# The equation for Gross Domestic Product (GDP) using the

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```							Confidential                                                         AED 153/ July-November 2006

SECTION A: MULTIPLE QUESTIONS (20 MARKS)

1. Economics is the study of
A. how to make money
B. how to operate a business
C. people making choices because of the problem of scarcity
D. the government decision making process

2. Which of the following decisions must be made by all economies?
A. How much to produce? When to produce? How much does it cost?
B. What is the price? Who will produce it? Who will consume it?
C. What to produce? How to produce it? For whom to produce?
D. None of the above.

3. Using a production possibility curve, unemployment is represented by a point located
A. along the curve
B. at the bottom corner of the curve
C. outside the curve
D. inside the curve

4. Education and training that improve the skill of the labor force are represented on the
production possibility curve by a (an)
A. movement along the curve
B. inward shift of the curve
C. outward shift of the curve
D. movement toward the curve from an exterior point

5. If the price of a product decreases, we would expect:
A. demand to increase
B. supply to increase

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Confidential                                                                  AED 153/ July-November 2006

C. quantity supplied to increase
D. quantity demanded to increase

6. Assuming beef and chicken are substitute, a decrease in the price of chicken
A. shift to the left as consumers switch from beef to chicken
B. shift to the right as consumers switch from beef to chicken
C. remain unchanged, since beef ad chicken are sold in separate markets
D. does none of the above

7. In market equilibrium, a rightward shift in a demand curve, ceteris paribus, is
characterized by:
A. a decrease in equilibrium quantity and a decrease in price
B. a decrease in equilibrium quantity and an increase in price
C. an increase in equilibrium quantity and a decrease in price
D. an increase in equilibrium quantity and an increase in price

Question 8 refer to the following diagram

Price (RM)

S
40

30

20

D

Qty of blue jeans
100    125    150      175   200           (unit)

8. At a price of RM20, there is an
A. excess demand of 50 unit blue jeans
B. excess demand of 75 unit blue jeans

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Confidential                                                          AED 153/ July-November 2006

C. excess supply of 25 unit blue jeans
D. the market is in equilibrium

9. If the demand of potatoes chip decrease 10 percent and price of potatoes chip increases
by 5 percent, the elasticity of demand is
A. 0.5
B. 1.0
C. 2.0
D. greater than 2.0

10. Supply of good is said to be inelastic when the percentage change in price:
A. is smaller than the percentage change in quantity
B. is bigger than the percentage change in quantity
C. is equal to the percentage change in quantity
D. does not related to any change in quantity

11. The equation for Gross Domestic Product (GDP) using the expenditure approach is
A. GDP = C + I + G + X + M
B. GDP = C + I + G + M - X
C. GDP = C + I + G + (X + M)
D. GDP = C + I + G + (X – M)

12. Gross Domestic Product (GDP) measures
A. the market value of immediate products produced during the year
B. the sum of the market value of both final and immediate products produced
during the year
C. the sum of the market value of final products produced and imported during the
year
D. the market value of final products produced in the nation during the year

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Confidential                                                         AED 153/ July-November 2006

13. To convert GNP at factor cost to GNP at market prices, it is necessary to add
A. indirect taxes and subtract subsidies
B. expenditure and imports
C. gross trading profits of companies
D. current and capital expenditure by the central government

14. According to Bank Negara Malaysia (BNM), money supply consists of
A. fiat money
B. narrow near money
D. M1, M2 and M3

15. Inflation rate is measured using
A. interest rate
B. unemployment rate
C. cost of production
D. consumer price index

16. If every person is willing to accept money in payment, rather than goods and services,
money serves as a
A. medium of exchange
B. unit of account
C. store of value
D. standard of deferred payment

17. Which of the following will increase investment spending?
B. an increase in interest rate
C. an increase in business taxes
D. a decrease in capacity utilization

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18. What is the meaning of embargo?
A. policy to protect infant industry
B. restriction on the volume of import
C. government directly bans items into the country due to economic, social or
political reasons
D. government restricts the supply of foreign currency in the country

19. The three main tools of monetary policy are
A. tax rate, base lending rate and open market operations
B. tax rate, government expenditure and open market operations
C. base lending rate, reserve ratio and open market operations
D. government expenditure, reserve ratio and discount rate

20. The different between the economic effects of a tariff and a quota is that a:
A. quota generates revenue for the government
B. tariff generates revenue for the government
C. tariff and quota raise product prices
D. quota raises product prices, but a tariff does not raise product prices

SECTION B: STRUCTURED QUESTIONS (50 MARKS)
1. Big Island has produced 2 types of products, car and lorry.
Table 1: Production Possibility Curve in Big Island

Combination          Car (‘000 unit)        Lorry (‘000 unit)
A                      0                       60
B                      10                      50
C                      20                      40
D                      30                      30
E                      40                      10
F                      50                      0

