ECONOMICS

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

1. This test consists of 60 items. You will have 75 minutes to answer them.
2. In addition to this test booklet, you should have an answer sheet.
reading each
3. • .• . Edch item in this test has four suggested answers lettered (A), (B), (C), (D). After
item you are about to answer, decide which choice is best.

On your answer sheet, find the number which corresponds to your item and shade the space having
the same letter as the answer you have chosen: -Look at how it is-done in the sample item below.
Sample Item
Economics may be described as a 'Social Science' Sample Answer
because it deals with

(A) the economy DO@

(B) the environment
(C) human behaviour
(D) production and consumption

The best answer to this item is "human behaviour", so answer space (C) has been shaded.

5. If you want to change your answer, erase it completely before you fill in your new choice.
If
6. When you are told to begin, turn the page and work as quickly and as carefully as you can.
you cannot answer an item, go on to the next one. You may return to the omitted item later. Your
score will be the total number of correct answers.
7. The use of silent electronic calculators is allowed_
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1. Which of the following is the MAJOR 4. A student has a daily allowance of $20 with
Problem facing all economies? which he can purchase chicken and chips
or a burger, but NOT both. If he purchases
(A) Allocating scarce resources among the chicken and chips, the opportunity cost
competing users of his decision will be
(B) Achieving an equal distribution of
income (A) the burger he gave up
(C) Preventing the depletion of natural (B) the satisfaction he gets from burgers
resources (C) the price of the chicken and chips
(D) Achieving a fair distribution of (D) the satisfaction he gets from the
wealth chicken and chips

2. An 'economy' is BEST described as a system 5. A 'free good' is BEST described as a good

where
(A) that is given away by a retailer to
(A) suppliers produce all the goods and promote the sale of another good
services needed by the consumers (B) which gives no satisfaction to con-
(B) resources are used by manufacturers sumers
to produce goods and maximize (C) which has an infinite elasticity of
profits supply
(C) all the goods and services used by (D) whose opportunity cost is zero
citizens of a country are provided
by the government
(D) resources are used to produce goods 6. Which of the following is NOT a primary
and services to meet the needs and product?
wants of society
(A) Bauxite
(B) Banana
3. Sita and Peter are planning to buy a new (C) Furniture
house. Which of the following factors (D) Petroleum
should NOT affect the couple's decision?

(A) Their joint monthly income

(B) The possibility of a job promotion
for Peter
(C) The high cost of renting their cur-
rent home
(D) The acquisition of a new home by
Sita's best friend

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_r 1 r
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9. An outward shift in a production possibility

Item 7 refers to the diagram below which
shows the production possibility curve for curve can be caused by an
an economy that produces bananas (X) and
(A) increase in wages
oranges (Y).
(B) increase in prices
(C) increase in imports
(D) improvement in technology

10. Unemployment that results from a change

in technology and the resulting re-training
and re-hiring of staff is an example of

(A) structural unemployment

(B) cyclical unemployment
(C) frictional unemployment
(D) seasonal unemployment
7. If OX is the amount of bananas produced,
what is the greatest amount of oranges that
can be produced?
Item 11 refers to the diagram below. Ss is
OY the supply curve before a subsidy is given.
(A)
(B) 0Y1
(C) 0Y2
(D) 0Y3

Item 8 refers to the diagram below which

shows the production possibility curve for
two goods: shirts and shoes. •• .
Quantity
Shoes 0 Q. Qi

11. As a result of the granting of the subsidy it

is expected that

(A) supply will increase

(B) supply will decrease
Shirts (C) demand will decrease
(D) price will increase
8. At what point in the diagram are resources
underemployed?

(A) w
(B) X
(C) Y
(D)

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Item 12 refers to the table below which 15. Which of the following is an advantage of
- provides infoi illation on three similar goods, a market economy?
• X, Y and Z. Consumers buy more of Good
Z because of its lower price. (A) There is equality of income.
(B) It provides an incentive to produce.
(C) It reduces pollution and congestion.
Good Price ($) (D) Price control measures can be ef-
fected.
X 10

Y 8 - 16. Prices of goods in market economies

fluctuate while prices of goods in planned
Z 3 economies tend to be fixed. The MOST
likely reason for this difference is that, in
the market economy,
12. Which of the following factors will cause
consumers to buy less of Good Z? (A) profits are lower
(B) producers are never efficient
(A) An increase in the supply of (C) buyers and sellers determine prices
Good Z (D) there are higher unemployment
(B) An imposition of a 100 per cent tax levels
on Good Z
(C) The placement of a 100 per cent
subsidy on Good Z 17. Which of the following are NOT consid-
(D) The advertisement of Good Z as an ered factors of production in_ the bauxite
impressional good industry?

