BA0508

SINGAPORE POLYTECHNIC

2019/2020 SEMESTER ONE EXAMINATION

Diploma in Accountancy
Diploma in Banking and Finance
Diploma in Financial Informatics
Diploma in Human Resource Management with Psychology

Stage 1A Full-Time

ECONOMICS Time Allowed: 2 hours

Instructions to Candidates:

1. The Examination rules set out on the last page of the answer booklet are to be complied
with.

2. This paper consists of two sections:

Section A: 10 Multiple Choice Questions - 20 marks

Section B: Question 11 - 20 marks
Question 12 - 20 marks
Question 13 - 20 marks
Question 14 - 20 marks

100 marks

3. Answer ALL questions.

4. All answers are to be written in ink in the answer booklet provided.

5. Questions may be answered in any order but your answer must show the question
number clearly. ALWAYS start a new question on a fresh page.

6. Non-programmable electronic calculators may be used.

7. This examination paper consists of 8 pages (including this cover page).

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SECTION A: 10 MULTIPLE CHOICE QUESTIONS (20 MARKS)

Answers for Multiple-Choice Questions (MCQ) must be written in the answer sheet printed on
the inside front cover of the answer booklet.

1. Which of the following is not a characteristic of monopolistic competition?

A. There are many firms.
B. There is product differentiation.
C. There is mutual interdependence.
D. There are minimal barriers to entry and exit.

2. Identify the item that should be included in the computation of the Gross Domestic
Product.
A. The value of bonds and shares.
B. The income of fake handbag vendors.
C. The value of housework performed by housewives.
D. The commission of a housing agent who sold a resale flat.

3. All of the following can increase the production of meals at a fast-food restaurant in the
short run except
A. building a new and larger restaurant.
B. ordering more ingredients from the suppliers.
C. paying more for the longer use of the electricity.
D. hiring a second shift of workers and staying open later.

4. A sudden increase in inflation will

A. increase the purchasing power of the savers.
B. hurt those on fixed income such as pensioners.
C. benefit creditors because they are repaid money of higher value.
D. penalize the borrowers since they repaid money that is now of lesser value.

5. The long run refers to

A. any time period chronologically longer than a year.
B. a historical time period.
C. time long enough where there are no variable input.
D. time long enough where there are no fixed input.

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6 The table below shows the data for a hypothetical country.

Employment Category Millions of Persons

Total population 50
Economically inactive 7
Unemployed 2
Population under 15 years and institutionalised 11

The labour force participation rate is

A. 5.13%
B. 6.25%
C. 82.05%
D. 93.75%

7. Which of the following is the most appropriate if the government of Country A wants
to reduce output by $200 billion and the marginal propensity to consume is 0.75?
A. Increase taxes by $50 billion.
B. Increase consumption by $200 billion.
C. Decrease government spending by $50 billion.
D. Decrease aggregate demand by $266 billion.

8. During the recovery phase of the business cycle,

A. unemployment and Gross Domestic Product are increasing.
B. unemployment is falling but Gross Domestic Product is increasing.
C. unemployment and Gross Domestic Product are falling.
D. unemployment is increasing but Gross Domestic Product is falling.

9. A leftward shift of the money supply curve would

A. increase interest rate and aggregate demand.
B. increase aggregate demand and the output level by a multiple.
C. decrease aggregate demand as the increase in interest rate causes investment to
decrease.
D. decrease aggregate demand because the lower the interest rate the less quantity
of money you want to hold.

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10. Which of the following should be a credit entry in the current account of Singapore’s
balance of payments?
A. Singaporeans buy Australian stocks.
B. Singapore imports orchids from Australia.
C. Australians visit Singapore for holidays.
D. Australians buy properties in Singapore.

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SECTION B: 4 SHORT ANSWER QUESTIONS (80 MARKS)

Answer all questions. You are required to state the formulas and show your workings where
necessary.

Question 11
The table below shows the short run cost schedule of a chip manufacturing firm in a
hypothetical country. There are only three chip manufacturing firms in the country.

