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CIMA Certificate in Business Accounting Test 02

SECTION A 52 MARKS 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.

CIMA C04 fundamentals of business economics

Question One 1.1 Which ONE of the following would lead directly to an outward shift in a countrys production possibility frontier? A rise in the population of working age. A fall in unemployment. An increase in outward migration. A rise in the school leaving age.

A B C D

1.2

The cost of one good or service measured in terms of what must be sacrificed to obtain it is called real cost. potential cost. opportunity cost. social cost.

A B C D

1.3

All of the following are supply side policies which would promote economic growth EXCEPT which ONE? Increased expenditure on education and training. A reduction in marginal rates of taxation. Deregulation of industry and finance. Increased social welfare expenditure.

A B C D

1.4 A B C D

All of the following are essential features of a market economy EXCEPT which ONE? Private ownership of productive resources. Allocation of resources by the price mechanism. Absence of entry and exit barriers to and from industries. Prices determined by market forces.

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November 2001

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1.5 A B C D

The profit-maximising output will always be where average cost = marginal revenue. marginal cost = marginal revenue. average cost = average revenue. marginal cost = average revenue.

1.6

If a business currently sells 10,000 units of its product each month at $10 each unit and the demand for its product has a price elasticity of -25, a rise in the price of the product to $11 will raise total revenue by $7,250. reduce total revenue by $17,500. reduce total revenue by $25,000. raise total revenue by $37,500.

A B C D

1.7

In the kinked demand curve model of oligopoly, the kink in the firms demand curve is due to the firms belief that competitors will set a price at the kink of the demand curve. match all price increases and price reductions. match any price increases, but not any price reductions. match any price reductions, but not any price increases.

A B C D

1.8

Which ONE of the following is a natural barrier to the entry of new firms into an industry? Large initial capital costs. The issuing of patents. A government awarded franchise. The licensing of professions.

A B C D

1.9 A B C D

A good which is characterised by both rivalry and excludability is called a public good. a private good. a government good. an external good.

November 2001

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1.10 A B C D

The burden of an indirect tax on a good will fall more heavily on the producer when demand for the good is price elastic. demand for the good is price inelastic. demand for the good has unit elasticity. supply of the good is price elastic.

1.11

In practice, a monopoly may have its market power limited by all of the following EXCEPT which ONE? Countervailing power from its customers. The market may be contestable. There may be close substitutes for the good. The firms long-run average cost curve may be falling.

A B C D

1.12

All of the following are examples of where externalities are likely to occur EXCEPT which ONE? A business providing training schemes for its employees. Government expenditure on vaccination programmes for infectious diseases. Attending a concert given by a government-funded orchestra. Private motorists driving cars in city centres.

A B C D

1.13

Whenever government intervention prevents prices from reaching their equilibrium level, the result will always include ALL of the following EXCEPT which ONE? Shortages or surpluses. Demand and supply not equal. Reduced profits for producers. Resources not allocated by price.

A B C D

1.14 A B C D

Which ONE of the following would cause the value of the multiplier to fall? A fall in the level of government expenditure. A rise in the marginal propensity to consume. A fall in business investment. A rise in the marginal propensity to save.

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1.15 A B C D

The linking of net savers with net borrowers is known as the savings function. financial intermediation. financial regulation. a store of value.

1.16

The recession phase of the trade cycle will normally be accompanied by all of the following EXCEPT which ONE? A rise in the rate of inflation. A fall in the level of national output. An improvement in the trade balance. A rise in the level of unemployment.

A B C D

1.17

According to the new classical school, in order to manage the economy, governments should use active fiscal and monetary policy. adopt a laissez faire approach and leave everything to market forces. announce monetary rules to control inflation, and liberalise product and factor markets. use only monetary policy to increase output and employment.

A B C D

1.18

All of the following will normally lead to a fall in the level of economic activity in an economy EXCEPT which ONE? A rise in cyclical unemployment. A fall in business investment. A decrease in government expenditure. A rise in interest rates.

A B C D

1.19 A B C D

International trade is best explained by the fact that all countries have an absolute advantage in the production of something. all countries have specialised in the production of certain goods and services. no country has an absolute advantage in the production of all goods and services. all countries have a comparative advantage in the production of something.

November 2001

FECB

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1.20

All of the following will encourage the process of the globalisation of production EXCEPT which ONE? Reductions in international transport costs. Higher levels of tariffs. Reduced barriers to international capital movements. Increased similarity in demand patterns between countries.

A B C D

1.21 A B C D

Intra-industry trade occurs when a country exports and imports different products. exports and imports the same products. imports materials to be used by its domestic industry. exports materials for use in industries in other countries.

1.22 A B C D

Which ONE of the following shows the lowest degree of international mobility? Unskilled labour. Financial capital. Technical knowledge. Management.

1.23

A deficit on a countrys balance of payments current account can be financed by a surplus of exports over imports. of invisible exports over invisible imports. on the capital account. of taxes over expenditure.

A B C D

1.24

A fall in the exchange rate for a countrys currency will improve the balance of payments current account if the price elasticity of demand for imports is greater than for exports. the price elasticity of demand for exports is greater than for imports. the sum of the price elasticities for imports and exports is less than one. the sum of the price elasticities for imports and exports is greater than one.

A B C D

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1.25

All of the following are benefits which all countries will gain from the adoption of a single currency such as the Euro, EXCEPT which ONE? Reduced transactions costs. Increased price transparency. Lower interest rates. Reduced exchange rate uncertainty.

A B C D

1.26

Compared to a fixed exchange rate system, an economy will benefit from a flexible exchange rate system because it enables businesses to vary their export prices. the government will not have to deflate the economy when balance of payments deficits occur. it reduces the cost of acquiring foreign exchange. it ensures that businesses never become uncompetitive in international markets.

A B C D

(Total = 52 marks)

November 2001

FECB

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