Economics for Business Revision 1

1. If the demand curve for good A is negatively sloped, a fall in the price of a substitute good B results in A) An increase in the quantity demanded of good A C) A leftward shift in the demand curve for good B 2. A necessary condition for a mixed economy is that there are A) Public and Private sectors C) Primary, secondary and tertiary sectors B) Capital and consumer good sectors D) Heavy industries and light industries B) A rightward shift in the demand curve for good A D) A leftward shift in the demand curve for good A

3. As the process of globalization increases, typical businesses will A) B) C) D) Have to raise more capital from internal sources Be more and more affected by changes in exchange rates Have less need to increase their international competitiveness Depend more and more on their domestic markets

4. All of the following would lead to fall in the circular flow of national income except which one?] A) A reduction in the level of government expenditure C) A fall in business investment B) A rise in personal savings rates D) A rise in the average propensity to consume

5. As a result of a period of rapid economic growth, an economy is likely to experience all of the following except which one? A) Falling levels of unemployment C) Increased inflationary pressure B) An improving overseas trade balance D) Rising government tax receipts.

6. On an aggregate demand and aggregate supply diagram, cost-push inflation is shown by A) B) C) D) A rightward shift of the aggregate demand curve A leftward shift of the short-run aggregate supply curve A rightward shift of the long-run aggregate supply curve A leftward shift of the aggregate demand curve

7. If a country were to join a currency union (for example, the European single currency, the Euro), its businesses would experience all of the following except which one? A) B) C) D) Exchange rate certainty Reduced transaction costs on overseas transactions A common monetary policy Reduced price transparency

8. Which is the following is an example of fiscal policy? A) B) C) D) The Bank of England imposing controls on bank lending The creation of tax-exempt Individual Savings Accounts (ISAs) The removal of regulations which restrict Sunday trading The removal of foreign exchange controls which restrict the transfer of currencies between countries.

9. Other things being equal and assuming that the UK is a net oil exporter and that the demand for UK oil overseas is price inelastic, a substantial increase in the world price of oil would tend to] A) B) C) D) Improve the UKs balance of payments on current account Improve the price competitiveness of manufacturing firms in the UK Cause the UKs terms of trade to deteriorate Increase GDP but not GNP in the UK

10. Which of the following can be efficiently allocated between competing uses by the price mechanism? A) Externalities B) Free goods C) Private goods D) Public goods

11. What is meant by the term mezzanine finance? A) B) C) D) Short-term loans to help a firm through a cash flow crisis Finance that is neither pure nor pure equity Loans made by non-financial institutions Loans made in foreign currency

12. Which theory of the firm is described by the following statement? The decisions of management are the result of a political maneuvering of the various stakeholders connected to the organization. A) Behavioral B) Profit maximizing C) Satisficing D) Managerial

13. If a country has an absolute advantage in the production of all goods then A) B) C) D) Trade will take place and all the participating countries will gain from it No trade will occur because it has a comparative advantage in all goods Trade may take place, but this country will make no gains from it. Trade may take place, but this country will be the only one which gains from it.

14. A train company acknowledges that externalities may reduce the welfare of its customers when it provides A) Reserved seats for disabled passengers C) Smoking and non-smoking carriages B) Discounted prices for season-ticket holders D) Restaurant cars in its trains

15. Which of the following make effective control of the money supply difficult? (i) (ii) (iii) (iv) Most forms of money are liabilities of the private sector rather than liabilities of the central bank The government refusing to grant full operational independence to the central bank Financial assets previously functioning as near money may become money At times the demand for money may be unresponsive to interest rate changes B) (ii) and (iv) only C) (i) and (iv) only D) (i), (ii) and (iv) only

A) (ii), (iii) and (iv) only

16. Whenever demand for a good is price elastic, an increase in price will A) B) C) D) Increase monopoly power Decrease total consumer expenditure on the good Increase consumer expenditure on a good in joint demand Increase in consumer expenditure on the good

17. One of the results of scarcity is that A) Opportunity costs area factor of production C) Economic choices involve opportunity costs B) There are no such things as free goods D) Goods and services will be expensive

18. Which of the following functions is not performed by investment exchanges as NASDAQ, the London Stock Exchange or the New York Stock Exchange? A) B) C) D) A provider of regulation over assets and trading methods A primary market for newly issued private securities A secondary market to make existing shares liquid A lender of last resort to the banking system

19. The real rate of interest

.

A) B) C) D)

The rate of interest charged by banks on loans The rate of interest charged on loans plus administrative charges The compound rate of interest The nominal rate of interest adjusted for inflation.

20. If a firm increases employment of all its factors of production by 50% and as a result output increases by 60%, it has experienced. A) Increasing marginal productivity of labour C) Increasing returns to scale B) The benefits of the division of labour D) External economies of Scale.

