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Econ Past Paper Questions and Answers

A trade surplus can negatively impact an economy in two ways: 1) It increases the money supply which can lead to inflation. 2) It increases a country's reserves which could be used to provide domestic goods and services, deteriorating local living standards. A Caribbean country may need to implement a structural adjustment program for two reasons: 1) To bring about policy changes from a centrally planned to private sector driven economy. 2) To correct fiscal imbalances where government expenditure exceeds revenue.

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885 views

Econ Past Paper Questions and Answers

A trade surplus can negatively impact an economy in two ways: 1) It increases the money supply which can lead to inflation. 2) It increases a country's reserves which could be used to provide domestic goods and services, deteriorating local living standards. A Caribbean country may need to implement a structural adjustment program for two reasons: 1) To bring about policy changes from a centrally planned to private sector driven economy. 2) To correct fiscal imbalances where government expenditure exceeds revenue.

Uploaded by

Pharez Mc Tair
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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2007 #2

(d) With reference to a named country, discuss TWO reasons why a trade surplus may have negative
effects on an economy. (6 marks)

(i) A trade surplus increases the money supply which can lead to inflation in the economy.
(ii) Deterioration of domestic living standards – A surplus increases the countries reserves
in the Central Bank. This build up of reserves can actually be used to provide goods
and services for the country.

2010 #8
(d) For a named Caribbean country, briefly discuss TWO reasons why that country may need to
implement a structural adjustment programme (SAP). (5 marks)

(i) To bring about policy changes; i.e. from centrally planned to a private sector driven
economy.
(ii) To correct fiscal imbalances in the borrowing country (where there is a negative
between government revenue and government expenditure)
(iii) To promote economic growth by increasing efficiency, reduce wastage and make
exports more attractive to foreigners
(iv) To generate income; e.g. through devaluation. Devaluation will lead to increased
demand for exports and reduce imports, leading to increased income.
(v) To pay off the debt which the countries have accumulated

2010 #7
(c) Explain how inflation can affect ALL the functions of money. (8 marks)
Store of value – Money loses value/purchasing power when the general price level rises so that
money saved will have lower value in the future than today and thus buy fewer items.
Medium of exchange – In times of (rapid) price increases, people lose confidence in the purchasing
power of the currency and may resort to barter or hoarding tangible items.
Unit of account – Inflation causes prices to be constantly changing and one can never be sure of the
value of an item when adjustments have to be made to the price tags and barcodes.
Standard of deferred payment – Debt loses value over time and borrowers gain at the expense of
lenders. This is because when the debt (money) is repaid it does not have the same purchasing
power.

*(d) “The central bank is the lender of last resort”.


Discuss this statement in relation to the central bank’s role in managing the monetary sector in the
economy. (5 marks)

This means that the Central Bank is willing to extend credit to financial institutions (banks, etc.)
when no one else will, in order to prevent them from collapsing.
This helps to protect depositors, prevents widespread panic withdrawals and otherwise avoids
damage to the economy caused by the collapse of the institutions.
2010 #4
(a) Define EACH of the following terms:

(i) Gross capital fixed formation (2 marks)


Gross Capital Fixed Formation is investment expenditure in fixed assets used to further
production.
(ii) Net property income from abroad (2 marks)
Net Property Income from Abroad is the difference between incomes earned from abroad and
incomes paid abroad.
(c) Discuss TWO factors that can cause the Gross National Product (GNP) of a country to be greater than
the Gross Domestic Product (GDP). (6 marks)
(i) Strong investment overseas – If a country is able to invest heavily overseas, it will
generate property income (factor income) from abroad.
(ii) Migration of workers – Some workers migrate to seek employment opportunities in
other countries. This allows them to earn and send (or bring) home foreign income.
(iii) Income earned abroad – If income earned abroad is greater than income paid abroad,
this implies that net property/factor income a positive value. This would indicate that
countries are net recipients of investments.

2010 #1
(d) Using a demand and supply diagram, ILLUSTRATE the impact on equilibrium quantity of a telephone
company moving from a monopoly situation to one with other competitors in the market. (3 marks)

(e) With reference to the diagram drawn at (d) above, what impact would the movement from a monopoly
situation to a competitive market have on the equilibrium price? (1 mark)

Equilibrium price will fall from P to P1


2011 #6
(d) Discuss TWO negative effects on Caribbean economies which can result from a loss of preferential
trading arrangements. (5 marks)
(i) Loss of market share – Some Caribbean producers may be unable to compete globally on
a cost, price or quality basis, thus leading to a loss of market share.
(ii) Reduced exports – Because some producers in the Caribbean are high-cost producers, a
loss of preferences may lead to reduced competitiveness and reduced demand for their
products. This may to a fall in exports.
(iii) Increased unemployment – If producers are unable to sell the same amount of products
or increase sales due to the loss of preferences, then in an effort to reduce costs some
firms may be forced to lay off workers.
(iv) Balance of Trade deficits – Loss of preferences may lead to a fall in exports. If imports
remain the same or increase, this can lead to a balance of trade deficits.

