Central Bank

Question 1

Explain the effect on the interest rate in the money market of Malaysia for each of the following situations below. Demonstrate your answer with the aid of suitable diagrams.
a) The Bank Negara (Central Bank of Malaysia) reduces the required reserve ratio of commercial banks by 2 percent. (5 marks)
b) The people have decided to hold more money at home as a result of several commercial banks closing down during the economic crisis. (5 marks)
c) The people invest in more bond funds as they expect bond price to rise in the near future. (5 marks)
d) The economy is experiencing strong economic growth rate of 10% per annum. (5 marks)
e) Firms are expecting strong economic growth in the next six months. (5 marks)

Question 2
Draw aggregate demand and aggregate supply (AD-AS) diagrams for each of the following scenarios and identify in each case the impact on the price level and real GDP on the Singapore economy. Assume the economy begins with full employment level of real output and all other factors remains constant.
a) Export from Singapore has increased substantially following the recession in 2009. (5 marks)
b) Increase in productivity of the firms. (5 marks)
c) The Singapore population declines by half a million, as many young Singaporeans emigrate to Australia and Canada in the last two years. (5 marks)
d) The Singapore dollars appreciated against other major currencies. (5 marks)
e) More successful supply side policies implemented by the Singapore government to improve the productivity of workers in the last five years. (5 marks)