MINISTRY OF EDUCATION

FIJI SCHOOL LEAVING CERTIFICATE EXAMINATION 2012

ECONOMICS

Time allowed: Three Hours

(An extra ten minutes is allowed for reading this paper.)

INSTRUCTIONS

1. Write all your answers in the Answer Book provided.

2. Write your Index Number on the front page and inside the back flap of the Answer Book.

3. If you require more paper, ask the supervisor for extra sheets. Tie these inside the Answer
Book at the appropriate places.

4. You may use a calculator, provided it is silent, battery-operated and non-programmable.

5. There are three sections in this paper. Sections A and B are compulsory.
Note the choices in Section C.

SUMMARY OF QUESTIONS
Section Guidelines Total Suggested
Mark Time

A There are thirty multiple-choice questions. 30 54 minutes

All the questions are compulsory.

B There are eight short-answer questions. 50 90 minutes

All the questions are compulsory.

C There are six essay questions. 20 36 minutes

Answer any two questions.

COPYRIGHT: MINISTRY OF EDUCATION, REPUBLIC OF FIJI, 2012.

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SECTION A [30 marks]

The multiple-choice questions in this section are all compulsory. Each question is worth 1 mark.

INSTRUCTIONS FOR MULTIPLE - CHOICE QUESTIONS

1. In your Answer Book, circle the letter which represents the best answer. If you change
your mind, put a line through your first choice and circle the letter of your next choice.

For example: 8 A B C D

2. If you change your mind again and like your first answer better, put a line through
your second circle and tick ( ) your first answer.

For example: 8 A B C D

3. No mark will be given if you circle more than one letter for a question.

1. The economic problem faced by all economies is

1. inflation.
2. unemployment.
3. scarcity of resources.
4. overseas trade balance.

2. Economic systems were designed primarily to

1. promote environment friendly economic policies.

2. provide answers to economic decisions or problems.
3. improve technology through research and development.
4. stabilize political instabilities which affect economic development.

3. Which type of economic system was the Soviet Union (USSR) following before it changed to
free enterprise?

1. agrarian economy
2. laissez-faire economy
3. centrally planned economy
4. highly industrialised economy
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4. One of the features of the pre-contact period in Fiji was the

1. abundance of resources.
2. use of wood and stone technology.
3. existence of laissez-faire economy.
4. absence of trade with Pacific neighbours.

5. The allocation of resources during the post-independence period in Fiji was determined by

1. chiefs and government.

2. consumers and producers.
3. consumers, traditions and businesses.
4. government, traditions and consumers.

6. For consumers to be at the equilibrium point, the optimum purchase should be

1. P = MU
2. P > MC
3. TR = TC
4. MC = MR

7. Which of the following is the main characteristic of agricultural production in Fiji?

1. crop and livestock rearing

2. mechanisation of large estates
3. self-sufficiency in domestic food
4. communes and state-owned farms

8. An important feature of tourism in Fiji is that it is dependent on the

1. foreign sector for investment.

2. domestic market for capital input.
3. foreign sector for its labour input.
4. domestic market for entrepreneurial ability.

9. A possible reason why the demand curves for airline flights to overseas countries
may move to the right is an increase in the

1. price of overseas flights.

2. price of overseas accommodation.
3. price of domestic holiday accommodation.
4. number of airlines which provide overseas flights.

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10. If a decrease in the price of Good A causes the demand curve for Good B to move
to the left, then

1. Good B must be inferior.

2. Good B must be independent.
3. Goods A and B are substitutes.
4. Goods A and B are complementary.

11. Which of the following is not a feature of the Private Limited Company?
1. shareholders have limited liability
2. a company that is listed on the stock exchange
3. a company that is owned by shareholders all over the world
4. shareholders have no say in the day to day administration

12. In the month of May, a grocery shop made a net profit of $1 800 and the owner withdrew
$300 from the business. If the opening capital was $2 500, the closing capital would be

1. $2 200
2. $4 000
3. $4 300
4. $4 600

13. The most likely source of long-term finance for a sole trader is
1. a bank loan.
2. an overdraft.
3. trade creditors.
4. a government loan.

14. Singh insured his house for its full value of $50 000 from the beginning of 1984.
The market value for his property at present is $45 000. A recent flood has caused
$30 000 worth of damages to his house. How much money can he claim for the damages?

1. $20 000
2. $30 000
3. $45 000
4. $50 000

15. Which of the following statements about cost in the short–run is correct?
1. As output rises, fixed cost falls.
2. As output rises, variable cost falls.
3. There is no fixed cost when output = 0
4. There is no variable cost when output = 0

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16. Which of the following statements is true about the marginal cost (MC)?

