The Answer of 2nd Assignment Eco 104-Edit

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.