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ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
The answer of 2nd Assignment
Answer no. 1
Assume that a firm discharges waste into a river. As a result, the marginal social costs (MSC)
are greater than the firm’s marginal (private) costs (MC). The table below shows how MC,
MSC, AR, and MR vary with output. Assume that marginal private benefit (MB) is given by
the price (AR). Assume also that there are no externalities on the consumption side, and
therefore MSB = MB.
Output
1
2
3
4
5
6
7
8
MC 23 21 23 25 27 30 35 42
MSC 35 34 38 42 46 52 60 72
TR 60 102 138 168 195 219 238 252
AR 60 51 46 42 39 36.5 34 31.5
MR 60 42 36 30 27 24 19 14
1a) How much will the firm produce if it seeks to maximize profits?
Based on the tabel output and all of cost instrumental which the firm
provide, we cantrack conclussion that the firm will produce if it seeks to maximize
profits when the amount of out put equal to 5. It is because the profit maximising
where marginal revenue equals to marginal cost (MR=MC). It is respectivelly 27 in
both of MR and MC.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
1b) What is the socially efficient level of output?
The socially efficient level of output is 4. Its situation describe the production
and consumptions where marginal social benefit equals to marginal social cost
(MSB=MSC) while the MSB=MB=AR. Thus, we can assume that socially efficient level
happens when AR=MSC in level output 4 with 42 respectivelly in AR and MSC.
1c) How much is the marginal external cost at this level of output?
There are two type of external cost in the market include marginal cost of
production and marginal cost of consumptions. However, external cost is cost of
production or consumption borne by people other than the producer or consumer.
Therefore, marginal cost of production will find when marginal social cost more then
marginal cost (MSC>MC). In table above we can find the marginal external cost in all
of level out put which is have negatif externalities cost.
2
2
13 15 17 19 22 25 30
Marginal External Cost
So, clearly we can see the gap between MSC and MC in the table.
Output 1 2 3 4 5 6 7 8
MC 23 21 23 25 27 30 35 42
MSC 35 34 38 42 46 52 60 72
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
1d) What size of tax would be necessary for the firm to reduce its output to the
socially efficient level?
The goverenment usually take actions in the market to deal with externality.
In this case, the goverenment will allocate the tax in the marginal social cost through
subsidies. As a result, the MC will be added by tax and the MSC will be reduced by
subsidies. So, the tax neccesary when the MSC>MC to get ballance.
Answer no. 2
The United States experienced a major economic downturn in the early 1980s. Consider the
data on real GDP and the price level (CPI) in the table below
Year Real GDP
($ billion, 2000
prices)
Price Level (CPI)
1980 5161.7 54.1
1981 5291.7 59.1
1982 5189.3 62.7
1983 5423.8 65.2
1984 5813.6 67.7
1985 6053.7 69.7
2a) Calculate the annual economic growth and inflation rate of the United States
during the period of 1981 to 1985.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
The United States experienced a major economic downturn in the early 1980s.
Year
Real GDP
($ billion, 2000
prices
Price Level (CPI)
Economic
growth 1981-
1985
Inflation
rate from
1980-1985
1980 5161,7 54,1
1981 5291,7 59,1 0,025 9,242
1982 5189,3 62,7 -0,019 6,091
1983 5423,8 65,2 0,045 3,987
1984 5813,6 67,7 0,072 3,834
1985 6053,7 69,7 0,041 2,954
Total 0,164 26,109
Average 0,033 5,222
Annual Economic Growth of United States = (current year-last year)/last year
Inflation rate of United States = ((current year-last year)/last year x 100)
2b) Calculate the average inflation rate from 1980 to 1984
= total inflation rate/5 = 26,109/5 = 5,222
3c) Calculate the average growth rate of real GDP form 1980 to 1985. Hint: growth
rates for multiple years use the following formula: Gt (n) = 100 x [(Xt/Xt-n)1/n – 1]
Where: Gt (n) is the average annual growth rate of the variable X for the n years
between year (t-n) and year t.
So, the economic growt in the US start from
2,5% and always make fluktuation up to 4,1%.
It’s means that the growth changes positively
except in year 1981.
