參考答案完成了一段日子，但因本週有地理和會計兩科重要科目，為免影響同學應考，現在才公佈。希望同學在本年高考能奪佳績。
Section B
Question 1
(a) National income is equal to NNP at factor cost. National income takes account of depreciation of capital goods (considering net fixed capital formation by deducting depreciation) while GDP does not (considering gross fixed capital formation). National income measures the value of goods produced by the factors of production owned by the residents of an economy, irrespective of whether the activities are carried out within the economic territory or outside (adding net income from abroad to domestic product) while GDP measures the value of goods and services produced within an economy (does not add net income from abroad). National income is the measure of aggregate production activities at factor cost while GDP measures aggregate production activities at market prices (before deducting indirect business taxes).
(b) Fixed weights of goods in some specified consumption basket according to people’s expenditure pattern in the base year (Laspeyres index) vs.
Variable weights of goods in the GDP basket according to the domestic production pattern in the current year (Paasche index).
(c) M1 = currency (banknotes and coins) held by the non-bank public + demand deposits vs.
M3 = M2 + large-denomination time deposits (where M2 = M1 + savings deposits + small-denomination time deposits)
While M1 is a narrow definition of money supply, emphasizing money as a medium of exchange, M3 is a broad definition of money supply, emphasizing also money as a store of value.
(d) Structural unemployment arises due to structural changes in the economy (e.g. sectoral shifts / change in relative demand between industries). Cyclical unemployment arises due to short run fluctuations during the business cycles. Structural unemployment exists at potential output while cyclical unemployment exists when actual output is lower than potential output (cyclical unemployment = actual unemployment - natural unemployment, where natural unemployment = frictional unemployment + structural unemployment).
Question 2
(a) A nominal variable is measured in terms of money. A real variable is measured in terms of goods.
(i) Real balance = nominal balance / price level
(ii) Nominal interest rate = real interest rate + expected inflation rate.
(nominal and real interest rates as nominal and real variables measure the rate of change instead of the actual quantity of money or goods)
(b) The price of holding nominal money balance is the interest differential between bond and money (RB - RM = rB - rM). In the case of money being a non-interest-bearing asset, the nominal rate of return on holding nominal money balance is zero (RM = 0), therefore the interest differential between bond and money is equal to the nominal interest rate, i.e. the nominal rate of return on holding bond (RB - RM = RB - 0 = RB). [Students may also show that the real interest differential (rB - rM) is also equal to RB as rM = - expected inflation rate.]
The price of holding real money balance is still the nominal interest rate, as the highest-valued option forgone is essential the same, whether money balance refers to nominal or real balance. Given the fisher equation the real interest rate is equal to the nominal interest rate minus the expected inflation rate. We therefore cannot interpret the real interest rate as the price of holding real money balance. [Students should note that conceptually the cost of holding money, nominal balance or real balance, should be the nominal interest rate, although in the special case where the expected inflation rate is zero the nominal interest rate will be equal to real interest rate.]
(c) As output produced is transacted by money, which serves as a medium of exchange, the transaction of the nominal value of output (Py) must be facilitated by the nominal money stock. If the nominal money stock is smaller than the nominal value of output, money has to change hand in order to accomplish the transactions of all output, and therefore the nominal value of output will be equal to the nominal money stock times the number of times an average unit of money changes hands.
From the quantity equation of money, we can have the following relations:
gM + gV = gP + gy
which implies
gP = gM + gV - gy
From this we can identify three sources of inflation, namely, a growth in money supply, a growth in velocity of circulation, or a fall in real output. In general, there will be inflation (gP > 0) if gM + gV - gy > 0. As in the classical quantity theory of money where gV = gy = 0, inflation is a direct result of monetary growth (and gP = gM). In the case of gM = gy = 0, a growth in velocity is the only source of inflation (gP = gV). In the case of gM = gV = 0, a fall in real output is the only source of inflation (gP = - gy).
Question 3
(a) An increase in government expenditure (or equivalently a decrease in national saving) will lead to an increase in income, which will result in an increase in money demand. The increase in money demand will lead to excess demand in the money market and therefore a rise in the interest rate, which in turn leads to a decrease in investment and therefore income (the crowding-out effect). The changes in goods market (changes in G and Y) are transmitted to the money market through money demand, which depends positively on income, and the subsequent changes in the money market (changes in Md and r) are then transmitted to the goods market through investment, which depends negatively on the interest rate.
(b) A flatter LM curve can be due to a lower income elasticity of transaction demand for money or a higher interest elasticity of asset demand for money.
If the income elasticity of transaction demand for money is lower, when income increases, the increase in money demand will be smaller, leading to a smaller increase in interest rate and therefore a smaller decrease in investment and income (i.e. smaller crowding-out effect). The output effect will be bigger.
If the interest elasticity of asset demand for money is higher, when income and money demand increase, the increase in interest rate will be smaller (as a smaller rise in the interest rate would be able to induce a fall in Ma to restore money market equilibrium), leading to smaller decrease in investment and income (i.e. smaller crowding-out effect). The output effect will be bigger.
