Certificate in Accounting and Finance Stage Examination

22 February 2021
3 hours – 95 marks
Additional reading time – 15 minutes

Introduction to Economics and Finance

Instructions to examinees:
(i) All the Questions are compulsory.
(ii) Answer in black pen only.

Section A

Q.1 (a) Mixed economy is a system in which free markets coexist with government
intervention. Explain the role of the government in a mixed economy. (06)

(b) Economic problems affect different agents within an economy in different ways. Define
four main types of such agents in an open economy. (04)

Q.2
(a) Define the term ‘Land’ as a factor of production. (02)

(b) Draw and briefly explain the "Production Possibility Curve". (08)

Q.3
(a) Briefly discuss the important features of Islamic economic system’. (04)

(b) Differentiate between substitute goods, complementary goods and independent goods,
give two examples of each. (06)

Q.4
(a) What is the usual shape of demand curve and why? (04)

(b) With the help of schedule and diagram, explain the determination of price in a market
economy. (06)

Q.5 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs). Each MCQ carries ONE mark.

(i) Which one of the following is a basic economic problem?

a) Unlimited wants and scarce resources

b) Lower incomes and higher indirect taxes
c) Unemployment and inflation
d) Recession

(ii) The curvature of the Production Possibility Curve is due to:

a) change in opportunity cost

b) increase in resources
c) decrease in demand
d) decrease in supply
 Introduction to Economics and Finance Page 2 of 4
(iii) The supply curve of a factor for a firm that is in perfect competition in the input market
is:

a) elastic
b) inelastic
c) perfectly elastic
d) perfectly inelastic

(iv) The demand for and supply of a good are in equilibrium. An indirect tax is levied on
the good. Which one of the following will show the new equilibrium?

a) A shift in the supply curve to the right

b) A shift in the demand curve to the right
c) A shift in the supply curve to the left
d) A shift in the demand curve to the left

(v) Which one of the following statements about the elasticity of supply is not true?

a) It tends to vary with time.

b) It is a measure of the responsiveness of supply to changes in price.
c) It is a measure of changes in supply due to greater efficiency.
d) It tends to be higher for manufactured goods than for primary products.

(vi) From the demand schedule below, the price elasticity of demand following a fall in
price from Rs 25 to Rs. 20 is:

Quantity
Price (Rs.) (units)
30 15
25 20
20 25
15 30

a) -1
b) -1.25
c) -1.50
d) -1.75

(vii) The income elasticity of demand for an income inferior good has an arithmetic sign.

a) Positive
b) Zero
c) Negative
d) No sign

(viii) If the American dollar is overvalued relative to the Pakistan rupee:

a) Pakistani goods are cheaper than US goods.

b) the Pakistan rupee is undervalued relative to the dollar.
c) the rupee price of the dollar must rise.
d) the cost of Pakistani goods in the United states must be increasing.

(ix) Which of the following measures would immediately increase the cost of imports?

a) Tariff
b) Quota
c) Embargo
d) Subsidies
 Introduction to Economics and Finance Page 3 of 4
(x) The 'current account' of the balance of payments includes all the following items
EXCEPT which ONE?

a) The inflow of capital investment by multinational companies

b) Exports of manufactured goods
c) Interest payments on overseas debts
d) Expenditure in the country by overseas visitors

(xi) Which of the following might cause a country's exports to decrease?

a) A fall in the exchange rate for that country's currency

b) A reduction in other countries' tariff barriers
c) A decrease in the marginal propensity to import in other countries
d) A rise in that country's imports

(xii) Which ONE of the following would appear as a DEBIT item on the current account of
the balance of payments?

a) Payment of interest on debts owed to overseas commercial banks

b) Expenditure by tourists visiting the country
c) Overseas capital investment by domestic companies
d) Repayment of debts to overseas central banks

(xiii) Which of the following does not engage in the buying and selling of shares in other
companies?

a) Investment trusts
b) Stock exchanges
c) Insurance companies
d) Pension funds

(xiv) Which of the following occurs within a traditional money market?

a) the issue of sterling certificates of deposit

b) interbank lending in the sterling inter-bank market
c) discount houses buying short term government debt in the discount market
d) local authority borrowing in the euro-currency market

(xv) Index price of exports ÷ Index price of imports is equal to:

a) Balance of trade
b) Balance of payment
c) Terms of trade
d) Inflation
(15)

Q.6
(a)
With the drop in price of smartphones from Rs. 80,000 to Rs. 70,000, the quantity demanded
by the consumers, in a particular market, increases from 20,000 phones to
30,000 phones per month. Calculate the elasticity of demand under percentage method
and identify the type of elasticity. (03)

(b) State the meaning of ‘price elasticity of supply'. Briefly discuss different types of elasticity of
supply. (07)
 Introduction to Economics and Finance Page 4 of 4

Q.7
(a) What do you understand by ‘J curve’? Explain with the help of a ‘J curve’, how in the short-run
the account deficit may got worse before improving. (07)

(b) Governments often seek to achieve certain objectives by influencing the exchange rates. Identify
any three such objectives. (03)

Q-8
(a) Balance of payments is a combination of current account and capital/financial account. Briefly
discuss the components of:
--current account
--capital/financial account (10)

Q-9

(b) Define capital market and list any four types of organizations that operate in the capital (05)
market
(c) Briefly explain Equity Instruments as mentioned in Capital Market (05)

(THE END)