• • "C.
•
TEST CODE 01216010
IVI4. 001\ FE 2007
CARIBBJ1LA N '.EXAMItN.A.TIONS cOUNCIL
SECONPARY EDUCA. ION CIA C1-11CATE
EXAI~`i TA ZION
ECONOMICS
Paper01 —General Proficien cy
75 minutes
( 06 JUNE 2007 (p.
• .READ THE FOLLOWING DIRECTIONS CAR FULLY1.
In addition to this test booklet, you should have an answer sheet,
2.
Each item in this testh asfoursuggested answers lettered (A), (B), (C), (D); Afterlisteningto orreading
each item you are about to answer, decide which choice is best
3.
On youranswer sheet, find the number which corresponds to your item and blacken 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'
since it deals with
(A)
(B)
(C)
(D)
Sample Answer
the environment
the economy
human behaviour
production and consumption
The best answer to this item is "human behaviour" , so answer space (C) has been blackened
Ifyou want to change your answer, be sure to erase your old answer completely and fill in yournew
choice.
When you are told to begin, turn thepage and work as quickly and as carefully asyou can. Ifyou cannot
answer an item, omit it and go on to the next one. You can come back to the harder item later. Your
score will be the total number ofcorrect answers.
This test consists of60 items. You will have 75 minutes to ansvver them.
7.
Do not be concerned that the answer sheet provides spaces for more answers than there are items in
this test.
8.
The use ofsilent electronic calculators is allowed.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO `SO
Copyright 2006 Caribbean Examinations Council CD.
All rights reserved.
01216010/F2007
Why do consumers have tO make choices
among the goods and: services that they
purchase?
(A)
Their wants are scarce and their
resources are limited. Their resources are insufficient to:
satisfy all their wants.
Theirresources increasemore rapidly
than their wants.
They receive most oftheirgoods and
services at no cost.
(B)
(C)
(D)
2.
Which ofthe following statements BEST
describes an 'economy'?
(A)
(B)
(C)
(D)
3.
A system where suppliers produce
all the goods arid services needed
by the consumers
A system whereby all the goods
and services used by citizens of a
country are provided by the
government
The utilization of resources to
produce goods and services to
meet the needs and wants of
society
The utilization of resources by
manufacturers to produce goods
and maximiseprofits
_'..The' GoYeri-iment of Country X decides to
ii:viteh resources from in-vestmeargoods to
crop production. The opportuniP&eestofthis
decision is the .
(C)
(D)
profit earned by farmers
rent of the land on which crops are
grown
,
reauction in investment goods
Wages earned by farm workers
In an attempt to in
the efficiency °fits
Staff, Management assigns specific tasks to
'each worker. This is an example of
.:( ).. .::: specialisation
(B)
progress
(C) : ,productivity
(D)
entrepreneurial ability
. An economy produces two goodS, namely
- sugar andbauxite. Whatriame is given to the
curve which shows the maximum arnount of
bauxite that can be produced for every given
amount ofsugar?
Market supply curve
Demand curve
Productionpossibility frontiercurve
Individual supply curve
Sita and Peter are planning to buy a new
house. All of the following factors should
• affect their decisions EXCEPT
theirjointmonthly income
the possibility ofa jobpromotion for
Peter
Sita's best friend also has a, new
home
the high cost of renting where they
now live
01216010/F2007
GO. ON TO THE NEXT PAGE
Prices ofgoodain market economiesfluctuate whileprices of goods in planned econo- mies tendjo be fixed., The .1\4977 likely
reason for this difference isthatinthe market
economy •
Item 7 refers to the diagram below.
S Supply before subsidy
Ss
Supply after subsidy
rice
buyers and sellers determineprices
(A)
producers
are never efficient
(B)
(C) • profits are lower
there are high erunemplOyment levels
(D)
7.
A MAJOR disadyrantage of a planned
economy is that it
In the diagram above, S is the supply curve
before a subsidy is given and Ssis the supply
curve after th e subsidy is given. As a result
ofthe granting ofthe subsidy, it is expected.
that
(A) •
(B)
(C)
(D)
(A)
(B)
supply will increase.
supply will decrease
demand will decrease:
pricewill increase
(C)
(b)
In a commercial bank, wages and salaries
are paid to ALL ofthe following EXCEPT
Which ofthe following determines the allocation ofresources in a m ixed economy?
(A)
(B)
(C)
(D)
(A)
(B)
(C)
(D)
Consumers only
Governmentonly
Government and producers only
Government, producers and
consumers
13
.
Which ofthe following is an advantage of a
marketeconomic system?
(A)
(B)
(C)
(D)'
There is equality of income.
Price control measures can be
effected.
It gives an incentive to produce.
