Fundamentals of Economics. 2 September Exam Paper. Time: 2.5 hours

Transcription

1 Fundamentals of Economics September 01 Exam Paper Section A Section B Answer ALL questions from this section. Answer any TWO () questions from this section. Clearly cross out surplus answers. Failure to do this will result in only the first TWO () answers being marked. Time:. hours The maximum mark for this paper is 100. Any reference material brought into the examination room must be handed to the invigilator before the start of the examination.

2 Section A Answer ALL questions from this section Question 1 Explain what is meant by the term scarcity in elementary economic theory. 3 Define briefly what is meant by the term the economic problem. 3 c) What is meant by the term opportunity cost? d) Distinguish briefly between the terms micro-economics and macro-economics. Question i) State FOUR () assumptions necessary for perfectly competitive conditions to hold. ii) Define what is meant by the term monopoly firm. 1 Discuss what the diagram below shows about a perfectly competitive firm. 3 Page of Fundamentals of Economics NCC Education Limited 01

3 Question 3 Draw and label a diagram of the circular flow of income in a simple two sector model of the economy. If one adds the government and international trade sectors to the diagram above identify the different flows of income or economic activity that would need to be added to the diagram. Question Draw and label a version of the simple Phillips Curve. 3 What did the simple Phillips curve suggest about the relationship between aggregate demand and inflation in an economy? c) What happened in the 1970s that cast doubt on the message of the simple Phillips curve? d) Draw and label the long run Phillips Curve. 3 Question Provide the formula by which price elasticity of demand is measured. Identify the main issues which affect a product s price elasticity of demand. c) Explain the difference between price elastic and price inelastic demand Page 3 of Fundamentals of Economics NCC Education Limited 01

4 Section B Answer any TWO () questions from this section Question i) Draw and label a simple supply and demand diagram. ii) In the context of the diagram define the following terms demand supply equilibrium price 1 iii) Identify the main factors that lie behind and determine the position of a demand curve. iv) Identify three factors that lie behind and determine the position of a supply curve. i) Draw and label a diagram showing a short run average cost curve and its corresponding marginal cost curve. 3 3 ii) Explain the relationship between the two curves in the diagram above iii) Define marginal cost. 1 iv) Define average cost. 1 v) Define the short run Total Page of Fundamentals of Economics NCC Education Limited 01

5 Question 7 Draw and label a diagram showing the long run equilibrium position of a monopoly firm. i) Define a monopolistically competitive industry and state two of its features. ii) Draw and label a diagram showing the long run equilibrium position of a monopolistically competitive firm. iii) Comment on and briefly explain the differences between the monopoly firm s long run equilibrium position and that of the monopolistically competitive firm. c) Explain briefly how the kinked demand curve might help explain why prices are relatively stable in an oligopolistic industry. Total Question 8 Identify three different ways in which the overall economic activity of an economy can be recognised and measured in the context of the circular flow model of income. Using an appropriate diagram of the consumption function, explain the determinants of household consumption in a simple Keynesian model of the economy. c) Explain how the simple Keynesian model of the economy understands the relationship between firms planned investment and the current level of income in the economy. 3 d) i) Draw and label a diagram showing macro-economic equilibrium in a simple two sector Keynesian model of the economy. ii) Explain what is meant by macro-economic equilibrium in the diagram above and discuss how the model assumes the economy moves to that equilibrium position. iii) Explain what is meant by the term involuntary unemployment in the context of the above model/diagram. Total Page of Fundamentals of Economics NCC Education Limited 01

6 Question 9 i) Identify the four () main functions of money. ii) Define the term liquidity. iii) Explain how banks are able to create money and thus expand the money supply. Use a numeric example to support your explanation. i) State the formula for the quantity theory of money and define each term within it. 9 ii) Explain how monetarist economists would interpret the formula in terms of causes of inflation. Total Question 10 i) Define fiscal policy. ii) Define monetary policy. iii) Explain in detail how lower interest rates might be expected to lead to a higher level of economic activity. i) Explain the difference between a government s budget deficit and government debt. 10 ii) Describe the major problems or constraints that face fiscal policy. 7 Total End of paper Page of Fundamentals of Economics NCC Education Limited 01