Economics past papers 2014 – 2016

Apphia Mendoza
Kaleb Evelyn
Jeremiah Walters
Nicholi Rampersad
Jenaya Neaves
Rashad Mcleod
 ECONOMICS
Paper 02 – General Proficiency
04 JUNE 2014 (a.m.)

SECTION I

Answer ALL FOUR questions in this section.

EACH question is worth 15 marks.

1. Table 1 shows the combinations of sugar and bananas that Country X is capable of
producing using ALL of its resources.

TABLE 1: PRODUCTION CAPABILITIES OF COUNTRY X

Combination Sugar (tons) Banana (tons)

A 0 40 000

B 1000 25 000

C 2000 15 000

D 3000 9 000

E 4000 0

(a) State the name of the curve that is normally used to represent the information in Table 1.

Answer: Production possibility curve (PPC)

(b) (i) Moving from combination A through E in Table 1, state if opportunity cost is
decreasing, increasing or constant.

Answer: Increasing
 (ii) State the maximum amount of sugar that can be produced if 40 000 tons of bananas
are produced.

Answer: 0

(iii) State TWO factors that would cause the curve identified in (a) above to shift
inwards.

Answer: A PPC will shift inwards when an economy has suffered a loss or exhaustion of
some of its scarce resources or a decrease in population

(c) Use the information given in Table 1 to determine whether for EACH of the production
combinations stated below, Country X is operating efficiently or not if it is currently
producing

(i) 2 000 tons of sugar and 15 000 tons of bananas

Answer: operating efficiently as all of the resources are being utilised

(ii) 1 000 tons of sugar and 15 000 tons of bananas. (2 marks)

Answer: operating inefficiently as there are idle resources

(d) Explain TWO factors that should be considered before opening an internet cafe.

Answer: Accessibility to the internet - An INTERNET cafe must have access to the internet
from an internet service provider to even start the business and write a simple business plan
which is a document that defines in detail a company's objectives and how it plans to achieve
its goals.

2. (a) Define the following terms:

(i) Economic system

Answer: An economic system is a means by which societies or governments organize and

distribute available resources, services, and goods across a geographic region or country.

(ii) Capital goods

Answer: Capital goods are the assets used by businesses in the course of producing their
products and services.

(b) Give ONE example of a capital item.

Answer: Machinery

(c) Explain TWO types of economies of scale that a person might gain by moving from
operating a small food stall to operating a big restaurant.
Answer: Internal economics of scale: Marketing economies - They are economies of scale
achieved via buying in bulk. That is, larger businesses more readily have the cash and output
to warrant buying materials in much larger quantities, which can bring them per-unit cost
advantages smaller businesses are otherwise unable to achieve.
Internal economics of scale: Financial economics of scale - large firms are considered less
risky and are therefore able to secure loans at lower rates of interest than small firms

(d) Table 2 shows the total cost of production of Firm A for each level of output.

TABLE 2: TOTAL COST OF PRODUCTION OF FIRM A

AT EACH LEVEL OF OUTPUT ABOVE ZERO

Quantity 0 1 2 3 4
(units)

Total cost ($) 10 20 30 45 68

Use the information in Table 2 to calculate:

(i) the average total cost (ATC) for output level 3

Answer: ATC = Total cost of production/ Quantity of units produced = 45/3 = 15

(ii) the marginal cost for the 4th unit of output.

Answer: MC = changes in total cost/changes in output = 68-45 = 23 and 4-3 = 1

Therefore 23/1 = 23

3. (a) Define the following terms:

(i) Exchange rate revaluation

Answer: A revaluation is a calculated upward adjustment to a country's official exchange rate

relative to a chosen baseline

(ii) Managed exchange rate

Answer: A managed floating exchange rate is an exchange rate system that allows a nation's
central bank to intervene regularly in foreign exchange markets to change the direction of the
currency's float and/or reduce the amount of currency volatility.

