Farid Ardika Dasum / 29120020 / YP 63-C

MM5006 CONFIDENTIAL

MIDTERM EXAMINATION
SEMESTER II 2020/2021 SESSION

COURSE : BUSINESS ECONOMICS

COURSE CODE/ CLASS : MM5006 /MBA YP 63C
DATE : 21 APRIL 2021
VENUE : ONLINE HOME!
DEADLINE : 21 APRIL 2021 11:15 PM

Individual Assignment (60 marks)

Please answer these following questions.
1. To what extent Covid 19 Pandemic affecting the Macroeconomy in Indonesia? (15 marks)
Answer :
The World Health Organization explained that Corona viruses are viruses that infect the
respiratory system. This viral infection is called COVID-19. Coronavirus causes common
cold to more severe illnesses such as Middle East Respiratory Syndrome and Severe Acute
Respiratory Syndrome. To date, there are 188 countries that have confirmed being affected
by the Coronavirus. The spread of the Corona virus that has spread to various parts of the
world has an impact on the Indonesian economy, both in terms of trade, investment and
tourism. Coronavirus disease 2019 has infected millions of people around the world. The
impact on the economy is expected to be large and can cause a country's economy to
collapse. Millions of people will fall into the abyss of poverty because of the increasing
number of unemployed as a result of the cessation of some production activities due to lack
demand that can stimulate production activities. Virus Corona or Corona virus disease 2019
(Covid-19) has contracted Indonesia's economy. The impact of the Corona Virus or Covid-19
seems to have an impact on all sectors, especially tourism and other sectors. The World
Farid Ardika Dasum / 29120020 / YP 63-C

Bank projects that Indonesia's economic growth this year will be depressed at the level of
2.1 percent. The cause of this decline in economic growth is due to the widespread spread
of Covid-19 both domestically and abroad. The economic growth of the Republic of
Indonesia has been estimated that under Bank Indonesia (BI) it is estimated that only 2.5
percent is usually able to grow to 5.02 percent.
In the first quarter of 2020 the economic growth achieved in Indonesia was recorded at
2.97 percent (Year over Year (yoy). The cause of this decline in economic growth is due to
the impact of handling the spread of the Corona virus which has begun to affect all aspects
of life and economic activities. Foreign exchange reserves in April increased to $127.9
Billion. A decrease in the inflation rate, an increase in the manufacturing industry, an
increase in the value of investment, a decrease in the amount of imported goods in the first
quarter of 2020 also contributed slightly to the growth figure, namely 0.15. In the first quarter
of 2020, household consumption was still the main motor of growth which contributed 1.56
from the growth rate of 2.97 (% YoY). Apart from household consumption, economic growth
in the first quarter of 2020 on an annual basis was also driven by exports of goods (0.45),
PMTDB (0.55) and government consumption (0.22). During the first three months (first
quarter), namely January to March 2020, the Covid 19 virus spread very rapidly in Indonesia
and had a considerable impact on economic activities in Indonesia.
Government policies that must be taken in an effort to overcome macroeconomic
problems during the Covid pandemic are divided into 2 safety nets, namely, Social Safety
Nets by adding and support from APBN financing and Economic Safety Nets by providing
fiscal and non-fiscal incentives. Other stimulations that were also carried out to improve the
economy were First, the issuance of Perppu 1 of 2020. Second, the issuance of a third
taxation policy, issued Policy in the Financial Sector.

2. Related to the current covid 19 pandemic, to what extent Indonesia's Fiscal and Monetary
Policy align with the reasoning and theory of modern macroeconomic. (15 marks)
Answer :
The Indonesian government took comprehensive fiscal and monetary policies to deal
with Covid-19. In the fiscal sector, the Government has implemented a policy of refocusing
activities and budget reallocation. President of the Republic of Indonesia, Joko Widodo,
instructed all Menteri,Pimpinan,Gubernur,Bupati,Walikota to accelerate refocusing of
activities, reallocation of budgets and procurement of goods and services for handling
Covid-19.
Furthermore, the Ministry of Finance will reallocate APBN funds amounting to Rp.62.3
trillion. The funds are taken from official travel budgets, non-operational spending, honoraria,
for handling or controlling Covid-19, social protection (social safety net) and incentives for
Farid Ardika Dasum / 29120020 / YP 63-C