The fluktuation only happen in the inflation
rate according to the table.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
average growth rate of real GDP form
1980 to 1985 Gt (n) = 100 x [(Xt/Xt-
n)1/n – 1
1,519
-1,968
0,506
0,797
-0,174
Total: 0,680
Average: 0,136
2d) Can you determine in which year there was a steep business downturn or
recession?
The year that have steep business downturn is 1982 because in this year have
smallest real GDP about 5189,3.
The average growth rate of real GDP
from 1980-1985 is 0,136%.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
Answer no.3
In the last two decades, women have worked more hours in paid jobs and fewer hours in
unpaid housework.
3a) How would this increase in work hours affect GDP?
Of course, the increasing in work hours will be affected the GDP because the
goverenment will get the tax from wage the employement and also minimum wage
and equilibrium wage directly will affect the GDP. Related to the women, they
unpaid houdsework before and then became paid/worker in the office etc, thus they
get their own wage from the firm. Therefore, the firm wil produce more and expand
their injection to the goverenment, the household save more tax in any level output
of employement and set rising the GDP. Finally the injection will be affected the
GDP.
Hence, to calculate GDP is as thetotal of factor earnings (wages, interest,
rents, andprofits) that are the costs of producing society’s final product.
3b) Explain why this increase in measured GDP will overstate the true increase in
output! Also explain how a set of augmented national accounts which includes
home production would treat this change from nonmarket work to market work?
Any level of output set fall or increasing the GDP based on two type to
determine the GDP approach. First, using withdrawals and injection approach and
second using income and expendixture approach. Increasing in measured of GDP will
overstate the true increse in output because the higher injection will affected to
higher GDP. The relationship is, when the firm produce more, it will need more labor
or employemen and other resources. Household income, consumption and
production will rise again. There will multiplier effect in rising income and
employement. The injection rise, withdrawals fall and GDP rise.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
Home production definitelly will change the nationl account of GDP. Suppose
that household non market is the housework unpaid which do not donate any
number of GDP. Afterwards, its change to market housework because of the wife as
housework before get jobs and wage and then they pay another person to replace
their job in the house. Thus, its will be home productin or housework paid and
support the number change of nationall account.
The gross domestic product is defined as the total money value of the flow of
final products produced by the nation. National accountants use the market prices as
weight valuing different commodities because market prices reflect the relative
economic value of diverse goods and services and the household activities.
3c) Explain the paradox, “when a person marries his or her gardener, GDP goes down”
Suppose in a home there are gardener who work with he paid avery month.
And then the boss ask him to married and be her gardener unpaid. If before, the
gardener get wage and adding the injections, but now he just reduce the injection
set the deflatioanary gap. The unemployement rate rising and the GDP goes down.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
Answer no. 4
Plot the rate of growth of real GDP and the unemployment rate in Indonesia from 2000 to
2009. Do you observe any relationship between the two? If so, can you explain this
relationship? (Note: You can obtain data of Real GDP and Unemployment Rate in Indonesia
from BPS website)
Year
Unemployement
rate
Real
GDP-
Indonesia
(contains
price)
2000 15 5.35
2001 8 3.643
2002 10.6 4.499
2003 8.7 4.78
2004 9.2 5.031
2005 11.8 5.693
2006 12.5 5.501
2007 9.1 6.345
2008 8.4 6.014
2009 8.1 4.576
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
Regression Statistics
Multiple R 0.281412
R Square 0.079193
Adjusted R
Square -0.03591
Standard Error 0.817587
Observations 10
http://www.indexmundi.com/indonesia/gdp_real_growth_rate.html
http://www.indexmundi.com/g/g.aspx?c=id&v=74
Based on the table and chart above, we can get conclusion that the relationship
between real GDP (contains price) with unemployment rate (%) just 0.0791 that explained
There is lurking variable such as inflation, economic growth, sustainable economic growth
and satisfactory balance of payment which significantly affected the GDP, thus it just 8%
shown the relationship between both.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
Answer no. 5
5a) What is (are) the main objective(s) of the Central Bank of Indonesia (Bank
Indonesia)?
The aims of Central Bank of Indonesia is achieving and maintaining the
stability of the value of the rupiah through the monetary stability and the
development of stability of the financial system for the development of national
long-term sustainability.
5b) Why keeping inflation rate in moderate level can help in improving the welfare of
the ociety?