It reduces pollution and congestion.
causes inequality in the distributiori cf
income.
discourages, individual initiative and
enterprise,
results in widespread unernpl cryment •
causes high rates of inflation
bank tellers and superviSors
Shareholders o f the bank
investnient managers iri the bank
maintenance workers employed by
the bank
In which ofthe following economic systems
does the state own ALL the factors of
production EXCEPT labour?
(A)
(B)
(C)
(D)
A mixed economy
A market economy
A planned economy
A:subsistence economy
GO ON TO THE NEXT PAGE
- 010/F2007
14.
15.
Many developing co
untries have-ohanged.
•
their economies froma
coinmandeconoznyto
amarket-baSedecono
rily Sri orderto increa
se
(A)
goveminerrt control
(B)
efficiency
(C)
subsidies
price control*
(D)
Sam and Jack starte
d a catering busines
s.
They organised the fac
tors ofproduction and
pooled their financia
l resources to produc
e
the goods and service
s. In which factor of
production willyou cla
ssify Sam and Jack?
(A)
Worker
(B)
Investor
(C)
Entrepreneur
(D). Manager
16.
.19. - .- .ACcording
toeconomietheery; se
cond hand'
cigarette smoke Is an
eiatripleil".
private good
(B)
positive externality
negative externality'
.(D)
meritgood.
2
A shift in the demand
curve fora commodity
could result from'a ch
ange in •
price • . •
::supply •
(C).: .conditions.ofsu
pply •
(D) •• conditions of
demand
olioWing diagrams.
•
P D
The sugar industry in
Ne*Island uses ahigh
ratio of labourers to
capital as inputs in th
e
production ofsu gar.
Which ofthe following
economic questions is
being answered in thi
s
production arrangeme
nt?
D
flow much to produc
e
F or whom to produce
What to produce
How to produce
17.
18.
Which ofthe following
is NOTarleiampl e of
a factor ofproduction
in a commercial bank
?
(A)
Shareholders of the ba
nk
(B)
The building
(C)
Special savings acco
unt for students
(D)
The bank' s vau it
An increase in the pr
ice of flour is MOS
T
likely to be followed
by an immediate
(A)
rise in the quantity de
rnand for bread
fall in the quantity su
(B)
pp
ly offlour
(C)
rise in the quantity su
pply offlour
fall in the quantity de
(D)
mand for flour
1216010/F2007
(S)
21.
Which diagram above
indicates that demand
is perfectly elastic?
(A)
R
(B)
S.
(C)
T
(D) • U
GO ON TO THE NE
XT PAGE
22.
Hybrid electric cars are more expensive than
cars which use gasolene,I-Towever, a major
feature of el ectri c cars is that they are polliati on free. Which costs will fall as consumers
start using electric cars?
Total fixed cost
Marginal cost
Private cost
External cost
(A)
(B)
(C)
(D)
23.
25.
All of the folloWing are features Of perfect. •
•coMpetition EXCEPT
Which of the f011e•Wirig is NOT TRUE of
perfect competition? •
selling of homogeneousproducts
freedom ofentry and exit
many buyers and one seller
perfect knowledge of market
conditions
(A)'
(B)
(C)
(D) .
heft), 24 refers to the diagram below which
shows the market for soft drinks in Country
Y.
In which of the following situ ons will a
normal supply curve for farm produce slope
upwards from left to right?
0 l.
Farmers' profit margins increase as
(A)
price increases.
Farmers are willing to increase supply
(B)
as demand increases.
mers pass on increased cost to
Fai
(C)
consumers.
Farmers are willing to produce more
as price increases.
Firms are price takers.
Products are homogenous.
Firms engage inprice discrimination.
There are no barriers to entry.
27..
All things being equal, an increase in the
supply of a good willresult in
an increase in price and quantity
traded
a fall in price and an increase in the
quantity traled
a decrease in price and quantitytraded
arise in revenue and a fall in quantity
traded
0
24..
Q
Which ofthe following is MOST likely to be
responsible fOr the shift in the supply curve
from S to S,?
An increase in advertising of soft
drinks
A fall in the price o f sugar •
Increased wages for workers in the
soft drink industry
An increase in income
Which ofthe following will NOT occur when
there is market failure? .
(A)
(B)
(C)
(D)
A decline iri social welfare
An 'increase in poverty throughout
the economy
Increasing levels ofunemployment
among skilled and unskilled labour
Adequate amounts of all goods and
services for consumers
GO ON TO THE NEXT PAGE
-6A treasury bill is an instrument for
short-term
34.
borrowing by
29.
(A)
03)
(C)
(D)
30.
(C)
(D)
31.
32.
i on isto
35.
encourage conSurner spending
provide investment funds
for
companies
develop the habit of thri ft among
its
members
provide credit ."to governme
nt
agencies
Share Market.