1. In the short-run, supply curve is MC curve.

2. If marginal cost is rising, average cost is also rising.
3. MC = the change in total cost resulting from an extra unit of output.
4. MC = Average Cost and Average Variable Cost at their maximum points.

17. Which of the following services in Fiji is provided by a public corporation?

1. banking
2. transport
3. electricity
4. telecommunications

18. A reduction in the wholesale production cost has been greatly facilitated by

1. packaging.
2. advertising.
3. merchandising.
4. containerisation.

19. Which of the following statements best describes consumer surplus?

1. The additional utility when an extra good is purchased.

2. The excess that consumers demand beyond what the market supplies.
3. The difference between the prices paid for a good and its marginal utility.
4. The satisfaction that consumers get when consuming high-quality goods.

20. Which of the following is a characteristic of a monopolistic competitive firm?

1. The supplies are very large in size.

2. All the firms are selling different products.
3. Its demand curve is perfectly elastic.
4. The products sold are identical in nature.

21. When talking about Gross Domestic Product (GDP), which of the following statements
is correct?

1. GDP measures the quality of life.

2. Inflation has an effect on real GDP, but not on nominal GDP.
3. Measuring by the income and expenditure methods should result in the same amount.
4. Measuring by the production method means adding up the value of all goods and
services produced.

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22. The fall in interest rates would cause the public to transfer their funds from term deposits at
registered banks to their cheque accounts. Which of the following would occur?

1. M1 and M3 will both increase.

2. M1 increases, M3 stays the same.
3. M1 decreases, M3 stays the same.
4. M3 decreases, M1 stays the same.

23. Which of the following actions by government is most likely to increase the transactions
demand for money?

1. having a balanced budget

2. raising the rate of sales tax
3. raising the rate of income tax
4. increasing subsidies on essential goods

24. A government is likely to lead its economy into inflation if it

1. introduces a budget deficit.

2. introduces a budget surplus.
3. encourages people to use their credit cards.
4. intervenes in the foreign exchange market.

25. If $NZ1.00 buys $AU0.90, then $AU1.00 buys

1. $NZ0.90
2. $NZ1.00
3. $NZ1.11
4. $NZ1.90

26. Under a flexible exchange rate regime, the exchange rate is determined by

1. the pegged exchanged rate system.

2. the Central Bank and its related department.
3. floats which are managed by the Central Bank.
4. forces of demand and supply in the foreign exchange market.

27. Foregoing current consumption in order to increase production of consumer durables is

known as capital

1. goods.
2. production.
3. consumption.
4. accumulation.

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28. A nation can expand its productive capacity by

1. raising factors of production prices.

2. restricting import of investment goods.
3. increasing the quantity of its resources.
4. raising taxes on foreign investment companies.

29. Economic development as compared to economic growth is

1. focused on changes in real GDP.

2. the increase in GDP plus change.
3. a measure in real GDP per capita.
4. concerned with the real GDP only.

30. Which of the following is not an economic indicator?

1. crime rate
2. unemployment
3. consumer price index
4. Gross Domestic Product

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SECTION B [50 marks]

There are eight questions in this section. Answer all the questions.

QUESTION 1 (5 marks)
(a) (i) State two assumptions of the two-sector-flow model. (1 mark)

(ii) Describe how the relationship of interdependence and specialisation

exist between households and producers. (2 marks)

(2) Entrepreneurs have a positive effect on employment and living standards.

(i) List two skills of entrepreneurs. (1 mark)

(2) State two positive effects of entrepreneurs on employment and

living standards. (1 mark)

QUESTION 2 (8 marks)

(1) Use the information given below to answer the questions that follow.

PRODUCTION GROUPS AND THEIR CONTRIBUTIONS TO THE

FEDERAL GOVERNMENT OF BULALANGDP’SIN 2003

PRIMARY 9%
(Agriculture, fishing, forestry, mining)

SECONDARY 28%
(Manufacture of food, textiles, wood products, paper products,
chemical, plastic, metal products etc.)

TERTIARY 49%
(Electricity, gas and water, trade, restaurants and hotels,
transport communications, financing and insurance etc.)

NON-MARKET PRODUCTION GROUPS 14%

(i) Define the term production. (1 mark)

(ii) Is Bulaland a developed or developing country?

Give a reason for your answer. (1 mark)

(iii) Explain how productivity can be decreased by diseconomies of scale. (2 marks)

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(b) State two issues that have greatly affected the local sugar industry. (1 mark)

(3) Use the article below and your knowledge to answer the questions that follow.

The mining industry has always had an effect on the rest of the economy.
Gold rushes lead to an increase in population and bring about the need for
additional infrastructure. Industries are set up to supply machinery and
transport for the mines. Towns grow to provide commercial and service
industries. The surrounding farming industries benefit from the towns as
well. However, latest global figures reveal that employment in the mining
industries decline steadily despite the growth in the mining sector.

