2015 EXAMINATIONS ACCOUNTING TECHNICIAN PROGRAMME PAPER TC5: ECONOMICS

Transcription

1 EXAMINATION NO EXAMINATIONS ACCOUNTING TECHNICIAN PROGRAMME PAPER TC5: ECONOMICS TUESDAY 9 JUNE 2015 TIME ALLOWED : 3 HOURS 2.00PM PM INSTRUCTIONS 1. You are allowed 15 minutes reading time before the examination begins during which you should read the question paper and, if you wish, make annotations on the question paper. However, you are not allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. 2. Number of questions on paper The paper is divided into sections A and B. 4. FIVE questions ONLY to be answered; TWO from Section A and THREE from Section B. 5. Each question carries 20 marks. 6. Begin each answer on a fresh page. 7. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE INVIGILATOR. This question paper contains 7 pages This question paper must not be removed from the examination hall

2 Price 1 SECTION A Answer two questions only from this section 1. Carefully study the diagram below and answer the questions that follow it. Demand curve Supply curve 33 A B Quantity (a) State the difference between the following: (i) Demand and quantity demanded 2 Marks (ii) Supply and quantity supplied 2 Marks Compute the following: (i) Excess demand 2 Marks (ii) Excess supply 2 Marks (c) If 10 and 33 were legally established prices, name and define what A and B would stand for. Continued/

3 2 Based on your answer in (c) above, calculate the seller s total revenue when: (i) the price is Marks (ii) the price is Marks (iii) there is zero excess demand. 2 Marks (e) State two factors that can affect demand for a normal product. 2 Marks Continued/

4 3 2. The table below shows the quantity purchased of products A and B and household income level. Carefully study the table and answer the questions that follow it. Quantity purchased (A) Quantity purchased (B) Household income (a) Using the mid-point formula, calculate the income elasticity of demand: (i) for product A when household income decreases from 45 to 35. (ii) for product B when household income increases from 50 to 55. Grace argues that product A is inferior. Explain whether or not you agree with Grace. 2 Marks (c) Explain three factors which can affect the price elasticity of demand. 6 Marks Carefully study the following table showing the relationships among elasticity, price change and total revenue. Price elasticity of demand Change in price Total revenue Elastic Increases A Elastic Decreases Increases Unitary Increases No change Unitary Decreases B Inelastic Increases C Inelastic Decreases D Complete the areas represented by A, B, C and D.

5 Clinics 4 3. The figure below shows the production possibilities frontier (PPF) for an imaginary country intending to build clinics and school blocks. Carefully study the figure and then answer the questions that follow it. 22 B 11 A PPF School blocks (a) What does the PPF show? 2 Marks What is the opportunity cost of constructing 22 clinics? 2 Marks (c) Between points A and B: (i) (ii) Which one refers to a situation in which resources are inefficiently utilised? Give a reason for your answer. 2 Marks Which one can closely represent depression? Give a reason for your answer. 2 Marks (f) (e) With the aid of a clearly marked graph, explain two ways in which point B can be attainable. 5 Marks Explain two reasons why Malawi is likely to operate close to point A rather than close to the PPF. Name any three factors of production (resources) and mention how each is rewarded when put to use. Continued/...

6 5 SECTION B Answer three questions only from this section. 4. (a) You are given the following products: (1) A household cleaning service purchased by a family from a domestic cleaning services company. (2) A pair of gumboots sold to and to be used by a farmer. (3) A sheet of glass sold to a windscreen maker to be used for making windscreen. (4) Steaming coal used in the production of electricity. (5) Maize used to make floor at a certain factory in Mzuzu. Which of the above products are final and which are intermediate? Give a reason for each answer. 10 Marks (c) Using the basic circular flow model, explain why the value of businesses output of goods and services equals the income of households. A certain African economy produces final goods and services with a market value of $9 billion in a given year, but sells $8.5 billion worth of goods and services to domestic and foreign buyers. Explain whether or not this nation s GDP is $9 billion or $8.5 billion? Give three reasons why comparing the GDPs of various nations might not tell you which nation s people are better off. Continued/...

7 6 5. (a) Define the following concepts: (i) Inflation 2 Marks (ii) Consumer Price Index 2 Marks Suppose your annual income in 2014 was K49,500. Assume the base year for CPI was 2010 and the CPI in 2014 was 165. (i) Calculate your real 2014 income measured in (ii) The inflation rate in 2014 if CPI in 2013 was 149. (c) Outline three criticisms of the CPI as a measure of inflation. Suppose the annual nominal rate of interest on a bank fixed-term deposit is 9 per cent. What would be the real rate of interest if the inflation rate was 12 per cent? (e) Identify and explain any two disadvantages of inflation. Continued/

8 7 6. (a) Name four functions of money. Based on the functions of money named in (a) above, could each of the following items potentially serve as money? (i) A K10 bank note. 1 Mark (ii) Horses. 1 Mark (iii) Gold rings. 1 Mark (iv) A visa credit card. 1 Mark (v) A bank-certified cheque. 1 Mark (c) (e) What is the main difference between commodity money and fiat money? 2 Marks Suppose you remove K2,500 from your saving pot and deposit this amount into a bank. If the required reserve ratio is 10%, what is the maximum amount of loans that the bank can create from this deposit? Why do people want to hold (demand) money? List and explain three of their motives for holding money. 6 Marks 7. Fifty years after independence, Malawi remains one of the poorest countries in the world. Many private and public industries are dysfunctional leading to massive unemployment, particularly youth unemployment, in the country. (a) Explain the term unemployment. 2 Marks Identify and explain any three types of unemployment. 6 Marks (c) Explain any two negative effects of unemployment. (e) How would you link the technological improvement such as usage of tractors in the agriculture industry and structural unemployment? Explain two ways (policies)that the Malawi Government can adopt to help reduce youth unemployment. E N D