Developtnenti3ank
Credit union
Trade union
Which ofthe following financial
instruments
is issued by the Government?
(A)
(B)
(C)
(D)
01216010/F2007
Treasury bonds
Corporate bonds
Equity security
Shares on the stockexchange
The ability to turn an asset into cas
h withOut
loss or delay is known as
(A)
durability
(B)
liquidity .
(C)
(D).
portnbility
divisibility
tontiti A is experiencing .a bal
ance Of
payments deficit. Which of the
following
measures should it take to reduce
the deficit
in the short-term?
Unit of account
Store ofvalue
Standard of deferred payment
Medium of exchange
Which of the following is NOT
a financial
institution in an economy?
(A)
(I3)
(C)
(D)
33.
(A)
igsuingn.otes andcoiri7
(B)' . making loanS
(C)
determining the foreign exchange
rate
keeping the accounts ofgovemm
ent
:i.eparttnents
Joe Brown sells his produce atthe
market and
saves his money until he has eno
ughto buy a
tractor.. Which ofthe following
functions is
money performing in this case?
(A)
(B)
(C)
(D)
l bank is
public corripaniv..
governments:
insurance companies
importers':
The MAIN.objeetiyeOfabredit
(A)
(B)
One ofthe functions ofa commercia
(C)
(D)
37.
Engage in trade with other low cos
t
producen3ofgoods.
Impose restictions on goods importe
d
from other countries.
Increase the importation of goo
ds.
Reduce the volume of exports
to
other countries.
Which of the following will be
included in
the capital account of the bal
ance of
payments of a country?
(C).
(D)
Items bought from a foreig
n
supplier through the internet
Outstanding loan repayments ma
de
to a bank in a foreign country
Investment in a local manufactur
ing
industry by a foreign company
The value of goods exported dur
ing
the year
GO ON TO THE NEXT PAGE
38_
Which of the following factors will MOST
likely cause afall in a country,' s exchange rate
under a flexible change rate required?
Item 39 refers to the table below which
shows the rate of inflation and the average
percentage increase in wages Over a fouryearperiod.
YEAR
RATE OF
INFLATION
5
- 10
10
15
2003
2004
2005
2006
Consumption
Net income from abroad
Investment
Government§pending '
4
(D)
5
(A)
(B)
(C)
(D)
An increase in bank lending
An increase in import duties
A reduction in government
expenditure
A reduction indirect taxation
01216010/F 2007
100
20
80
60
$200 M
$220 NI
$2101A
. $260M:
. Some developing countries are trying to
achieve; economic growth :with less
governmental participatipn. This is MOST
likely to be achieved through increased
2003
2004
2005
2006
Which ofthe following measures is MOST
I ikelyto reduce inflation?
'AMbunt
(ST14)
Using the data provided in the table above
calculate the Gross Domestic Product.
(A)
(B)
(C)
WAGE
INCREASES (%)
20.
20
In which year was the increase in real wages
GRF_A I I (A)
(B)
(C)
(D)
40.
. Vein
An increased demand for its imports
An increased demand for its exports
An increased inflow ofcapital
A reduced rate ofdomestic inflation
(A)'
(B)
(C)
(D)
3
Item 41 refers to the following table.
(A)
(B).
(C)
- (D)
43 -
private investment
public expenditure
• state planning
trade barriers'
Large firms achieve savings in unit costs from
advertising or packaging. This is a result of
which ofthe following economies ofscaie?
(A)
(B)
(C)
(D)
Marketing
Managerial
Technical -
GO ON TO THE NEXT PAGE
item 44 refers to the following figure.
:46.
Cord
try p
'tom'
CotintrYX dec icles.to protect its agricult
ural
seetOrfrornforeign competition bkzestr
icting
the amount 6fagricultural goods importe
d into
the country. This measure is referred
to as a
(A
'trade barrier
"(6):. .trade bloc
(C)
14uota trading
(D)
trade embargp
Q
44.
Which O'f the following is NO
T a•
characteristic of Caribbean econom
ies?
With reference to the diagram above,
: state
which ofthe following is TRUE..
(A)
(B)
(C)
•(D)
45.
..Co..od >C.
Country P has an abscilute advantage
in Good Y only.
CountryP has an absolute advantage
in Good Y and Good X. • ,
Country Q has an absolute advantage
in Good Y only: •
Country Q has an absolute advantage
in Good Y and Good X.
(A)
(B)
goods
(C)
io:w I evelS ofcapital formation
(D) •: A high debt burden
4
A country is said to have a compar
ative
advantage in theproduction ofa com
modity
when it
canproduce more ofthat commodity
than any other country
has a larger share of the market for
that commodity than any other
country
•
can produce that commodity at a
lower opportunity cost than any
other country
accounts for a greater percentage
of total world sales of that
commodity than any other
commodity
.1216010/F2007'
High leVels ofunemployment
Majorproducers ofrpanufabtured
Country B had an increase of$300 000
000
in foreign direct investment. In wh
ich
section of the balance ofpayments will
this
transaction be recorded?