The reason why keeping the inflation will help to improve the welfare of the
society are :
At first, the empirical evidence shows that in the long run monetary policy
can only affect the rate of inflation, monetary policy cannot affect real variables,
such as output growth or unemployment rate so that the Central Bank of Indonesia
should keep the kestbilan system of finance.
Secondly, achieving low inflation is a prerequisite for the achievement of
macroeconomic objectives, such as growth at the level of full-capacity (full
employment) and the provision of the widest breadth of employment opportunities.
Thirdly, most importantly, the determination of the rate of inflation low as the
ultimate goal of monetary policy will be the nominal anchor of various economic
activities.
Thirdly, most importantly, the determination of the low inflation rate as the
ultimate goal of monetary policy will be the nominal anchor of various economic
activities. Strategies used by BI in achieving the targets of low inflation, is reviewing
the effectiveness of the instruments:-monetary and monetary policy transmission
lines. -determining the final goal of monetary policy. -identify the variables that lead
to inflationary pressures. -formulate monetary policy response.
Inflation rates reflected the soaring prices of goods in General. High inflation
rates have an impact on the welfare of society is declining due to the purchasing
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
power of money belonging to the top/goods/services acquired will plummet. How
far the deterioration of the value of the currency over the value of the goods is
intended by the turmoil of inflation. Theoretically to cope with inflation relatively
easily, i.e. by means of overcoming the main base, which reduces the amount of
money in circulation.
Therefore, to be able to achieve and maintain levels of low inflation and
stable, it takes the cooperation and commitment of all economic actors, both
governmental and private. Without the support and commitment is undoubtedly a
very high inflation rate as long as it will be difficult to control. Next the rupiah
exchange rate determined by the strength of demand completely and panawaran
that took place in the market. What can be done by BI is to keep the value of the
rupiah fluctuate is not too sharp.
Finally, by keeping the movement of inflation remains low, the cost of
production of goods and services was low so the process of increasing job creation
and fulfillment tools available that are capable of is owned by society.
5c) What are the 3 main tasks of Central Bank of Indonesia? How the 3 main tasks of
Bank Indonesia may help BI to achieve its objective?
To achieve these goals Bank Indonesia is supported by three pillars which are
the three areas of its work. The third area of this task are:-establish and implement
monetary policy. Organize and maintain smooth payment system, as well as organize
and supervise banking-in Indonesia.
All of these need to be integrated in order to maintaining the stability of the
value of the rupiah can be achieved effectively and efficiently. In order to maintain
the stability of the rupiah BankIndonesia do settings and management of National
payment system (NPS) will be smooth that is supported by a reliable infrastructure.
So, the more smoothly and hadal nes, then it will be more smoothly as well as
transmission of monetary policy that is time critical. When monetary policy is in full
swing and its origin is the stability of the exchange rate.
ECO 104
Mr. Nuruzzaman
Sampoerna School of Business-Saepul Solihin & Wery Astuti
As the Monetary Authority, the central bank has the right to set and enforce
policy, authorizes the NPS and licensing as well as conduct surveillance (oversight)
for nes, mengelurkan, revoke and destroy money rupiah in circulation. It is done with
the settlement system between banks via the Central Bank of Indonesia (CBI)
infrastructure-Real Time Gross Settlement (RTGS-CBI)
Armed with the authority, any set of policies of CBI components NPS. For
example, determine what means of payment may be used in Indonesia and is the
default. In the end of BI related policy setting must also control risk, efficiency as
well as governance NPS.
In the framework of the task set up and oversee banking, Bank Indonesia
regulation sets out, giving and revoking permits for certain business activities or
institutional bank, carries out supervision over banks, and put on sanctions against
the bank in accordance with the provisions of the legislation in force. In the
implementation of these tasks, Central Bank of Indonesia authorities stipulate
provisions banking with upholding the principle of prudence.
Pertaining to authority in the field of license, besides giving and repeal
business permit bank, Central Bank of Indonesia also able to grant permission
opening, closure and relocation office bank, provide his approval to ownership and
management of bank, and grant permission to banks to run certain business
activities.
In the field of supervision, Central Bank of Indonesia to conduct surveillance
directly or indirectly. Direct supervision is carried out either in the form of an
examination at regular intervals and at any time when needed. Indirect monitoring is
done through research, analysis and evaluation of the reports submitted by the
bank.