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a)    Draw the production possibility curve (PPC) using the above schedule. [3 marks]

b)    Calculate the opportunity cost for producing 20,000 units of car.                [1 mark]

c)    Using the same diagram in question (a), shows the inefficient point (X) and
unattainable point (Y) for this PPC.                                            [2 marks]

d)    Give 2 assumptions to build this PPC.                                            [1 mark]

e)    Illustrate the effect of the PPC if
i)         Demand of cars in Big Island has increase because of the introduction
of new economical size car.                                    [1 mark]

ii)        The standard of living of the society in Big Island has increase [1mark]

f)    What is the opportunity cost facing by this PPC?                               [1 mark]

2. Assume there are two markets, Market XX and Market YY. A specific tax of RM8 will
shift the supply curve to the left.
Diagram 1: Market XX and YY Before and After the Imposition of Specific Tax

S1
Price                                                   Price                                         S1

S
S

9                                                          11
10
7
a)
4                                                          6                                                      D
D

5      10   15           Quantity                      5 7        12        Quantity

Market XX                                              Market YY

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Confidential                                                                  AED 153/ July-November 2006

a) What is the equilibrium price and quantity before the tax was imposed in both
markets?                                                                       [2 marks]

b) Calculate the share of tax that have to pay by consumers in both markets. [2 marks]

c) In which market the consumers have to bear more tax burden compared to the
producer? Why?                                                                 [2 marks]

d) Calculate the total revenue received by the government from the two markets.
[3 marks]
e) Give TWO (2) example of indirect tax.                                             [1 mark]

3. The table below is the demand elasticity of Good X and Good Y.
Table 2: Quantity Demanded and Quantity Supplied for Good X and Y
QUANTITY                 QUANTITY
INCOME             PRICE OF            DEMANDED FOR            DEMANDED FOR
(RM)          GOOD X (RM)            GOOD X (UNIT)            GOOD Y (UNIT)
1000               8.50                     450                      300

1100               7.00                     475                      370

1200               6.50                     502                      480

1300               6.00                     548                      620

a) Calculate the income elasticity of demand for good Y if the consumer’s income
increases from RM1100 to RM1300.                                                  [2 marks]

b) What is the type of good Y? Why?                                                  [2 marks]

c) If income is constant, calculate price elasticity of demand for good X if it price falls
from RM 8.50 to RM 6.50. Give your interpretation.                                [3 marks]

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d) Is the demand for good X elastic or inelastic?                          [1 mark]

e) List two (2) factors that influence elasticity of demand for good X.    [2 marks]

4. Given below is the information about a basket of goods for an economy.
Table 3: Price Index For Various Goods.

Goods         Price index               Price index       Weight
(base year)            (current year)
Shelter           100                      120               3
Cloth         100                     112.5              4
Rice          100                       95               5
Milk          100                      140               2
Fruit         100                      140               1

a) Calculate the Weighted Price Index (CPI) for every good in the current year.[2 marks]

b) Calculate the CPI for the current year.                                 [2 marks]

c) Based on (b) above, calculates the percentage change in the general price level in the
current year. What is the problem faced by the above economy?        [2 marks]

d) Calculate the real value of money in the current year.                  [2 marks]

e) What will happen to the value of money in the current year? Why?        [2 marks]

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Confidential                                                                   AED 153/ July-November 2006

5.      Given the following data for a country for the year 2005.

Table 4: National Income for a Country in Year 2005.
Items                                 RM million
Household consumption expenditure                      280
Private gross investment                                  200
Government current expenditure                            130
Taxes on profit                                           25
Indirect taxes                                            28
Subsidies                                                 30
Net factor income from abroad                             21
Depreciation                                              16
Net export                                                -13
Government gross investment                               122

i) Gross Domestic Product at market price                                       [2 marks]

ii) Gross Domestic Product at factor cost                                       [2 marks]

iii) Gross National Product at factor cost                                      [2 marks]

iv) National Income                                                             [2 marks]

v) Compute the real rate of economic growth between 2000 and 2005 given the real
GNP in 2000 and 2005 as RM150 million and RM175 million.                      [2 marks]

SECTION C: ESSAY QUESTIONS (30 MARKS)

1. a) What is supply and what do you understand by the law of supply?                 [3 marks]
b) Explain THREE (3) determinants of supplied, use any suitable diagram to show the
effect of this determinants to supply.                                        [12 marks]

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Confidential                                                          AED 153/ July-November 2006

2. a) Briefly explain FIVE (5) characteristics of money.                      [5 marks]
b) Explain FIVE (5) functions of money.                                   [10 marks]

3. a) State FIVE (5) reasons why the government implement protectionism policy?
[5 marks]
b) Explain FIVE (5) instruments used under protectionism policy.          [10 marks]

END OF QUESTIONS PAPER

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