Source: Economic Fundamentals Vol 1, William Boyes, 1999.

(i) Explain why mining is an example of an extractive industry. (1 mark)

(2) Explain why employment has declined in the mining industries over the years. (1 mark)

(3) State two examples of auxillary industries that benefit from the development
of mining activities. (1 mark)

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SECTION B (continued)

QUESTION 3 (3 marks)

Study the extract given below to answer the questions that follow.

EXPIRY DATE
Selling expired products or placing new labels on expired dates of food products
is a huge problem in Fiji. This is a breach of food safety laws of the country.
The Council finds this practice rife in the market. Traders who sell expired or
bad food products are profiteering and putting health a
at risk.

A good example is a recent complaint received by the Council against a Spice

Shop in Lautoka. This shop had replaced the original expiry date (08/2009) on the
label of sesame oil by placing a sticker with a new expiry date (01/10/2014).

While the shop had refunded the complainant, the Council’s surveill
team found other expired products with tampered labels in the shop. Despite
being warned by Lautoka City Council, the shop continued to sell expired products.

Source: Consumer Watch 25, June 2011.

(1) Identify the issue highlighted above and state why it is of great concern in
today’s. economy (1 mark)

(b) Identify the consumer right that is violated in the above extract. (1 mark)

(c) What advice should be given to the consumers based on the experiences
mentioned above? (1 mark)

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QUESTION 4 (8 marks)

(a) (i) Explain the term market as a place. (1 mark)

(ii) In the context of market, competition has both advantages and

disadvantages.

Define the term competition and give one advantage of it. (1 mark)

(2) Study the graph below and answer the questions that follow.

Market for Milk

$
J Supply
Supply + Subsidy
K T
L U

M R

N V

O W X Quantity (units)

If the government provides a subsidy on milk, which letter(s) represent(s) the

(1) new market price.

(2) cost to the government.

(3) gain in consumer surplus.

(4) new level of producer revenue.

(2 marks)

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SECTION B (continued)

(3) Use the information from the graph given below to answer the questions that follow.

Costs/
Revenues
$ MC
60
AC
50
AVC
40

30

20
D
10

10 20 30 40 50 60 70 Quantity (units)

(i) Complete the supply schedule table given in your Answer Book. (2 marks)

(ii) Identify the break-even output and the break-even price. (1 mark)

(iii) Name the type of market structure shown in the graph. (1 mark)

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QUESTION 5 (4 marks)

(1) Use the diagram below to calculate GDP using the Expenditure Approach.
Show all workings using the appropriate symbols and formulas. (2 marks)

Circular Flow Diagram (Figures in $ millions)

Financial
Sector

S I=$60 (includes change in stocks)

M=$35
Household C=$150 Producer Overseas
Sector Sector X=$30 Sector
IT=$25
G=$40

Tr = $25 Government
Sector T

(2) The table below shows the Nominal and Real GDP trend for Country Y.

Country Y: Nominal and Real GDP trend: 2002 to 2005

Year Nominal GDP Real GDP GDP deflator

(Millions of dollars) (Millions of dollars) (1991=100)
$ $
2002 228 (i) 95
2003 (ii) 250 100

2004 273 260 (iii)

2005 (iv) 280 107

Calculate the missing values for (i) –(iv). (2 marks)

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SECTION B (continued)

QUESTION 6 (7 marks)

(1) Use the information below to answer the questions that follow.

Government Finances in Tropicana-2009

health
20%

(i) State two reasons why a government budget is important. (1 mark)

(ii) Which item in the graphs contains indirect tax? (½ mark)

(iii) How much of Tropicana's budget in 2009 was spent on development

projects? (½ mark)

(4) Give one way in which Tropicana can benefit from undertaking
development projects. (½ mark)

(v) Name the source from which Tropicana earns most of its revenue. (½ mark)

(vi) Calcuate the size of the budget deficit for Tropicana in 2009. (1 mark)

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(2) The explanations of a good taxation system and its features are given below.

Match the explanations with their correct taxation features by

writing the letter of your choice beside each numeral in the Answer Book.

Explanations Taxation features

(i) Method of raising money should A. Benefit

be straight forward so that our tax
liability is easy to understand and
calculate.

(ii) If we must pay, we should be allowed B. Certainty

to do so in the least-burdensome way.

(iii) As tax payers, we should know just C. Convenience

what we have to pay.

(iv) Those with high incomes have the D. Difficult to avoid

ability to pay taxes without suffering
undue hardship.

(v) People should pay tax in proportion to E. Economics

the returns they receive.

