Principle of Economic

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Tutorial 2
(Topic 2: Thinking like an Economist)

1.i)What is meant by positive analysis and normative analysis?

ii) Classify each of the following statements as positive or normative. Explain.

a) Society faces a short-run trade-off between inflation and unemployment. b) A reduction in the rate of money growth will reduce the rate of inflation. c) Bank Negara Malaysia (BNM – Central Bank) should reduce the rate of money growth. d) Society ought to require welfare recipients to look for jobs. e) Lower tax rates encourage more work and more saving.

2.Classify the following topics as relating to microeconomics or macroeconomics.

a) A family’s decision about how much income to save. b) The effect of government regulations on auto emissions. c) The impact of higher national saving on economic growth. d) A firm’s decision about how many workers to hire. e) The relationship between the inflation rate and changes in the quantity of money.

3.Draw a circular-flow diagram. Identify the components of the model that correspond to the flow of goods and services and the flow of Ringgit Malaysia (RM) for each of the following activities.

a) Selena pays a storekeeper RM1 for a quart of milk. b) Stuart earns RM4.50 per hour working at a fast-food restaurant. c) Shanna spends RM30 to get a haircut.
d) Sally earns RM10,000 dividend from her 10% shareholdings in Acme Industrial.

Exam style Questions

1.Should economics be considered a science? Why or why not? (5 marks)

2. a) Differentiate between macroeconomics and microeconomics. (4 marks)

b)What is meant by scarcity? (2 marks)
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