21. Which of the following are not classed as a non-bank financial intermediary? A) Building Societies C) Investment exchanges B) Life insurance companies D) Finance houses

22. A consumption function has a constant average propensity to consume (APC) of 0.7. Which of the following statements is false? A) B) C) D) The multiplier will have a value of 3.33 MPC = APC The economy will be in macroeconomic equilibrium There is no autonomous consumption in the economy

23. For a good to be considered scarce in the economic sense, it is only necessary for it to A) Provide consumers with economic welfare C) Command a price B) Exist in small quantities D) Be unavailable in the shops

24. The production possibility frontier (curve) for a country will shift outwards (to the right) if A) investment increases the capital stock C) Consumer demand increases B) The economy moves towards full employment D) The general level of process fall

25. Governments provides public goods, such as street lighting, because A) B) C) D) It would be an unprofitable activity for private business because of the free-rider problem There are significant external costs in the production process Private business providers would exploit consumers and make excess profits Governments are more efficient producers of such goods.

26. An inferior good can be distinguished from a normal good because an inferior good has A) Negative price elasticity of demand C) Positive Cross price elasticity of demand B) Positive price elasticity of demand D) Negative income elasticity of demand

27. A surplus on the current account of the balance of payments can be financed by A) An inflow on capital on the capital account C) a surplus on the government Budget B) A fall in the foreign exchange reserves D) lending abroad on the capital account

28. Faced with falling prices and profits, a firm decides to leave one industry and move into another industry in which prices are rising, as are the profits of most forms already in the industry. Which of the following statements is correct? A) B) C) D) As a result of moving into the new industry, the firms profits must increase There can be no barriers to entry and exit separating the two industries The demand curve shifts rightward in the market into which the firm is moving This illustrates the incentive function of prices

29. A countrys currency depreciates (falls) on the foreign exchange market. All of the following would be the effects of this on businesses within the country except which one? A) B) C) D) Businesses would more easily compete with imported substitutes for their products. Businesses would face higher costs as price of imported goods rose. Businesses would lose income from each export as their export prices would fall. Businesses could keep the foreign exchange price of their exports constant and expand their profit margins.

30. Goods A and B are complementary goods because the cross elasticity of demand for A with respect to B is A) -0.5 B) 1.0 C) 0 D) Infinity

31. A country will have a comparative advantage in manufactured goods if A) B) C) D) wage rates in it manufacturing industry are low by international standards It has specialized in the production of manufactured goods It can produce manufactured goods at a lower opportunity cost than other countries It can produce manufactured goods at a lower absolute cost than other countries

32. A country will have a comparative advantage in manufactured goods if A) B) C) D) Wage rates in it manufacturing industry are low by international standards It has specialized in the production of manufactured goods It can produce manufactured foods at a lower opportunity cost then other countries It can produce manufactured foods at a lower absolute cost then other countries

33. Firms may suffer from X-inefficiency because of organisational slack. All of the following would lead to organisational slack except which one? A) Managers become more cautious C) Uncertainty about future demand B) A complex organizational structure in the firm D) The number of rival firms increases

34. Which of the following measures of national income would be most appropriate for assessing whether material standards of living have improved over the past 50 years? A) B) C) D) The rise in national income per capita measured in current prices The rise in real national income per capita The rise in nominal national income over the past 50 years The rise in real national income over the past 50 years

35. Which one of the following is not a source of economic growth? A) Investment in additional capital equipment C) Investment in stocks and shares B) The development of new technology D) Investment in human capital

36. Which one of the following would be an example of price discrimination? A) B) C) D) Petrol stations charging less for diesel fuel than for petrol British Telecom charging less for telephone calls made after 6:00 pm Economy class air fares being lower than first class air fares Women charged less then men to enter a night club

37. Which of the following is most likely to lead to a rise in the exchange rate of countrys currency and a fall in the price of stocks shares? A) B) C) D) Foreign investors purchasing shares on the country capital markets An increase in the rates of interest within the country An increase in the countrys money supply An increase in the defect in the countrys balance of payments on current account.

38. When a tax is imposed upon a commodity which the producers must pay to the government, this will cause the commoditys A) Demand curve to shift to the right C) Supply curve to shift to the left B) Supply curve to shift to the right D) Demand curve to shift to the left

39. All of the following statements about small firms are correct except one. Which statement is incorrect? A) B) C) D) Small firms are common in industries where there are niche markets Small firms are common in industries which display increasing returns to scale Small firms do not generally raise finance on the capital market Banks may refuse to lend to small firms because of the risk involved

40. Economic Rent is A) B) C) D) The price paid for the use of land Income above the level required to induce a given quantity of a factor to be supplied the transfer earnings of a factor of production The income required to induce a given quantity of a factor to be supplied

41. The Eurocurrency market is A) B) C) D) Markets within the European Union where foreign currencies are bought and sold The market for bank deposits denominated in a currency other than that of the country where the bank is located The market for bank deposits which can be switched into any currency at 24 hours notice. The market for the single European currency, the euro

42. The stock market fulfils all of the following functions except one? A) A market for short term loans C) A market for foreign exchange B) A market for company shares D) A market for government bonds

43. Identify the source if funds most appropriate for a growing company to use which wishes to borrow funds longterm to pay for initial marketing research and promotion. A) B) C) D) A debenture Overdraft A commercial bill Ordinary Shares

44. When the government intervenes in the market economy to correct a market failure A) B) C) D) In all cases the market mechanism ceases to function The problem of government failure may result The intervention has no opportunity cost Economic welfare always increases

45. The economists view that there is no such thing as a free lunch related to the application of: A) The concept of a merit good C) The price mechanism B) The concept of opportunity cost D) The level of public spending