(vi) Possibility of heavy fines and penalties F. Equity

for tax evasion may also act as a deterrent.

G. Simplicity

(3 marks)

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SECTION B (continued)

QUESTION 7 (7 marks)

(1) Use the diagram below to answer questions (i) and (ii).

interest 7% Financial Institutions interest 11%

Saving Borrowing

(1) Financial institutions charge borrowers higher rates of interest than they
offer to savers. Explain why the financial institutions behave this way. (1 mark)

(ii) Define interest as used in the diagram. (1 mark)

(b) Use the equation MV= PQ to answer this question.

If GDP = $1 000m and V= 5, calculate the value of M.

(Show yourl workings.) (2 marks)

(3) The Oceanic Government announced plans to grant $120 million to the western
part of the country for business development.

Complete the diagram to show the first two steps of the effect of the $120 million
injection in your Answer Book. Assume that banks have a prudential reserve ratio
of 20%.
CREDIT CREATION

Deposits $m
Initial Injection 120
Reserves $m
Step 1
Advances $m

Reserves $m
Step 2
Advances $m

(3 marks)
© MINISTRY OF EDUCATION, FSLCE
2012: ECONOMICS.
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QUESTION 8 (8 marks)

(1) Study the information for a hypothetical economy below and

answer the questions that follow.

Balance of Payment
Details $ million
Exports of goods 11 491
Exports of services 3 357
International investment income (nett) –2 383
Imports of goods 10 513
Imports of services 488
Balance of transfers 239
Non-official capital flow (nett) 797
Net official borrowing 6 557

Calculate the following (show all workings):

(i) Balance of trade (1 mark)

(ii) Balance on invisibles (2 marks)
(iii) Balance on the current account (1 mark)
(iv) Balance on the capital account (1 mark)
(v) Balance of payment (1 mark)

(2) Given below are the Pacifica's Foreign Exchange Rates from the months of
May and June 2011.

May 2011: PD $1.00 = NZD$0.85

June 2011: PD $1.00 = NZD $0.83

Note: PD-Pacifica Dollar NZD-New Zealand Dollar

(1) What has happened to the value of the Pacifica Dollar over the period
shown above? (½ mark)

(ii) Which currency is stronger? (½ mark)

(3) Based on your answer to (i) above, describe the effect of the trend on the
exporters of crop from Pacifica to New Zealand. (1 mark)

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SECTION C [20 marks]

There are six questions in this section. Answer any two questions. Each question is worth
10 marks. Write an essay of approximately 200 –250 words to answer each question.

Note that for each question, 1 mark is allocated for the structure and style of the essay.

QUESTION 1

For long-term sustainable development, economists often argue that Fiji holds a
comparative advantage in the primary industries.

Discuss the above statement under the following guidelines:

 three problems caused by relying heavily on agriculture; (3 marks)

 three factors determining employment in agriculture; and (3 marks)
 three examples of technological improvement which have
added to agricultural productivity. (3 marks)

QUESTION 2

Multinational businesses play a vital role in the development of developing countries.

Discuss the above statement in the light of any:

 three importance of multinational business to any developing economy. (3 marks)

 three advantages of investment by multinational businesses; and (3 marks)
 three disadvantages of investment by multinational businesses in a developing
economy. (3 marks)

QUESTION 3

Structural adjustment policies are put in place to promote and maintain Fiji's
international competitiveness.

Discuss the above statement with reference to:

 any three structural programmes or policies put in place by the government to

maintain and promote Fiji's economy; (3 marks)
 the three changing roles of government in modern economies; and (3 marks)
 the three importance of capital, entrepreneurship and productivity in the growth
of an economy. (3 marks)

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QUESTION 4

A monopoly, like any other type of market structure, has its own positive and negative effects.

Discuss the above statement with reference to:

 any three features of monopoly market; (3 marks)

 how government regulates a monopoly in order to achieve allocative
efficiency; and (3 marks)
 profit maximisation of this market structure (illustrate with graph). (3 marks)

QUESTION 5

Trade comes in different forms; domestic, international free trade, bilateral and multilateral.

Discuss the above statement with reference to any:

 three importance of engaging in international trade. (3 marks)

 three reasons a country needs to trade internationally; and (3 marks)
 three ways of restricting international trade. (3 marks)

QUESTION 6

Economic growth and sustainable economic development are different in definitions

and applications.

Discuss the above statement with reference to:

 the difference between economic growth and sustainable economic development; (3 marks)
 any three factors that hinder economic growth; and (3 marks)
 any three problems encountered in measuring economic growth. (3 marks)

THE END

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COPYRIGHT: MINISTRY OF EDUCATION, REPUBLIC OF FIJI, 2012.