(b) State the name of the protectionist measure that limits the quantity of goods entering a
country. (1 mark)

Answer: A quota

(c) Describe TWO disadvantages that may occur to a Caribbean country if it moves from a
fixed exchange rate to a floating exchange rate system.

Answer: Floating exchange rates are prone to fluctuations and are highly volatile by nature. A
currency value against another currency may deteriorate only in one trading day and
Restricted economic growth or recovery The lack of control over floating exchange rates can
limit economic growth or recovery.

(d) Analyse ONE benefit of using devaluation to correct a balance of payments problem

Answer: Because exports increase and imports decrease, there is typically a better balance of
payments because the trade deficit shrinks. In short, a country that devalues its currency can
reduce its deficit because there is greater demand for cheaper exports.

4. (a) Define the term ‘economic goals’.

Answer: Economic goals provide the operational framework for managing and distributing
scarce resources.

(b) List THREE economic goals of a government.

Answer: Economic growth, ensure that prices are stable and there is a balance is payment
equilibrium.

(c) Explain TWO disadvantages of using Gross Domestic Product (GDP) as a measure of
standard of living.

Answer: It doesn’t tell anything about the distribution of the wealth in the country -
distribution of wealth T is a comparison of the wealth of various members or groups in a
society, and it doesn’t’ say anything about the well-being of the population of a country. Are
the inhabitants of a country happy? Are they healthy? Do they feel stressed? Etc.

(d) Table 3 shows the economic statistics for Country Y.

TABLE 3: ECONOMIC STATISTICS FOR COUNTRY Y

Category Value (millions of $)

Exports 300

Government spending 300

Wages and salaries 900

Buildings and equipment 500

Rentals 200

Imports 400

Consumption 900
Calculate the Gross Domestic Product (GDP) for Country Y using the information provided
in Table 3. Hint: Use the expenditure approach. (4 marks)
Answer: GDP = C + G + I + NX = 900+300+200(300-400)
=1200+200-100= 1300 GDP = 1300

SECTION II

Answer any TWO questions in this section.

EACH question is worth 20 marks.

5. (a) Define the following terms:

(i) The gold standard.

Answer: Monetary system where a country's currency or paper money has a value directly
linked to go.

(ii) Equity securities.

Answer: These are certificates of stock that represent ownership in the company.

(b) List THREE types of financial institutions.

● commercial bank
● credit union
● Insurance Company

(c) Explain ONE way in which the informal sector contributes positively and ONE way it
contributes negatively to the financial sector.

Answer: Since the informal sector isn't monitored by the government the amount of money
this sector produces won`t be accounted for but in contrast it increases the standard of living
for the person involved in this sector.

(d) Analyse TWO benefits of electronic payments to an individual.

Answer: Two benefits of electronic payments are Instant Payment, electronic payments are
much faster than the traditional methods of payments such as cash or cheques and more
secure payments, due to making the payments online buyers won't have to worry about a
person stealing their cash.
6. (a) List THREE examples of transfers found in the current account section of the balance
of payments.
● The current account
● The capital account
● The official reserves account

(b) Define the following terms as they relate to a country’s balance of payments account:

(i) Investment income

Answer: Investment income is the money that a country receives from a foreign country in
the form of interest and dividends.

(ii) Balance of payments disequilibrium

Answer: Balance of payments disequilibrium that the inflows are not equal to the outflows.

(c) Explain TWO ways in which increases in the exchange rate of a country can affect the
balance of payments account.

Answer: Two ways in which the exchange rate can affect the balance of payments account
are devolution of a currency, Locals will have to spend more money to purchase and item
which they got for less previously and depreciation, Due to locals depending more foreign
exchange this will result in a lot more domestic currency in the foreign market.

(d) Table 4 shows the balance of payments data for Country Z.