(A) Companies that use bauxite

13. In an attempt to increase the efficiency of (B) Lands on which mines are located
its staff, management assigns specific tasks (C) Workers employed to work on the
to each worker. This is an example of mines
(D) Persons who invest their capital to
(A) progress carry out mining operations
(B) productivity
(C) specialisation
(D) entrepreneurial ability 18. Sam and Su started a catering business.
They organised the factors o fproducti on and
pooled their financial resources to produce
14. In a commercial bank, wages and salaries the goods and services. Which factors of
are NOT paid to production should Sam and Su be classified
as?
(A) shareholders of the bank
(B) bank tellers and supervisors (A) Workers
(C) investment managers of the bank (B) Investors
(D) maintenance workers employed by (C) Managers
the bank (D) Entrepreneurs

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is NOT a
an example 23. Which of the following features
19. Which of the following is NOT characteristic of perfect compet
ition?
mercial
of a factor of production in a com
bank? (A) Freedom of entry and exit
products
(B) ' Selling of homogeneous
(A) The building (C) Many buyers and one sel ler
(B) The bank's vault Knowledge of market con ditions
(D)
(C) Shareholders of the bank
stu-
(D) Special savings accounts for
ond-hand
dents
24, According to economic theory, sec
of a
cigarette smoke is an example
e changed
20. Many developing countries hav (A) merit good
rket-based
from command economies to ma (B) private good
economies in order to inc rea se
(C) . positive externality
(D) negative externality
(A) subsidies
(B) efficiency
price control likely to
(C) 25. Which of the following is MOST
(D) government control occur if there is an increase in the demand
for cameras?
resources
21. An economy in which ALL of the (A) The price of cameras will fall.
the state can
EXCEPT labour are owned by (B) The price of cameras will rise.
.
be described as a (C) The supply of cameras will fall
s
(D) The price and supply of camera
(A) free economy will remain the same.
(B) mixed economy
(C) capitalist economy
(D) command economy Item 26 refers to the following
table.

Market demand Market supply

ns will a Price of
22. In which of the following situatio (000 kg) (000 kg)
duce slope potatoes
normal supply curve for farm pro
upwards from left to right? ($)
100
4 700
t to 500 200
(A) Farmers pass on increased cos 8
350
consumers. 12 350
as 530
(B) Farmers' profit margins increase 16 200
700
price increases. 20 100
re
(C) Farmers are willing to produce mo
as price increases.
se 26. What is the equilibrium price?
(D) Farmers are willing to increa
supply as demand increases .
(A) $4
(B) $8
(C) $12
(D) $16

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27. An increase in the price of flour is MOST Item 31 refers to the following diagrams,
likely to be followed by an immediate I, II, III and IV.

(A) rise in the quantity demanded for P

bread
(13) fall in the quantity supplied offlour
(C) rise in the quantity supplied offlour D D
(D) rise in the quantity demanded for
flour D
Q 0 Q
I
28. Which of the following will NOT occur
when there is market failure? P D
(A) A decline in social welfare
(B) An increase in poverty throughout
the economy
(C) Increasing levels ofunemployment
among skilled and unskilled la-
bour Q
III Iv
(D) Adequate amounts of all goods and
services for consumers
31. Which diagram above indicates that demand
is perfectly elastic?
29. Which of the following is an example of
fixed capital? (A) I
(B) II
(A) Cash (C) III
(B) Machinery (D) IV
(C) Bank balance
(D) Raw material
32. Large firms achieve savings in unit costs
from advertising or packaging. This is a
30. Which of the following is NOT TRUE of result of which of the following economies
perfect competition? of scale?

(A) Firms are price takers. (A) Financial

(B) Products are homogenous. (B) Technical
(C) - There are no barriers to entry. (C) Marketing
(D) Firms engage in price discrimina- (D) Managerial
tion.

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37. Which ofthe following financial instruments

33. Joe Brown sells his produce at the market
are issued by the Government?
and saves his money until he• has enough
to buy a tractor. Which of the following
(A) Treasury bonds
functions is money performing in this case?
(B) Corporate bonds
(C) Equity securities
(A) Store of value
(D) Shares on the stock exchange
(B) Unit of account
(C) Medium of exchange
(D) Standard of deferred payment
38. Which of the following is referred to as the
banker's bank?
34. Divisibility is an important function of
(A) The World Bank
money because it
(B) The Central Bank
(C) A commercial bank
(A) encourages the process of speciali-
(D) An investment bank
sation
(B) removes the problems associated
with barter
enables small transactions to take 39. One of the functions of a commercial bank
(C)
place is to
(D) assists individuals to allocate wealth
(A) issue notes and coins
in a profitable manner
(B) provide loans to the public
(C) deteimine the foreign exchange rate
(D) keep the accounts of government
35. To which of the following does the term
departments
`legal tender' refer?

(A) Money that has no direct backing

of gold 40. The Central Bank calls for an increase in
Money that government declares the reserve requirements of commercial
(B)
must be accepted if offered as banks. How will this affect the operations
settlement of debt of commercial banks?
(C) Assets that perform only the func-
?(A) Their liquid assets will be reduced.
tion of a store of wealth
(B) Their ability to create credit will
(D) Assets that can be converted im-
increase.
mediately into a known amount
(C) Their loans to money markets will
of money
increase.
(D) They will attract less deposits from
the public.
36. Which of the following is NOT a financial
institution in an economy?