2011 #8
(a) Define EACH of the following terms:

(i) Economic integration (2marks)


Economic integration is the merging of economies through the elimination of tariff and non-tariff
barriers to the flow of goods and services, factors of production between a group of nations, (or
different parts of the same nation).

(ii) Debt burden (2 marks)


The debt burden is defined as the debt to GDP ratio, or government debt to revenue ratio ( or even
the total debt to asset ratio)
(b) List THREE benefits of large-scale production. (3 marks)
(i) Lower cost of production
(ii) Greater competitiveness of the product
(iii) Increased market penetration or access
(iv) Increased output
(v) Increased revenue
(c) (i) Identify TWO characteristics of a mixed economic system. (2 marks)
 Resources are owned by both public and private interests
 Economic activities are controlled by both government and the business/private sector.
 There are elements of free market and planned economic systems
(ii) Explain TWO disadvantages of a mixed economic system. (6 marks)
 If government involvement exceeds that of the private sector this implies that the system is
geared more towards a command economy. This will crowd out the private sector and can
stifle economic growth.
 If government involvement is greater than that of the private sector, there may be high
taxes and low regulations. High taxes will reduce profits and can negatively affect
investments in the economy, and ultimately economic growth.
2012 #5
(d) Explain how a baker would respond to the THREE resource allocation decisions that arise in a free
market economy. (5 marks)
(1) What to produce? He needs to know what consumers prefer so that he will know the right type
of products to produce; (i.e. whether bread, pastries or specialty cakes).
(2) How to produce? The baker has to decide, based on his budget, how much inputs to purchase
and what combination of inputs to use in order to minimize costs; i.e. flour, sugar, number of
workers, etc.
(3) For whom to produce? The baker sets his price based on market conditions and sells to those
customers who can afford to purchase the product.

2012 #8
(a) Define the following terms:

(i) Stock exchange (2 marks)


The stock exchange is the institution that handles the buying and selling of shares and securities of
listed (public) companies.
(ii) Credit union (2 marks)
A credit union is a cooperative financial institution that is owned and controlled by its members.
(Main aim – to promote thrift and economic welfare of members by accepting flexible savings and
providing flexible loans)

2013 #2
(d) Using THREE characteristics, explain the type of market structure that would be associated with
manufacturers of cellular phones. (4 marks)
Market structure – Oligopoly
Characteristics – (i) Price setters with price rigidity; (ii) High barriers to entry and exit
(iii) Few large sellers, many buyers; (iv) Imperfect knowledge
(v) Homogenous or differentiated good

*2013 #4
(c) Explain THREE functions of a Central Bank. (6 marks)
(1) Banker to commercial banks – All commercial banks must have an account at the Central Bank.
The Central Bank also lends to commercial banks if necessary.
(2) Banker to the Government – The Central Bank keeps the accounts of the government.
(3) Issuer of currency – The Central Bank issues notes and coins.
(4) Implements and supervises monetary policy
(5) Lender of last resort
(6) Manages the country’s reserves – It ensures that the country always has sufficient reserves. It
also protects the exchange rate from fluctuations.
2014 #3
(c) Describe TWO disadvantages that may accrue to a Caribbean country if it moves from a fixed
exchange rate to a floating exchange rate system. (6 marks)

2014 #4
(a) Define the term ‘economic goals’. (2 marks)
Economic goals refer to the economic objectives that a government wishes to achieve (during the
course of its activities).

(b) List THREE economic goals of a government. (3 marks)


(i) Reduce unemployment
(ii) Reduce inflation
(iii) Promote economic growth
(iv) Have a stable/favourable balance of payments
(v) Have a stable exchange rate
(vi) Have stable prices

2014 #5
(a) Define the following terms:
(i) The gold standard (2 marks)
*The gold standard is a system for fixing exchange rates by the Central Bank/government and
making its currency freely convertible into gold at a fixed price.
(ii) Equity securities (2 marks)

(b) List THREE types of financial institutions. (3 marks)

(c) Explain ONE way in which the informal sector contributes positively and ONE way it contributes
negatively to the financial sector. (8 marks)

(d) Analyse TWO benefits of electronic payments to an individual. (5 marks)


2014 #6
(d) The table below 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
Interests, profits and dividends 200
Foreign reserves 400

Use the information provided in the table above to calculate the current account balance. (5 marks)

2014 #7
(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. (8 marks)

(e) Discuss TWO impacts on the market that may result from the introduction of a low cost airline carrier
in the Caribbean. (5 marks)

2015 #4
(c) Distinguish between the ‘national budget’ and ‘national debt’. (6 marks)

See the link below for more past paper questions


http://smahelalbusiness.weebly.com/uploads/8/5/4/1/8541489/csec%C2%AE_economics_past_papers.pdf

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