Category Value (millions of

$)
Export of goods 300

Export of services 900

Foreign direct investment 600

Grants, gifts 300

Import of goods 500

Import of services 800

Interest, profits and 200

dividends
Foreign reserves 400

Use the information provided in Table 4 to calculate the current account balance.
Answer: To calculate the current account balance you will need to minus the value of the
exports from the imports resulting in (300 + 900) - (500 + 800)
Which equals to 100 million.
7. (a) Define the term ‘market equilibrium’

Answer: Market equilibrium is a market state where the supply for a good/service is equal to
the demand.

(b) Identify the TWO main market forces in an economy.

● The force of supply
● The force of demand

(c) List THREE causes of market failure.

● The provision of public goods
● Monopoly
● The provision of merit goods

(d) “A price hike in gasoline has caused motorists to rethink their choice of vehicle and
mode of transportation.”

Explain this statement in the context of cross elasticity of demand.

Answer: Due to the price of gasoline increasing, the demand for motors will decrease since
the former motorist vehicle and mode of transportation has changed.

(e) Discuss TWO impacts on the market that may result from the introduction of a low-cost
airline carrier in the Caribbean.

Answer: Two impacts are more money, due to the price being lowered, more people will be
able to afford the airline and the demand for the higher priced demand will decrease.

8. (a) Define the following terms:

(i) Debt burden

Answer: Debt burden is the cost of the debt in terms of the strain it places on the
government and people of a country.

(ii) Economic integration

Answer: Economic integration is the coming together of national economies to operate as

one economy.

(b) List any THREE stages of economic integration.

• Free trade area
• Customs union
• Common or single market

(c) Explain TWO benefits to the Caribbean Community (CARICOM) of adopting a

common external tariff.
Answer: Two benefits are, give each country access to a larger market for its goods and
service, since the CARICOM combine population is 6 million and enable the region to
improve its standard of work, Competition amongst labour will raise the quality of the
labour force

(d) Analyse any TWO effects of foreign direct investment on the economies of Caribbean
countries

Answer: Two effects are the amount of foreign exchange in the domestic country will
increase due to the Capital (money) coming for the foreign country and the national income
will raise due to the new jobs the new firms are creating.

ECONOMICS
Paper 02 – General Proficiency
03 JUNE 2015 (a.m.)

SECTION I
Answer ALL FOUR question in section I
EACH question is worth 15 marks
1. Table 1 shows the daily demand for and supply of sno-cones in a market.

TABLE 1: DEMAND AND SUPPLY OF SNO-CONE (DAILY)

Price ($) Quantity Demanded Quantity supplied
1 500 100
2 400 200
3 300 300
4 200 400
5 100 500

(a) Identify the

(i) Equilibrium price
Answer: 3
(ii) Equilibrium quantity
Answer: 300
(b) List THREE factors that affect the price of demand.
Answer:
• Price of the good
• Number and closeness of substitutes for the commodity
• The definition of the good
(c) Using the information in Table 1 above, explain what happens in the market when the
price per sno-cone is
(i) $4
Answer: If the price per sno-cone is $4 then the demand will decrease, and the quantity
supplied will increase.
(ii) $1
Answer: If the price for sno-cone is $1 the demand will increase, and the quantity supplied
will decrease
(d) Calculate the price elasticity of supply when the price per sno-cone changes from $2 to
$4.
Answer:
2. (a) Classify the items listed below as EITHER ‘goods OR ‘services’
(i) Hairdressing
Answer: Hairdressing is a is a service
(ii) Hairdryers
Answer: Hairdryers are a good
(iii) Tourism
Answer: Tourism is a good
(iv) Island tours
Answer: Island tours are a service
(v) Tractors
Answer: Tractors are a good
(b) Explain the THREE resources allocation decisions that are often made under a free
market system.
Answer: Three resource allocation decisions are the private sector which is the part of the
economy that private individuals also own resources, price mechanism which allows price to
be determined by the interaction of the forces of demand and supply, and profit motive means
that the possibility of earning profits motivates production.
(c) Discuss ONE benefit of entrepreneurial talent that can accrue to Caribbean economics.
Answer: Entrepreneurial talent in the Caribbean economics can provide many employment
opportunities as persons build up their businesses and companies.