Chip Total Total Total Cost Average Average Marginal

(units) Variable Fixed Cost ($) Fixed Cost Variable Cost
Cost ($) ($) ($) Cost ($) ($)
0 50 – – –
2 110
4 50 140
6 184 22.33

(a) Reproduce the above table in your answer booklet and complete it. Formulae and
workings are not required.
(You may use abbreviations, e.g., TC for Total Cost, in your table.)
(10 marks)

(b) Identify, with explanation, the output level at which the law of diminishing returns sets
in.
(2 marks)

(c) Suppose you are given the information that the marginal cost for the 8th unit of output
is $30.
Explain, without any further calculation, whether the average variable cost for the 8th
unit of output would be greater, less than, or equal to $22.33.
(3 marks)

(d) (i) Based on the information given in this question, state the market structure the
chip manufacturing firm is operating in.
(1 mark)

(ii) Describe any two characteristics of the market structure you identified in
question 11d(i).
(4 marks)

(Total: 20 marks)

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Question 12

(a) Explain why real Gross Domestic Product (GDP) is a better measure of a country’s
production than nominal GDP.
(4 marks)

(b) The table below shows the national income data of Vietnam between 2014 and 2016.
Year Nominal GDP GDP Price Real GDP ($b) Economic
($b) Deflator Growth Rate
2014 3,937,856 146.07 5.98%
2015 4,192,862 145.80
2016 4,502,733 147.41

(i) Reproduce the above table in your answer booklet and complete it. Formulae
and workings are not required.
(4 marks)

(ii) Suppose the Consumer Price Indices (CPI) were the same figures as the GDP
Price Deflators. Calculate the inflation rate in 2015.
(3 marks)

(iii) Based on your responses to questions 12(b)(i) and (b)(ii), state the phase of the
business cycle Vietnam was in 2015. Illustrate the phase of the business cycle
using the aggregate demand-aggregate supply diagram. Explanation is not
required.
(3 marks)

(c) Explain the difference between structural unemployment and underemployment.

(6 marks)

(Total: 20 marks)

Question 13
(a) ‘When the central bank of Country Oppa increases the discount rate and decreases the
required reserve ratio at the same time, the output will surely rise.’

Explain whether you agree or disagree with this statement by describing in detail the
effects of the two policy actions.
(12 marks)

(b) Explain how interest rate affects the level of investment in Country Oppa.
(4 marks)

(c) Suppose Country Oppa is experiencing an inflationary situation and is currently facing
a balanced budget.
(i) Explain whether Country Oppa should adopt a contractionary or expansionary
fiscal policy to bring the country back to full employment output level.
(2 marks)

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(ii) Explain the impact of such a policy on the government’s budget.

(2 marks)

(Total: 20 marks)

Question 14

(a) The table below shows the production possibilities of Vietnam and Laos, in the
production of textile and wood.

Textile (units) Wood (units)

Vietnam 7 or 4
Laos 5 or 3

(i) Explain, with the aid of an opportunity cost table, which good Vietnam and Laos
should specialise in, if they were to trade with each other.
(6 marks)

(i) State the limits of the terms of trade that are acceptable to both Vietnam and
Laos.
(1 mark)

(b) Please read the following excerpt adapted from The Star, “Why Vietnam could be
Asia's biggest trade war winner”, downloaded on 12 Dec 2018.

In the race to lure companies looking for alternative sites amid the U.S.-
China trade war, Vietnam wields a slew of advantages over its rivals.

Vietnam is poised to capture some of China’s global market share in

labour-intensive manufacturing. Chinese and multinational firms
would not find it too difficult to relocate from China’s pearl river delta
to Vietnam’s major cities.

In addition, Vietnam boasts one of the world’s fastest-growing

economies, forecast to expand at about 7 percent this year. Rising
income is significantly boosting Vietnam’s tourism numbers to the rest
of Asia, including China.

Based on the above excerpt, Vietnam would take away from China a small amount of
labour intensive manufacturing, while at the same time, there were significantly more
Vietnamese tourists to the rest of Asia. Explain, with the aid of an appropriate diagram,
the effect of these two scenarios on the exchange rate of the Vietnamese Dong (VND),
the Vietnamese currency.
(7 marks)

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(c) The table below shows the balance of payments data for a hypothetical nation of Yue
under a clean float.
Items $ billion
Balance on goods 55
Balance on services – 60
Net transfers – 10
Net investment income 20
Foreign purchase of Yue assets 100
Yue purchases of foreign assets 70

Calculate the following, presenting your answer in the tabular balance of payments
format:

(i) Balance on current account;

(ii) Balance on capital account; and

(iii) Balance on financial account.

(6 marks)

(Total: 20 marks)

- End of Paper -

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