Development Bank 41. A treasury bill is an instrument for short-

(A)
Share market term borrowing by
(B)
(C) Credit union
(A) importers
(D) Trade union
(B) governments
(C) public companies
(D) insurance companies

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 8

Item 42 refers to the table below which 45. Which of the following is usually a direct
shows the rate of inflation and the average effect of retrenchment in a country?
percentage increase in wages over a four-
year period. (A) Increased standards of living
(B) Reduced standards of living
RATE OF WAGE (C) Reduction in crime and violence
YEAR ,_
LNFLATION (%) INCREASES (%) (D) Equality in the distribution ofwealth
• 2006 • 5 20
46. Which of the following measures is MOST
2007 10 . 20
likely to reduce inflation?
2008 10 5
(A) Increasing bank lending
(B) Increasing import duties
2009 15 5
(C) Reducing direct taxation
(D) Reducing government expenditure
42. In which year was the increase in real wages
GREATEST?
Item 47 refers to the table below which
(A) 2006 shows manufacturing output as a share of
(B) 2007 Gross Domestic Product for four countries
(C) 2008 A, B, C and D.
(D) 2009
YEAR COUNTRY COUNTRY COUNTRY COUNTRY
A B C D
Items 43 - 44 refer to the following table
1970 28% 40% 29% 29%
which shows Government revenue and
Government expenditUre for four countries,
1990 23% 34% 26% 28%
B, C and D.
2000 19% 31% 21% 23%
Government Government
Country Revenue Expenditure
$ (Million) $ (Million) 47. What trend is common to ALL countries
(A) 3.2 3.2 shown in the table?
(B) 3.2 2.2
(A) There was a decline in the Gross
(C) 2.2 • 3.2 Domestic Product.
(D) 0 0 (B) There was a decline in the sale of
manufactured products.
(C) There was an increase in employ-
43. Which country has a fiscal deficit? ment in the manufacturing sector.
(D) There was a decline in manufac-
turing output as a share of Gross
44. Which country has a budget surplus? Domestic Product.

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Item 52 refers to the following information,

48. Which of the following is LEAST likely to which provides data on two countries P and
be used as a measure to control inflation?
Q, and two goods, X and Y.
(A) Increase in taxation Good Y.
(B) Reduction in government expendi-
• Country P
ture
(C) Reduction in the rate of interest on Country Q
loans
(D) Restrictions on lending by com-
mercial banks

Good X
49. Some developing countries try to achieve
economic growth with less governmental
participation. This is MOST likely to be
52. With reference to the diagram above, which
achieved through increased
of the following is TRUE?
(A) trade barriers
(A) Country P has an absolute advan-
(B) state planning
tage in Good Y only.
`(C) private investment Country P has an absolute advan-
(B)
(D) public expenditure tage in Good Y and Good X.
(C) Country Q has an absolute advan-
tage in Good Y only.
50. Which of the following BEST explains the Country Q has an absolute advan-
(D)
term 'tariff'? tage in Good Y and Good X.

• (A) The amount of subsidies received

by local exporters
(B' The level of tax that is levied on
imports entering a country
(C) The amount of goods that can be
imported into a country
(D) The common tax levied by coun-
tries on member countries within
a region

51. Which of the following will result in a sur-

plus on the balance of trade of a country?

(A) Value of imports is greater than the

value of exports.
(B) Value of exports is greater than the
value of imports.
(C) Volume of exports is greater than
the volume of imports.
(D) Volume of imports is greater than
the volume of exports.

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55. Country A is experiencing a balance of

Items 53 - 54 refer to the following table
payments deficit. Which of the following
which illustrates the Balance of Payments
of Caribe Island. measures should it take to reduce the deficit
in the short-term?
$ (billion)
Merchandise exports 500 (A) Reduce the volume of exports to
-555 other countries.
. Merchandise imports (B) Engage in trade with other low-cost
Balance of Trade producers of goods.
Export of Services 100 (C) Increase the importation of goods
• -200 from other countries.
•Imports of Services Impose restrictions on goods im-
(D)
Balance of goods and services ported from other countries.
Net investment income 4
Net transfers 12
56. Which of the following is LIKELY to lead
Balance on current account to greater international iAvestment flows to
Capital inflows 100 the Caribbean region?
Capital outflows -20
(A) , Globalisation
Balance of capital account (B) Specialisation
Current and Capital account balance -59 The World Bank
(C)
Official Reserves 0 (D) The International Monetary Fund

53. The balance of trade in $ (billion) is Which of the following statements BEST
57.
describes globalisation?
(A) 55
(B) -55 International trade of goods and
(A)
(C) 1355 services including skilled workers
(D) -1355 (B) Movement in technology and finan-
cial markets worldwide
(C) The integration of financial serv-
54. The capital account in $ (billion) is ices, technology and commodities_
markets worldwide
(A) 80 (D) Movement of tangible and intangi-
(B) -80 ble goods enhanced by growth in
(C) 120 the computer industry
(D) -120

58. Which of the following BEST defines the

team 'protectionism'?

(A) Restriction ofimports into a country

(B) Dependency on a primary product
for export
(C) Free movement of goods and ser-
vices among countries
(D) Establishment of a trading bloc
among a group of countries

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