3. (a) Define EACH of the following terms:

(i) Terms of trade
Answer: Terms of trade is defined as the ratio between the index of export prices and the
index of import prices.
(ii) Balance of payments
Answer: Balance of payment is the difference between all the money flowing into the country
in a particular time period and the outflow of money to the rest of the world.
(b) Name ONE of the three MAIN parts of the balance of payments statement.
Answer: One of the main parts o the balance of payments statement is current transfer.
(c) Explain the impact of the following situations on the value of the exchange rate of a
country under a floating exchange rate system:
(i) An increase in international demand for the country’s local products
Answer: If there is an international demand for the country’s local means the country would
get foreign currency.
(ii) An increase in local demand for imported goods.
Answer: If there is a demand in local demand for imported goods that means that the country
would have a leakage.
(d) Table 2 below shows the combinations of two types of products which two countries are
capable of producing with the same amount of resources.
TABLE 2: PRODUCTION CAPABILITIES IN THE MANUFACTURING AND
AGRICULTURAL SECTORS
Country Agricultural Product Manufactured Product
A 50 100
B 100 120

Using the information given, state, with reason, which country has
(i) Absolute advantage in the production of the two types of products
Answer: Country B has an absolute advantage because the number of products produced for
both agricultural and manufactures is higher than country A.
(ii) A comparative advantage in the production of agricultural products.
Answer: Country B has a higher advantage than country A because it produces more than
country A.

4. (a) Define EACH of the following terms:

(i) Monetary policy
Answer: Monetary policy is the use of interest rates and other direct measures to control the
money supply and consequently aggregate demand in the economy.
 (ii) Fiscal policy
Answer: Fiscal policy is the use of government spending and taxation to control aggregate
demand in the economy.
(b) Name ONE type of unemployment
Answer: Search Unemployment
(c) Distinguish between the ‘national budget’ and ‘national debt’
Answer: A national budget is a statement of government estimated revenue and expenditure
for the upcoming tear and a national debt is the sum of government borrowing locally and
abroad over the years to finance budget deficits.
(d) Discuss ONE weakness in using gross domestic product (GDP) as a measure of the
standard of living.
Answer: One weakness id that it doesn’t account for leisure, environment quality, levels of
health and education.

SECTION II
Answer any TWO of the following questions.
EACH question is worth 20 marks
5. (a) Define EACH of the following terms:
(i) Ceteris paribus
Answer: Ceteris paribus is all things being unchanged or constant.
(ii) Income elasticity of demand
Answer: Income elasticity of demand is the sensitivity of the quantity demanded for a certain
good to a change in the real income of consumers who buy this good.
(b) List THREE characteristics of a monopolist.
Answer:
• Only 1 seller
• Many buyers
• The product is unique
(c) Explain how the presence of EACH of the following in the market could cause market
failure.
(i) Externalities
Answer: Externalities can cause market failure because they lead to situations where the
equilibrium price of a product or services does not precisely reflect the true costs and benefits
of that product or service.
 (ii) Monopolies
Answer: Monopolies can cause market failure because not enough of the good is made
available and the price of the good is to high.
(d) Using a diagram, illustrate the impact of a rise in the cost of production in a free market
economy on BOTH the equilibrium price and the equilibrium quantity.
Answer:

6. (a) Define EACH of the following terms:

(i) Barter
Answer: Barter is buying goods and services without the use of money.
(ii) Money
Answer: Money is anything that is acceptable and can be used as a medium od exchange for
goods and services.
(b) List THREE characteristics of money
Answer:
• Must be portable
• Must be acceptable
• Must be durable
(c) Explain TWO ways in which the roles of the central bank and commercial bank differ.
Answer: Two roles in which the central bank differ is that the central bank is the bank that
issues notes and coins and it is the bank for all commercial banks. The commercial bank
offers safe keeping services, and they offer foreign currency banking services.
(d) Discuss how inflation can affect any TWO functions money.
Answer: When inflation rates are very high, the longer you hold money as cash the more
value it loses which means that it doesn’t have an effective store of value, also rising inflation
erodes the purchasing power of a bond’s future coupon income reducing the present value of
its future fixed cash flows.