The output effect of an increase in government expenditure is necessarily bigger the flatter the LM curve.
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(c) The output effect is not necessarily bigger the steeper the IS curve. A steeper IS curve can be due to a smaller interest elasticity of investment or a larger marginal propensity to save (or a smaller Keynesian multiplier in general).
If the interest elasticity of investment is lower, when interest rate increases the decrease in investment, and therefore income, will be smaller (i.e. smaller crowding-out effect). The output effect will be larger. Graphically, it can be represented by an equal horizontal shift of IS curve (with bigger vertical shift for lower interest elasticity of investment and steeper IS curve).
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If the marginal propensity to save is larger (or smaller Keynesian multiplier in general), the multiplier effect on income will be smaller. The output effect will be smaller. Graphically, it can be represented by an equal vertical shift of IS curve (with smaller horizontal shift for larger marginal propensity to save and steeper IS curve).
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With a steeper IS curve, the output effect of an increase in government expenditure may be larger or smaller.
Section C
Question 4
(a)
(i) Not necessarily. A revaluation of the Reminbi (RMB) against the US dollar (USD) will lead to a rise in the price of US imports from China (in terms of USD) and a decrease in the quantity of imports from China. The total value of US imports from China (in terms of USD) may increase, decrease or remain unchanged, depending on the price elasticities of demand for US imports from China. With a constant price of US exports to China (in terms of USD), an increase in the quantity of export will lead to an increase in the total value of US exports to China (in terms of USD). A revaluation of the Reminbi against the US dollar (USD) will reduce the trade deficit against China only if the Marshall-Lerner condition holds, i.e. the sum of the price elasticities of demand of US imports from and US exports to China is larger than unity.
(ii) When exports from China become more expensive, US’s import demand for goods from other countries may increase, leading to an increase in US’s total import value from these countries. Another complication is that when RMB revaluates, the value of USD against currencies other than RMB may also change, which will lead to changes in the quantity of US imports from and US exports to other countries. If this is the case, whether or not the trade deficits of US against the rest of the world would decrease depends also on the respective price elasticities of demand of US imports from and US exports to those countries.
(b) An export subsidy will lower the price of US exports to China, leading to an increase in the quantity of US exports. If the price elasticity of Chinese demand for US exports is larger than one, the total value of US exports to China will increase, which in turn reduce the US’s trade deficit against China.
(c) Imposing tariffs on imports from China will raise the price of imports from China, leading to a fall in the quantity of such goods. The value of imports from China net of tariffs will decrease, although the total expenditure (including the tariffs revenue) on imports from China may rise or fall, depending again on the price elasticities of demand of US for imports from China.
Question 5
(a)
(i) Ms = C + D = $(800 + 4 000) = $4 800
(ii) M0 = C + R = $(800 + 1 000) = $1 800
Money multiplier = Ms/M0 = $4 800/$1 800 = 2.667
(b)
(i) With an increase in the cash-deposit ratio, the public will withdraw cash from their deposits (withdrawing $800 in the first round to meet the 50% new cash-deposit ratio), leading to a short of reserves in the banking system, and a calling back of loans and subsequently further decrease in deposits. The contraction process will go on and on, until the money supply falls to $3 600, with cash held by the public and deposits equaling $1 200 and $2 400 respectively. As a result, the money supply will decrease.
(ii) The new level of money supply is
$1 800 [(0.5+1)/(0.5+0.25)] = $3 600.
(iii) To restore the money supply to its pre-crisis level, M0 should satisfy the following condition:
$4 800 / M0 = 2
implying that M0 should be raised from $1 800 to $2 400 by issuing $600 new banknotes. Cash held by the public and deposits will increase to $1 600 and $3 200 respectively, making the money supply equal to $4 800.
(c) In reality, the central bank may not be able to increase the money supply despite its effort to print and issue more banknotes if commercial banks decide to reduce the loans made to individual borrowers or firms (e.g. due to a higher default risk during financial crisis), or if the demand for loans decreases (e.g. due to a decrease in investment demand). In either case the excess reserves held by banks will increase, leaving no change in, or even leading to a decrease in the amount of, deposits created or money supply. The money supply will also remain unchanged if the newly printed money goes to commercial banks as reserves (e.g. through open market purchase of bonds by the central bank) and commercial banks do not lend out any of the increase in reserve assets.
(d) Providing deposit insurance and committing to inject money to bail out banks short of liquid reserve assets are possible measures to strengthen public confidence.
Question 6
(此題包含方程式，(b)部和(c)部均以圖片上載，同學按下圖片便能看得清楚。)
(a) Although poor people in general will spend less money on various consumption goods than rich people, there is a limit on which they can cut their expenses for daily necessities, e.g. food and accommodation, and therefore poor people tend to spend a larger proportion of their income on consumption.
(b)
(c)
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