Test 01

SECTION A 52 MARKS CIMA C04 fundamentals of business economics ANSWER ALL TWENTY-SIX SUB-QUESTIONS 2 MARKS EACH
Each of the sub-questions numbered from 1.1 to 1.26 inclusive, given below, has only ONE correct answer.

Question One 1.1 A B C D Governments could raise labour productivity by all of the following EXCEPT which ONE? Providing tax relief for Research and Development expenditure by companies. Increasing expenditure on education and training. Reducing discrimination in employment practices. Reducing social security payments.

1.2 A B C D

Diseconomies of scale occur in a business when minimum efficient scale is reached. short-run variable costs begin to rise. x-inefficiency exists. long-run average costs begin to rise.

1.3 A B C D

If the demand for a good increases, which ONE of the following will occur? Price rises and the quantity sold falls. Price falls and the quantity sold rises. Price and quantity sold both rise. Price and quantity sold both fall.

1.4 A B C D

The economic problem of WHAT to produce is concerned with which goods and services and how much of each are to be produced. which goods will meet individual and social needs. which goods will maximise the rate of growth of welfare over time. which combination of resources should be used in production.

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1.5 A B C D

Which ONE of the following will produce the largest fluctuations in a market price? Large shifts in supply with price elastic demand. Large shifts in supply with price inelastic demand. Large shifts in supply with perfectly price elastic demand. Small shifts in supply with price inelastic demand.

1.6 A B C D

Which ONE of the following is NOT a potential source of market failure? External costs. External benefits. An unequal income distribution. The existence of monopolies.

1.7 A B C D

The kinked demand curve model of oligopoly is designed to explain price leadership. price rigidity. collusion between producers. price competition.

1.8 A B C D

Under monopolistic competition, excess profits are eliminated in the long run because of the lack of barriers to entry. the effects of product differentiation. the existence of excess capacity. the downward sloping demand curve for the product.

1.9

The economic welfare case for governments increasing taxes on petrol to raise its real price is that oil is a scarce resource. it would reduce the imports of oil. there is a large demand for petrol. petrol consumption involves external social costs.

A B C D

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1.10 All of the following would lead to an upward shift in a firms demand curve for labour EXCEPT which ONE? A B C D An increase in the demand for the firms product. An increase in the productivity of labour. A fall in the price of labour. A rise in the price of substitute factors of production.

1.11 Gross national product will be higher than gross domestic product if A B C D exports of goods and services exceed imports of goods and services. there is a net inflow of factor payments on the current account of the balance of payments. there is a net inflow on the capital account of the balance of payments. government taxation exceeds government expenditure.

1.12 In the circular flow model of the economy, the level of national income will always reach an equilibrium because A B C D injections and withdrawals are always equal. withdrawals are a function of the level of income. governments will change taxes and expenditure to ensure equilibrium. expenditure equals income.

1.13 All of the following are disadvantages of inflation EXCEPT which ONE? A B C D It redistributes wealth from debtors to creditors. It reduces international competitiveness. Market price signals are distorted. Fixed income earners experience a fall in real income.

1.14 Cyclical unemployment refers to unemployment A B C D which occurs because of the seasonal nature of some industries. resulting from the long-term decline of an industry. which occurs at particular times of the year. which occurs during recessions.

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1.15 Which ONE of the following does NOT form part of the equity capital market? A B C D Life assurance companies. Pension funds. Retail banks. Venture capitalists.

1.16 The crowding out effect occurs when a A B C D rise in interest rates reduces private investment. rise in interest rates reduces the demand for money. fall in interest rates discourages saving. rise in interest rates raises mortgage rates.

1.17 An expansionary fiscal policy would be most likely to reduce unemployment if the country had A B C D a high marginal propensity to import. a low marginal propensity to save. a high marginal tax rate. a low marginal propensity to consume.

1.18 Monetarists believe that inflation will follow from A B C D excessive demand for money in the economy. trades unions demanding higher wage rates. expansion of the money supply. firms and individuals spending their excess money balances.

1.19 The effect on a business of a contractionary fiscal policy will be greatest when the business A B C D has a high gearing ratio. produces a good with a high income elasticity of demand. produces non-durable goods. exports a high proportion of its output.

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1.20 The real rate of interest is defined as the A B C D rate of interest banks actually charge their customers. annualised percentage rate of interest. yield on undated fixed interest government securities. difference between the money rate of interest and the inflation rate.

1.21 If a country can produce all goods more efficiently than its trading partner, it should export A B C D no goods. only those goods in which it has an absolute advantage. only those goods in which its efficiency advantage is greatest. all goods.

1.22 All of the following are reasons for trans-national companies locating production of a good in more than one country except one. Which ONE is the EXCEPTION? A B C D The existence of trade barriers. Significant transport costs. Economies of scale in production. Differences in demand conditions between countries.

1.23 An increase in the international mobility of factors of production leads to A B C D an increase in international trade. increased unemployment in low wage economies. increasing differences in wage rates between countries. decreasing differences in factor prices between countries.

1.24 All of the following are characteristics of the process of globalisation EXCEPT which ONE? A B C D Increased international specialisation. Greater integration of production in manufacturing. Higher levels of international trade. Movement of manufacturing industries to low labour cost locations.

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1.25 All of the following are characteristics of a common market EXCEPT which ONE? A B C D Free trade in goods and services among member states. Common levels of direct taxation. Free movement of factors of production between member states. A common external tariff.

1.26 Which ONE of the following would be likely to result in a rise in the value of UK sterling against the Euro? A B C D A rise in interest rates in the UK. The UK central bank buying Euros in exchange for sterling. A rise in interest rates in the Euro zone. Increased capital flows from the UK to the Euro zone.

(Total = 52 Marks)

May 2001

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