7. (a) State EACH of the following abbreviations in full:

(i) IMF
Answer: International monetary fund
(ii) CSME
Answer: Caricom single market and economy
(iii) WTO
Answer: World trade organization
(iv) FDI
Answer: Foreign direct investment
(v) CARICOM
Answer: Caribbean community and common market
(b) List TWO characteristics of Caribbean economies.
Answer:
• These islands lack natural resources and are subject to natural disasters ranging from
volcanoes to hurricane strikes.
• These small economies rely on agricultural production, fishing, and tourism.
(c) Differentiate between the development strategies of ‘import substitution’ and ‘export
push’
Answer: The difference is that an export led growth strategy is one where a country seeks
economic development by opening itself up to international trade. Strategy in import
substitution where countries strive to become self sufficient by developing their own
industries.
(d) Discuss ONE challenge of implementing e-commerce in the Caribbean.
Answer:

8. (a) Identify the central problem in economics

Answer: The central problem in economics is scarcity.
(b) Define EACH of the following terms:
(i) Need
Answer: A need is any good or service essential for life.
(ii) Want
Answer: A want is a good or service that are desired to improve qualities of life but are not
essential.
(iii) Opportunity cost
Answer: Opportunity cost is next best alternative forgone.
(c) An 18-year-old student has just completed CAPE studies and has to decide on her future.
Explain TWO economic factors that will influence the decision the students make.
Answer: Size of income allow for the purchase of more goods and services, and level of
education, this influences the type of items we like to own such as books and laptop or a
computer.
(d) Draw a production possibility curve/frontier diagram showing the following:
(i) Decreasing opportunity costs
Answer:

(ii) An efficient point

Answer:

(iii) An unattainable point

 Economics
Paper 02 – General Proficiency
01 JUNE 2016 (a.m.)

1. (a) Define the term ‘diseconomies of scale’.

Answer: Diseconomies of scale are disadvantages that result from the ongoing growth of the
organisation. These disadvantages result in increases in the average cost of production. When
long-run average costs are rising, the firm is experiencing diseconomies of scale.

(b) In which time period does ‘economies of scale’ occur?

Answer: The long run

(c) Identify TWO types of diseconomies of scale.

Answer: Loss of managerial control and Poor industrial relations

(d) Explain how the THREE resource allocation decisions are made in a free market
economy.

Answer: Firms decide on what to produce based on what is being demanded by buyers. Each
time a product is sold, this is a signal to producers to supply more of this item. Producers will
move more resources into the production of goods that are high in demand. When goods are
not bought, this is also a signal to producers to supply fewer of these goods. Resources are
then moved out of the production of such goods.
Firms decide on how to produce based on factor availability, the level of technology, and the
relative costs of factors of production. A firm might decide to use more labour in the factory
if labour is easier to obtain than capital. If the technology is advanced and capital is very
productive, firms might choose to use the capital instead of labour. A firm will employ either
the cheaper factor or the more productive factor.
Firms decide on for whom to produce based on the price mechanism. If the price mechanism
signals that sugar-free snacks are in high demand, firms will produce them. If computer firms
observe a fall in demand for floppy diskettes and an increase in demand for flash drives, they
then will produce more flash drives. Since scarcity exists and there is not enough of any good
for all of us to obtain the quantities that we desire, goods and services are allocated to us
based on our ability to pay the price.

(e) Identify TWO ‘fixed costs’ and TWO ‘variable costs’ associated with setting up a
hairdressing salon or a barber shop.

Answer:
Hairdressing Salon:
Fixed costs – Rent, Equipment, utilities, employee payments, taxes, etc.
Variable costs – operational expenses (supplies like foil, colour products, etc), colour product
orders, goods sold for resale, hair styles, etc.
Barber shop:
Fixed costs – space, equipment, taxes, etc.
Variable cost – wages/salaries, haircut.

