BF 160: ECONOMICS

BANKING AND FINANCE CERTIFICATE

9th APRIL 2015 TIME ALLOWED: 3 HOURS + 15 minutes reading time

INSTRUCTIONS TO CANDIDATES:

1. Read the instructions on the cover of the Answer Booklet.

2. There are Nine (9) questions in this paper. Answer any five (5) questions.

3. Each question is worth Twenty Marks. The number in the brackets after a
question, or part of a question, shows the marks allocated.

4. You are reminded that orderly presentation and clear writing are essential in
your answers.

5. Silent, non – programmable calculators only may be used in this Examination,

where or not you use a calculator is in your interest to show your calculations.

6. No books, papers or any other aids may be used in this examination.

PLEASE TURN OVER

1
QUESTION ONE
The Table below illustrates the output and fixed costs per week of Simbangala
Foods Limited of Mongu which produces Mango Juice:

Output Per Week Fixed Cost Total Variable Total

(Units) (FC) Cost (TVC) Cost (TC)

0 10,000
10 10,000
20 10,000
30 10,000
40 10,000
50 10,000
60 10,000
70 10,000
80 10,000
90 10,000
100 10,000

(a) Calculate and complete the columns for Total Variable Cost (TVC) and
Total Cost (TC) (10 Marks)

(b) What is the meaning of the following concepts in relation to Simbalanga

Foods Limited? Give at least one example of each.

(i) Variable Costs (5 Marks)

(ii) Marginal Cost (5 marks)

[Total Marks: 20]

2
QUESTION TWO

(a) Mention and describe any five of the conditions necessary for Perfect
Competition to exist and hold. (5 Marks)

(b) What is the meaning of the term Elasticity of Supply of a good in

Economics? (6 marks)

(c) Discuss any three factors determining the Elasticity of Supply.

(9 Marks)

[Total Marks: 20]

QUESTION THREE

(a) Monetary Economists usually talk about acceptability as one quality that
money must have, otherwise if people are no longer willing to trust
money and therefore refuse to accept the Kwacha in exchange for goods
and services, then the Kwacha becomes useless.

(i) Mention any five other qualities that add to usefulness of money

(5 Marks)

(ii) Mention any five relatively few generally acceptable currencies

which are used in International Trade: (5 Marks)

(b) In Zambia, the monetary aggregates are divided into Narrow Money and
Broad Money. Explain the elements included in the symbolic
representations below:

(i) MO (2 Marks)
(ii) NIBMI (2 Marks)
(iii) M2 (2 Marks)
(iv) M4 (2 Marks)
(v) M5 (2 Marks)

[Total Marks: 20]

3
QUESTION FOUR

(a) What is meant by the concept Gross Domestic Product in the Zambian
economy?
(4 Marks)

(b) Discuss the reasons why it is necessary to calculate National Accounts?

(6 Marks)

(c) Describe any five main limitation which economists encounter when
calculating National Accounts in a developing economy such as Zambia.
(10 Marks)

[Total Marks: 20]

QUESTION FIVE

Economists often argue that the main inheritance each successful Government
gains from its predecessor in Africa is the National Debt. The incoming
Government is often burdened with paying back the debt.

(a) Explain how Government can raise money to pay back the national debt
and at the same time raise revenue to provide social services needed by its
citizens. (6 Marks)

(b) What are the disadvantages of direct taxes?

(6 Marks)

(c) Discuss Adam Smith’s four “Canons of taxation”? (8 Marks)

[Total Marks: 20]

4
QUESTION SIX

(a) Developing economies are facing problems as those aspects which

fundamentally limit the satisfaction of unlimited wants with scarce
resources, so that full satisfaction is impossible and choices to be made
between competing claims on those resources are aggravated by
inefficiencies in the production system.

(i) Discuss any three such distinctive economic problems which afflict
developing economies like Zambia? (5 Marks)

(ii) Explain a scenario where despite claims by policy makers that

there is economic growth in an economy and yet the majority of its
citizens are walloping in abject poverty.
(5 Marks)

(b) Monetary Theorists view Trade Unions as generally “spoilers” to an

economy who do not allow the ability of firms to survive and expand in
competitive world markets.

Clearly indicate the main problems associated with Trade Unions that
prevent business firms to survive and make business production less
profitable? (10 Marks)

[Total Marks: 20]

5
QUESTION SEVEN

(a) What is Invisible Trade? ( 4 marks)

(b) Describe any three elements of Invisible Trade? ( 6 marks)

(c) Discuss the main causes of persistent Current Account deficits?

( 5 marks)

(d) Mention any five factors that Zambia can use to remedy her
Balance of Payments deficit. ( 5 marks)

[ Total marks :20]

QUESTION EIGHT

(a) Distinguish between a Fixed Exchange Rate and a Floating Exchange

Rate? (5 Marks)

(b) Give any reasons why the European Union established a single European
Currency? (6 marks)

(c) Discuss any three main dangers of Trade Protection? (9 Marks)

[Total Marks: 20]

END OF EXAMINATION