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Malaysia’s Central Bank Raises Interest
In January 2018, Bank Negara Malaysia (BNM), Malaysia’s central bank, raised its
interest rates for the first time since July 2014. Economists speculated that it is a
one-time event and that that there won't be other interest rate hikes given that
Malaysia’s growth is steady and inflation is mild.
Source: Reuters, January 25, 2018
a. Why do you think some economists speculated that the interest rate hike is a one-
time event?
b. What would be the effects of BNM hiking the interest rate? Explain the immediate
effects and the ripple effects.
c. What could be the risks arising out of no interference from the central bank?
College of the North Atlantic – Qatar/ Fall 2021/JM 3 | Page
What could be the risks arising out of no interference from the central bank?
Question 4: List and explain various majors (indexes) of human welfare. Compare the Human Development Index (HDI) for major Pacific Island Countries and write critical analysis. ( 5 marks)
a) How is money supply different in a fixed compared to a flexible exchange rate system? b) Explain why does monetary policy lose autonomy in a fixed exchange rate system ? c) Explain the assumptions of flexible exchange rate and fixed exchange rate. Which is an appropriate system for an small island economy of the Pacific ?
(a)Why is the amount of R&D spending important for growth? How do the appropriability and fertility of research affect the amount of R&D spending? (b) How do each of the policy proposals listed in (i) to (iv) affect the appropriability and fertility of research R&D spending in the long run, and output in the long run? i. An international treaty that ensures that each country’s patents are legally protected all over the world. ii. Tax credits for each dollar of R&D spending. iii. A decrease in funding of government-sponsored conferences between universities and corporations. iv.. The elimination of patents on breakthrough drugs, so the drugs can be sold at low cost as soon as they are available.
Suppose that there are only two goods produced in the economy, Call center services and banking services. Prices (P), quantities (Q) and the number of workers (W) occupied in the production of each good for year 1 and year 2 are given by the following table : Year 1 Year 2 Two products P1 Q1 W1 P2 Q2 W2 Call centre 10 100 50 12 100 50 Banking 10 200 50 12 230 60
Using year 1 prices, what is real GDP in year 2? What is the growth rate of real GDP?
What is the rate of inflation using the GDP deflator?
Using year 1 prices, what is real GDP per worker in year 1 and year 2? What is labour productivity growth between year 1 and year 2 for the whole economy?
If the Fed wants to increase the money supply by $100 million does it have to buy more than $100 million of bonds, less than $100 million of bonds or exactly $100 million of bonds? Explain.
Answer the following questions about marginal propensity to consume and the multiplier. First provide the correct equation and then show your work to arrive at the answer:
What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?
If disposable personal income is 10 and consumption is 12, what is personal savings? What does this mean?
What is the multiplier when the change in equilibrium level of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3?
What is the multiplier when the marginal propensity to save is 1/3?
What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?
under what conditions can expansionary monetary policies create a surplus in balance of payments. Would fiscal policy be more successful?
Define carefully what is meant by equilibrium in the multiplier model. For each of the following, state why the situation is not an equilibrium. Also describe how the economy would react to each of the situations to restore equilibrium.
a) In Table 22-2, GDP is $3300 billion
b) In Figure 22-7, actual investment is zero and output is at M.
c) Car dealers find that their inventories of new cars are rising unexpectedly