(A)
(B)
(C)
(D)
49.
Visible trade account
Balance of trade account
•Invisible trade account
Capital account
Which ofthe following events will resu
lt in a
surplus on the balance of trade ofa cou
ntry?
Volume ofexports is greater than the
volume ofimports. . .
Volume ofimports is greaterthan the
volume ofexports.
Value ofexpoi-ts is greater than the
value of imports.
Value of imports is greater than the
value ofexports.
GO ON TO THE NEXT. PAGE
Item 50 refers to the table be
low which'
figures taken from the balanc
e Of .
payments records for Country
X in the year:
2006::
x
54.
- shows
Export of goods
Import of goods
Current balance
50.
500
400
300:
What is the invisibl ebalance for
(D)
55.
Which of the following measu
res is MOST
likely to reduce inflation?
Chasa Cosmetics seeks to marke
t itsproducts
in the United States. Such a mo
ve is made
MOSTlikely through
the establishment of the Carib
bean
Single Market and Economy
direct foreign investment in the Un
ited
States
effective marketing strategies
trade liberalization
3.
Which ofthe following are cha
racteristic of
MOST Caribbean economies?
I.
IT.
III.
An increase in bank lending
.An increase in import duties
A reduction in government
expenditure
A reduction in direct taxation
52.
They will enjoy greater access
'to a
variety ofgoods.
Goods and sen.rices will be provid
ed
at lower cost!. •
Prices ofallgoodS and services
will
be red need.
Prices of goods andServices wil
l be
more Stable.
County- X?
(A). $ 100M
(B) '.;$:.`200M
(C)', $ 300M
(D) ,$1200M
51.
Which of the following be
nefits will
consumers 'derive as: a res
Ulf-of trade
liberalisation?
(A)
(B)
(C)
(D)
56.
High percapita incomes
A diversified manufacturing sec
tor
Equitable distribution ofincome
s
Dependency on primary pro
duct
exports
TV only
Iandllonly
I and III only
II and IV only
All ofthe following are examp
les ofprimary
products EXCEPT
bai 'Kite
furniture
bananas
petroleum
The restriction of intern ati on al
trade
tariffs, embargoes, quotas and thro ugh
exchange
controls is referred to as
(A)
(B)
(C)
(D)
structural adjustment
globalisation
bi-lateral agreements
protectionism
a16010/F 2007
GO ON TO THE NEXT PAGE
Item 57 refers to.
the table below w
hie,11 .
shows a country's
current account of
its"
balance of paymen
ts for the year 2006
.
Item
What is its balanc
50
80
70
32
e of merchandise tra
-$38 M
$20 M
$38 M
$48 M
Country A and COun
tryB aretradippartner
s.
1-10VVwilltlieir tradin
g relatiOns be affected
if
the value Of the-.
etiriency:.of Gdunt
ry
A
increases against th
e value oftheturrenc
y of.
Country B?
($M)
Invisible impotts Invisible exports
Visible imports
Visible exports
(A)
(B).
(C)
(D)
58:
(A)
de?
EipOrts froth Coun
try B to Country
A. will be cheaper..
:
( 3)• 'The Volume ofexpo
rts froni Country
A to Country 1. 3 will
be cheaper.
(C)
Exports frorriCOUn
tryBto Country
-A will decrea
se:
(D)
The Volume ofexpO
rts from
to Country B will de Country
crease.
Item 59 refers to
the information be
low
which shows impo
rt and export data
for
County X in 2006.
Index of import price
s
Index Of export price
s
Volume of expor6
Volume of imports.
100
120
200
80
What were the tent
s ofirade for
in 2006?
).
)
(C)
(D)
.0.98
1.2
2.
120
Item 60 refers to th
e table below below
which shows manuf
Domestic Product fo
acturing output as a
r four countries.
share of Gross
YEAR
COUNTRY A
COUNTRYB
1960
COUNTRY C
28%
COUNTRY D
40%
1980
29% .
23%.
. 29%
34
%
1990
26°A
19%
28%
- 31%
21%
23
%
60.
What trend is comm
on to ALL countries
shown in the table?
(A)
Employment in the
manufacturing sect
(B)
or increased.
There was a declin
e
in the Gross Domes
(C)
tic Product.
There was a declin
e in the sale ofman
(D)
ufactured products.
There was a declin
e in manufacturing
output as a share of
Gross Domestic Pr
oduct.
IF YOU FINISH
BEFORE TIME
IS CALLED, CH
ECK YOUR WO
RK ON THIS TE
ST.
I216010/F 2007
X