Who is demanding Australian dollars in the foreign exchange market and for what purpose?

Question 8:

Suppose the following are national accounting data for a given year for Malaysia (hypothetical data).


(Billions of RM)

Consumption of fixed capital


Gross private domestic investment


Government  consumption  expenditures


Government  investment  expenditures






Household  consumption expenditure


Net property income paid overseas


  1. Calculate GDP and the country’s gross national expenditure using the expenditure approach;
  2. Derive the country’s gross national product (GNP);
  3. Derive the country ‘s net national product (NNP);
  4. Derive the country’s current account balance;
  5. Derive the country’s gross national savings. (2 marks each)

Question 9:

(2.5 marks each part)

Using the aggregate demand – aggregate supply (AD-AS) diagram, show how the four economic events would affect economic activity, the price and employment levels. (Note: use a separate AD­ AS diagram for each event)

  1. A decrease in personal income tax;
  2. An increase in workforce skills through special training programs;
  3. An decrease in exports;
  4. An increase in an economy ‘s capital stock.

Question 10:

(a)     Describe three problems of using fiscal policy to achieve a precise level of GDP.  (3 marks)

  1. Why  is  frictional  unemployment  inevitable  in  an  economy  characterised  by  imperfect  job information and non-zero job-search  time?  (3.5 marks)
  2. Is structural unemployment something macroeconomic policymakers should be concerned about? How does it differ from cyclical unemployment ? (3.5 marks)

(10 marks total – 5 marks each part)

  1. Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;  (2.5 marks for the diagram and 2.5 marks for the explanation)
  2. Provide (describe) two (2) causes of each type of inflation

(2.5 marks for 2 demand-pull causes and 2.5 marks for 2 cost-push causes)

Question 12:

  1. Ifthe Bank Negara Malaysia sold RM800 million of government securities to private sector money markets, holding other things being held constant, what is the effect on:

(4 marks, ie. 1 mark each)

  1. The economy ‘s monetary base;
  2. Short-term money market interest rates;
  3. Longer-term maturity interest rates;
  4. Aggregate demand , economic activity and inflation.
  5. Explain what happens (if anything) to the economy ‘s monetary base when the Bank Negara Malaysia sells RM800 million in foreign currency to one of the banks operating in the country. (3 marks)
  6. Which policy is more expansionary: RM200 billion increase in government spending for goods and services or a RM200 billion cut in taxes?  Explain why.  (3 marks)

Question 13:

The Keynesian and Monetarist schools of thought differ somewhat.

  1. Why is the shape of the aggregate supply curve important to the debate between the Keynesians and Monetarists?  (2 marks)
  2. Ifthe investment demand curve was vertical , which view of monetary policy (i.e. Keynesian and Monetarist) impact on investment spending, aggregate demand, and economic activity be more correct? (4 marks);
  3. Explain how they differ regarding an increase in the money supply causing inflation; (4 marks)


The following diagram shows a demand curve and supply curve of the Australian Dollars against the Japanese yen.

¥ I A $ 1 10







Q of A ustra lia n d o lla rs

  1. Who is demanding Australian dollars in the foreign exchange market and for what purpose?
  2. Who is supplying Australian dollars in the foreign exchange market and for what purpose?
  3. Mark the equilibrium exchange rate.
  4. Now illustrate the effect of an increased demand for dollars and a decreased supply.
  5. Has the exchange rate appreciated or depreciated? …………………. Appreciated I Depreciated