2. (a) Define the term ‘market failure’.

Answer: Market failure is the inability of the market to allocate resources efficiently to best
satisfy society’s wants.

(b) List THREE causes of market failure.

Answer: (1) the provision of public goods, (2) the provision of merit goods, (3) externalities –
positive and negative.

(c) Explain the impact on the demand curve when the

i. Price of a good falls

Answer: When the price of a good decreases, there is a rise in the quantity demanded of the
good. This is called an extension of demand. This causes a movement along the demand
curve from top to bottom.

ii. Income of the population rises

Answer: when the population’s income rises the demand increases. This causes the entire
demand curve to shift to the right.

(d) The price of Good A rises from $2 to $4, causing a decrease in demand for Good B from
10 units to 5 units.

(i) Using the information provided, calculate the cross-price elasticity of demand.

Answer: XED = -50% divided by +100% = -0.5

 (ii) Using the result obtained in (d)(i) above, determine the classification of Good A in
relation to Good B.

Answer:

3. (a) Define the term ‘globalization’.

Answer: Globalization is the emergence of a single world market facilities by improving

technology and communication, and deregulation.

(b) List THREE challenges of e-commerce to the consumer.

Answer: Three challenges of e-commerce to a consumer are; (1) potential loss of income for
traditional business, (2) credit card fraud, (3) unemployment.
(c) CARICOM is currently a common market. Using the characteristics of the stages of
economic integration, justify this statement.

Answer: CARICOM is a common market because as a custom union there are no barriers to
trade between member states. All member states will have a common external tariff with
countries outside the common market, there is free movement of labour and capital between
member states and the are common taxation policies, employment laws, product laws and
competition laws.

(d) Explain TWO benefits to Caribbean states of being a member of CARICOM.

Answer:
i. Give each country access to a larger market for its goods and services. There is a
combined population of 6 million people in the CARICOM region, which is large
when compared with the lower population in the small states.
ii. Enable the region to improve its standard of work. Competition amongst labour will
raise the quality of the labour force.

4. (a) Define the term ‘balance of payments’.

Answer: The balance of payments is a summary of the payments and receipts of transactions
between a country and the rest of the world for a given period, usually one year.

(b) List THREE types of exchange rate regimes.

Answer: The three types are free-floating, managed and fixed.

(c) (i) Distinguish between ‘investment income’ and ‘foreign direct investment’.

Answer: Investment income is the income you get from an investment in one country, like
interest you get from a bank or dividends you get from a stock you own. A foreign direct
investment (FDI) is an investment made by a firm or individual in one country into business
interests located in another country.
 (ii) Indicate where ‘investment income’ and ‘foreign direct investment’ occur in the
balance of payment.

Answer: Investment of income and foreign direct income occur in the subsection Current
account of the balance of payment.

(d) Explain TWO ways in which devaluation can improve a country’s balance of payments
deficit.

Answer: Currency devaluations can be used by countries to achieve economic policy. Having
a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits
and reduce the cost on interest payments on its outstanding government debts.

5. (a) Define EACH of the following terms:

i. Economics

Answer: Modern economists define economics as the study of how man allocates scarce
resources which has alternative use to achieve given ends or goals.

ii. Money cost

Answer: Money cost is the cost of acquiring a good or service with available money.

(b) List the THREE main sectors in an economy.

Answer: Primary, Secondary and Tertiary sectors.

(c) Explain the difference between ‘increasing opportunity costs’ and ‘constant opportunity
costs’.

Answer: Increasing opportunity costs is when you increase the production of one good, the
opportunity cost to produce the additional good will increase and constant opportunity cost is
when the expenses of pursuing a specific opportunity does not evolve.

(d) Describe the impact on the production possibility curve of a country if the following
situations occur:

i. There is heavy unemployment

Answer: The production possibility curve would move inwards from its original position.
This indicates that an economy id producing inefficiently and has idle resources.

ii. Large-scale migration occurs in developed countries.

