CONFIDENTIAL BM/APR2009/ECO415

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE ECONOMICS
COURSE CODE EC0415
EXAMINATION APRIL 2009
TIME 3 HOURS

INSTRUCTIONS TQ CANDIDATES
1. This question paper consists of two (2) parts: PART A (2 Questions)
PART B (4 Questions)

2. Answer ALL questions from PART A and any three (3) questions from PART B. Answer
PART A and Part B in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question paper

ii) an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 6 printed pages
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PART A

QUESTION 1

Government Announces New Ceiling Prices Of Rice

KUALA LUMPUR: The ceiling price of 5% broken local (ST5) rice has dropped 20 sen to
RM2.60 per kilogramme while that of ST10 by 30 sen to RM2.40.

Agriculture and Agro-Based Industry Minister Datuk Mustapa Mohamed said in a statement
here on Monday that the new prices were announced on Sunday.

"The prices of such rice are government-controlled. The announcement was to enable the
Government to control over the price effectively," he said.

He said that based on the ministry's observations, there were supermarkets which had
reduced the price of rice while several retail stores were still selling at the old price.

"The padi and rice supervisory authority can take action on retailers who do not follow the
ceiling price under the Rice (Grade and Price Control) Order 1992," he said. - Bernama

Adapted from The Star Online, November 17, 2008

a) Define ceiling price.

(2 marks)

b) How does ceiling price differ from equilibrium price? Support your answer by using a
diagram.
(4 marks)

c) What is the rationale for imposing ceiling price on rice?

(2 marks)

d) Sketch two (2) separate diagrams to illustrate markets for ST5 rice and ST10 rice.
For each of the diagrams, indicate the old price and the new price set by the
government.
(8 marks)

e) From the ministry's observation, it was found that several retail stores were still
selling at the old price. Explain two (2) disadvantages of ceiling price on rice.
(4 marks)

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QUESTION 2

Malaysia To Ride "Bumpy" Economic Journey 2009

Malaysia is not an exception in having to face the current challenging time with the 2009
Budget having already indicated slower growth. The GDP growth for 2009 has been revised
to 3.5 percent. Analysts said the ongoing economic measures are expected to help drive the
country through the "bumpy" journey this year.

In the wake of a fall in most commodity prices in mid-2008 due to the lack of global demand,
the government realized potential federal earnings would be squeezed while at the same
time having to continue to spend for mass development. As a policy response towards the
global financial crisis, Malaysia unveiled a stimulus package, injecting RM7 billion into the
economy to ensure sustained growth.

The fiscal deficit for 2009 is projected at 4.8 percent, the same level as in 2008. At this level,
the government will carry on implementing an "expansionary" fiscal policy, which is also
being adopted by other countries at present.

There is no change in the total amount to be spent under the 2009 Budget. The government
allocated RM207.9 billion for the 2009 Budget, of which RM154.2 billion is for operating
expenditure and RM53.7 billion for development. The RM7 billion, savings from the oil
subsidy, would then be channeled into sectors like construction, residential, transport,
investment, and training and information technology.

As for inflation, the government has projected that the level could be in the range of 3 to 4
percent for next year, subject to the continuing downtrend in the global crude oil prices.
Malaysia's inflation rate rose to a new 26-year high of 8.5 percent in July 2008, driven by the
escalating cost of fuel and electricity.

As for domestic economic activities, the government will give extra attention to generate
growth, as international trade and external demands gets slower. The government also
realizes that slower economic growth could see a reduction in job creations, thus projecting
the unemployment rate of about 4 to 4.5 percent; a level that the government said was
"manageable".

Adapted from Bernama.com, December 23, 2008

a) Explain "expansionary fiscal policy" as mentioned in paragraph 3.

(4 marks)

b) With reference to paragraph 4, the government allocated RM154.2 billion for

operating expenditure and RM53.7 billion for development. Explain these two
categories of government expenditure.
(6 marks)

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c) Explain two (2) main sources of government income.

(6 marks)

d) Which type of inflation best describes paragraph .5? Support your answer.
(2 marks)

e) Define unemployment and show how unemployment rate can be measured.

(2 marks)

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PARTB

QUESTION 1

a) Differentiate between macroeconomics and microeconomics. Using examples,

explain the areas of concern for each of these branches of economics.
(6 marks)

b) Explain three (3) non-price determinants of supply.

(6 marks)

c) Explain four (4) factors that influence price elasticity of demand.

(8 marks)

QUESTION 2

a) With the aid of appropriate diagram(s), distinguish between fixed and variable costs.
Give examples of each.
(6 marks)

b) Explain four (4) sources of monopoly.

(8 marks)

c) The kinked demand curve model explains why prices may be rigid in an oligopoly.
Explain how the kinked demand curve is developed.
(6 marks)

QUESTION 3

a) Explain the components of the expenditure approach in calculating the national

income.
(4 marks)

b) Explain any four (4) uses of National Income data.

(8 marks)

c) Discuss four (4) problems encountered in measuring National Income.

(8 marks)

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QUESTION 4

a) With the aid of a diagram, explain demand-pull inflation.

(8 marks)

b) Discuss any four (4) monetary tools that can be used to control inflation.
(8 marks)

c) Explain any two (2) benefits of international trade to a nation.

(4 marks)

END OF QUESTION PAPER

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