the business world. The APBD is also expected to be refocused and reallocated for these 3
things.
Strengthening the handling of Covid-19, is carried out by providing medical facilities and
equipment, medicines, incentives for the medical team to handle Covid-19 patients and
other needs. Social safety net is provided to increase people's purchasing power through
the Family Hope Program (PKH), Smart Indonesia Card (KIP), Food Staple Cards and
prosperous rice. It is hoped that Ministries / Institutions / Local Governments will multiply
labor-intensive programs including Village Funds. Meanwhile, business incentives are
implemented to help business actors, especially MSMEs and the informal sector.
In the monetary sector, the monetary policy taken must be in line with fiscal policy in
minimizing the impact of Covid-19 on the national economy. Therefore, the monetary
authority must be able to maintain the rupiah exchange rate, control inflation and provide a
monetary stimulus for the business world. It is hoped that there will be relaxation in providing
bank credit and intensifying the distribution of People's Business Credit (KUR).
The implementation of BI policy direction was accomplished through a policy
combination and the optimization of numerous policy instruments :
- BI lowered the policy rate and injected liquidity through quantitative easing to boost
economic growth and sustain financial system stability in response to inflationary
pressures.
- In order to stimulate economic and corporate funding from the banking sector while also
ensuring financial system stability, accommodative macroprudential policy was
introduced by easing several regulations.
- To preserve external stability and control economic rebalancing, the Rupiah exchange
rate is stabilized through a triple intervention strategy.
BI improves its policy mix in order to maintain economic stability and stimulate economic
recovery from the effects of the recession.
- Policy path toward financial system stability (adequate banking sector liquidity and
resilience)
- Driven balance of policy mix to promote economic growth
- Economic prosperity is aided by strong economic development
- During the pandemic, inflation fell significantly related to bad domestic demand and
restrictions on economic mobility
Farid Ardika Dasum / 29120020 / YP 63-C

3. In a study published in 1980, B.B. Gibson estimated the following price and income elasticity
of demand for six types of public goods :

State Activity Price Elasticity Income Elasticity

Aid to needy people -0.83 0.26
Pollution control -0.99 0.77
Colleges and universities -0.87 0.92
Elementary school aid -1.16 1.14
Parks and recreational areas -1.02 1.06
Highway construction and -1.09 0.99
maintenance

- Do these public goods conform to the law of demand? For which public goods is
demand price elastic? (5 marks)
Answer :
The price elasticity that all these public goods exhibit is negative. This suggests that
other things remain constant but that there is an inverse relationship between price and
quantity demanded. That is, all these public goods comply with the law of demand.
Demand is elastic when the price elasticity of demand is greater than or equal to one. It
can be seen that the absolute value in our table finds that the price elasticity of
Elementary School Assistance is 1.16 and Road Development and Maintenance is 1.09,
this means that the demand for these two public goods is elastic.

- What types of goods are these public goods? (5 marks)

Answer :
All of these goods are normal goods because i think the income elasticity of demand is
positive. Demand elasticity of profits and cross-price elasticity of demand theory such as:
- Normal Good = E1>0
- Inferior Goods = E1<0
- Substitutes = Exy>0
- Complements = Exy<0
Items that are considered normal and necessities when they have a value between 0
and +1. These goods will therefore be considered as normal goods and also a necessity.
In this case, it can be seen from the state activity in the form of assistance for people in
need, pollution control, colleges and universities, road construction and maintenance.
When the value of the income elasticity is greater than one which means it can be
Farid Ardika Dasum / 29120020 / YP 63-C

considered a luxury item, this can be seen in public goods such as parks and recreation
areas as well as elementary school assistance.

- If the price or cost of college and university education increased by 10 percent and,
at the same time, incomes also increased by 10 percent, what would be the change
in the demand for college and university education? (5 marks)
Answer :
Price Elasticity of demand Ed= % change in demand / % change in price

- Collage and University = 0.87 = %change in demand /10

% change in demand = 8.7%

Income elasticity=% change in demand / % change in income

- Collage and University = 0.92 = % change in demand / 10

% change in demand = 9.2%

4. India and Pakistan spend millions of dollars on defence. This money could instead be used
for productive purposes if both countries follow the disarmament strategy. Suppose India
follows the disarmament strategy and Pakistan does not, then India will be in a weak
situation against the strong situation of Pakistan, and vice versa. Considering the two
strategies of armament and disarmament, answer the following:
- Write the payoff matrix for this problem. (5 marks)
Answer :

Pakistan

Armament Disarmament

India Armament Indian and Pakistan Strong India/Weak Pakistan

Weak (1,1) (3,0)

Disarmament Weak Indian/Strong Indian and Pakistan Strong

Pakistan (2,2)
(0,3)
Farid Ardika Dasum / 29120020 / YP 63-C

- Does either India or Pakistan have a dominant strategy? Explain. (5 marks)

Answer :
The dominant policy for India and Pakistan is to use military force. If India opts for a
disarmament policy, they will receive 0 points if Pakistan uses arms and 2 points if
Pakistan also uses weapons. If India continues to pursue an arms policy, it will receive
one point if Pakistan pursues the same strategy, and three points if Pakistan pursues
disarmament. As a result, the dominant policy for both countries is to use armament.

- In your view, what is the likely pair of decisions and what payoff will each one receive? (5
marks)
Answer :
Based on the payoff matrix that has been created, the pair of decisions and payoffs to be
obtained by both parties in this scenario are as follows:
- India: If India chooses to pursue a disarmament strategy, Pakistan should also
pursue a disarmament strategy. Both Pakistan and India's payoffs are in jeopardy
in this situation.
- Pakistan should make the decision to implement the disarmament plan, even if
India does not. Pakistan can distribute funds for more critical purposes in this
position, even if the payoff is that Pakistan is in a poor position.
One of the options is for the two countries to select a weapons policy with a specific
outcome (1,1). This is possible because if one nation follows a weapons policy and
another sticks to a disarmament strategy, the former will receive three advantages while
the latter will receive none. Each country will choose the best scenario so that other
countries will choose a disarmament plan or other deceptive acts, and the country can
stay in a favorable position.