Answer: The production possibility curve would move outwards from its original position.
This indicates that an economy now has more resources to start producing at a point they
could not have produced before.
(e) Draw a diagram of the production possibility curve and label it to show increasing
opportunity costs.
Answer:

6. (a) Define the term ‘price elasticity of supply’.

Answer: Price elasticity of supply (PES) measures the responsiveness of quantity supplied to
a change in price of the good.

(b) List THREE characteristics of a particularly competitive market.

Answer: (i) Focuses on profit, (ii) Perfect knowledge, (iii) Many sellers

(c) Identify TWO types of market structures OTHER THAN perfect competition.

Answer: (i) Monopoly, (ii) Monopolistic competition

(d) Explain the differences between an ‘increase in supply’ and an ‘increase in quantity
supplied’.

Answer: An increase in supply is due to change in the conditions of supply other than price,
for example, the price of factors of production decreases so firms will supply more. An
increase in quantity supplied is due to a change in price. As price increases quantity supplied
increases as well

(e) Explain TWO factors that may affect the supply of a good.

Answer:
i. The price of factors of production. Higher factor prices raise production costs. This
causes profits to decline. Firms move out of these less profitable business activities
and so supply falls. In contrast, lower factor prices reduce production costs and
increase profits. This is an incentive for firms to increase supply.
ii. Technology. Improvements in technology make it possible for firms to produce more
goods using fewer resources (and so lowering costs). This increases supply.

(f) Describe how the market for cigarettes can contribute to market failure.
Answer: The cost price of a cigarette fails to consider the cost of poor health to the
individual, the addictive nature of the product and the potential harm to others through
passive smoking. These all have significant societal costs through health treatment and lost
productivity.

7. (a) Define the term ‘recession’.

Answer: A recession is a period during which the total output in the economy declines.

(b) Identify TWO withdrawals from the circular flow of income.

Answer: (i) Savings, (ii) Taxes

(c) List THREE types of unemployment.

Answer: (i) Frictional Unemployment, (ii) Search Unemployment, and (iii) Seasonal
Unemployment

(d) Explain TWO ways in which fiscal policy can be used to reduce unemployment in the
tourism sector.

Answer: Two ways that fiscal policies can reduce unemployment in the tourism sector is by
putting more tourist attractions within close vicinity to the airport or the border so with more
places to create revenue this will increase the spending in that economy and more persons can
be employed in the tourism sector and by cutting taxes on goods and services, tourists would
spend more because of the drop in prices.

(e) The retail price index is given as 115 and gross domestic product is currently recorded at
$500 billion.
i. Calculate the real output

Answer:

ii. What does the retail price index imply about inflation?

Answer:

8. (a) Define the term ‘barter’.

Answer: Barter is the direct exchange of goods and services for other goods and services.

(b) List THREE disadvantages of bartering.

Answer:
i. Unequal value of exchange
ii. Double coincidence of wants
iii. Impossibility of saving
(c) State TWO functions of the financial sector in an economy.

Answer: It attracts funds from businesses and private individuals, and it provides the
government with a source of funds for investment purposes.

(d) Explain how the central bank would use EACH of the following methods to increase the
money supply:

i. Discount rates

Answer: The central bank could lower its discount rates to encourage burrowing by firms and
individuals, and then investment and consumption will rise.

ii. Reserve requirement ratios

Answer: The lower reserve requirement ratios, the more the amount that banks can lend,
which will lead toa bigger money supply.

(e) Using examples, explain how the use of credit cards has improved the function of money
as a medium of exchange.

Answer: Credit cards makes it easier to facilitate transactions and make it possible to
purchase goods when currency and checkable deposits are not available. For example, a
person may want to purchase a vehicle but does not have the money for it on hand, he can use
the credit card to make the purchase and pay off the money over a period of time. the credit
card gives him more purchasing power.