. real interest rate.

B. nominal interest rate.
C. expected interest rate.
D. equilibrium interest rate.

35. One of the reasons why the aggregate demand (AD) curve slopes downward is
that as the

A. price level rises, purchasing power rises.

B. price level falls, purchasing power rises.
C. nation's income level rises, purchasing power rises.
D. nation's income level rises, purchasing power falls.

36. If the price level remains constant but the wage rate increases, then there will be
__________ in production and the short run aggregate supply (SRAS) curve will
shift __________.

A. an increase; rightward
B. a decrease; rightward
C. an increase; leftward
D. a decrease; leftward

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

37. When the economy is producing at full capacity, the aggregate supply curve
becomes

A. downward sloping.
B. vertical.
C. upward sloping.
D. horizontal.

38. A change in labor productivity shifts the __________ curve and a change in
exchange rate shifts the __________ curve.

A. SRAS; SRAS
B. AD; AD
C. SRAS; AD
D. AD; SRAS

39. The objective of a contractionary fiscal policy is to

A. reduce unemployment.
B. increase stagflation.
C. reduce inflation.
D. increase growth in output

40. A short-run aggregate supply curve shows the

A. amount of a particular good producers are willing and able to buy at a

particular price, ceteris paribus.
B. real output (GDP) producers are willing and able to sell at different price
levels, ceteris paribus.
C. real output (GDP) people are willing and able to buy and to sell at different
price levels, ceteris paribus.
D. real output (GDP) people are willing and able to buy at different price
levels, ceteris paribus.

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

PART B (50 MARKS)

This part consists of THREE (3) questions. Answer all the questions.
QUESTION 1 (20 MARKS)

a) Refer to the following table. The values are in $ million.

Real GDP Consumption Net Taxes Disposable Income Saving (S)

(Y) (C) (T) (Yd)

200 400 200

1,200 1,150 200
2,200 1,900 200
3,200 2,650 200 3.000
4,200 3,400 200 600
5,200 4,150 200
6,200 4,900 200

i) Calculate disposable income and saving at each level of real GDP (Y). Fill in all the
blank columns in the table.
(6 marks)

ii) Derive the consumption function and the saving function.

(4 marks)

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MATRIC NO.: _________________

iii) Suppose that planned investment is $800 million, government spending is $500
million. What is the equilibrium level of real GDP?
(3 marks)

iv) Suppose the government raises net taxes by $100 million, what happens to the
equilibrium level of real GDP? Use the multiplier formula to determine your
answer.
(3 marks)

v) Illustrate graphically the equilibrium level of real GDP in part (iii) and part (iv).
(4 marks)

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

QUESTION 2 (15 MARKS)

a) Explain TWO (2) motives of holding money based on Keynesian viewpoint.

(5 marks)

b) Assume money market is in equilibrium. Show and explain the effect of the following
on money market equilibrium

i) A decrease in interest rate .

(4marks)

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

ii) An increase price level and the purchase of government securities by the
Central Bank.
(6 marks)

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 BEEB1013 PRINCIPLES OF ECONOMICS
MATRIC NO.: _________________

QUESTIONS 3 (15 MARKS)

a) Explain how interest rate will cause the aggregate demand curve to slope downward?
(3 marks)

b) Using aggregate AD-AS diagram explain the equilibrium price level and real GDP in the
short run if businesses become optimistic about future sales.
(5 marks)

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MATRIC NO.: _________________

c) Suppose the economy is in a recessionary gap. Diagrammatically explain what type of

policy should be implemented in order to move the economy from short run equilibrium
to the long run equilibrium (natural real GDP).
(7 marks)

END OF QUESTIONS

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