Download Please ensure you hand up your Answer Booklet + MCQ Answer

CORK INSTITUTE OF TECHNOLOGY
INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ
Semester 2 (Summer 2016) Examinations 2015/2016
Module Title: Principles of Economics
Module Code:
ECON7007
School:
Business & Humanities
Programme Title:
Bachelor of Business in International Business
Programme Code:
BIBLA_8_Y2
External Examiner:
Mr. G. Phelan
Internal Examiner’s:
Ms. A. Conway
Instructions – Please read carefully
Duration 2 Hours
Sections
A
B
C
B or C
Numbers of Questions to be
attempted
20
1
2
1 other Question of your choice from
Section B or C
Percentage of Total Marks
Allotted to each Section
20
20
40
20
Section A:
The answers for section A must be entered into the MCQ Answer Sheet handed out with this examination
paper. Please ensure your name, student number, lecturers name and class group are written clearly on this
sheet, and submit it in the centre of your answer booklet. Any solutions provided on the examination
paper WILL NOT be corrected. There is no negative marking for incorrect answers.
Section B:
You must attempt at least one question from Section B, the answer to each question in this section must be
answered in the answer booklet provided.
Section C:
You must attempt at least two questions from Section C, the answer to each question in this section must
be answered in the answer booklet provided.
Section B
or C:
You must complete a 4th question from either Section B or Section C, the answer must be completed in
the answer booklet provided.
Non-compliance with the above instructions will result in a loss of marks.
Please ensure you hand up your Answer Booklet + MCQ Answer Sheet.
INVIGILATORS Note: Please circulate a copy of “MCQ Answer Sheet ECON:7007 Summer 2016” to all students along with
the examination paper.
Page 1 of 8
Section A
A1.
A2.
A3.
A4.
The economic problem addresses:
(a)
consumption decisions.
(b)
production technology.
(c)
how society decides what, how and for whom to produce.
(d)
the best way to run society.
The price of a student special increased from €4.00 to €4.50 in the Canteen. Which of the following
effects would you expect?
(a)
A movement along the demand curve for student special resulting in a higher price and a lower
quantity demanded.
(b)
A movement along the demand curve for student special resulting in a lower price and a higher
quantity demanded.
(c)
A shift in the demand curve for student special to the left.
(d)
A shift in the demand curve for student special to the right.
Below is a demand function for Good X. Where P is the price of the good and Q is the quantity
demanded. If the price of the good increases from €3 to €5, which of the following statements is true:
Q = 100 - 2p
(a)
Quantity demanded decreases by 90 units.
(b)
Quantity demanded decreases by 4 units.
(c)
Quantity demanded decreases by 94 units.
(d)
Quantity demanded decreases by 8 units.
Total costs increase from €1500 to €1800 when output increases from 40 to 60 units. Fixed costs
are €500. Which of the following is true?
(a)
Variable costs are €300.
(b)
At 60 units of output, Average Variable Costs are €15.
(c)
At 60 units of output, Marginal Cost is €15.
(d)
At 60 units of output, Average Total Costs are €37.50.
Page 2 of 8
A5.
A6.
A7.
A8.
A9.
Third degree price discrimination is where:
(a)
Consumers are charged the reservation (maximum price they are willing to pay) price.
(b)
Different consumer groups are charged different prices for the same product.
(c)
The practice of charging different prices per unit for different quantities of the same good.
(d)
Both (a) and (c) are correct.
Which of the following events will cause the supply curve for wine to shift to the right?
(a)
A frost kills half of the grape crop.
(b)
There is an improvement in technology.
(c)
There is an increase in the wage paid to labour.
(d)
A study is produced which confirms that drinking wine improves your health.
Diseconomies of Scale:
(a)
Arise due to increasing layers of bureaucracy and problems with management staff relations.
(b)
Arise when the average cost per unit of production rises as the level of output rises.
(c)
Arise when the average cost per unit of production decreases as the level of output rises.
(d)
Both (a) and (b) are correct.
A production function expresses the relationship between factors of production and:
(a)
The output of the economy.
(b)
The demand of the economy.
(c)
The resources of the economy.
(d)
None of the above.
If consumers experience a decrease in taste for a product the result will be:
(a)
A decrease in demand accompanied by a decrease in supply.
(b)
An increase in demand leading to a higher price.
(c)
A decrease in demand leading to a lower price.
(d)
A decrease in supply leading to a higher price.
Page 3 of 8
A10.
A11.
A12.
A13.
A14.
Holding all other factors constant, which of the following would shift the demand curve for air
travel to the left?
(a)
An increase in fuel costs.
(b)
Greater number of terrorist attacks on airplanes.
(c)
Increased price of ferry tickets.
(d)
Both (a) and (c).
Which of the following best describes the four sector model?
(a)
Y= C – I + G + M – X.
(b)
Y = C –I – G – X + M.
(c)
Y = C + I + G + M – X.
(d)
Y = C + I + G + X – M.
The thrust of government fiscal policy is expansionary when:
(a)
Government expenditure and taxation are increased.
(b)
Government expenditure is reduced and taxation is increased.
(c)
Government expenditure and taxation are reduced.
(d)
Government expenditure is increased and taxation is reduced.
If Central Bank wants to increase the supply of money in the economy, it should:
(a)
Lower the reserve requirement.
(b)
Lower the discount rate.
(c)
Buy government bonds in the market.
(d)
Do any, or all of the above.
If banks are required to keep a reserve ratio of 10% at the central bank, by how much would
money supply increase if they acquire an additional deposit of €1,000?
(a)
€10,000.
(b)
€5,000.
(c)
€1,000.
(d)
€500.
Page 4 of 8
A15.
A16.
A17.
A18.
A19.
A20.
If Real GDP has increased:
(a)
Prices have increased.
(b)
The quantity of output has increased.
(c)
The quantity of output and prices have increased.
(d)
None of the above.
The European Central Bank aims to maintain price stability. They aim to keep inflation rates
below, but close to, over the medium term:
(a)
3%.
(b)
2%.
(c)
1%.
(d)
They don’t have a pre-defined rate.
Which of the following is not a Central Bank:
(a)
The European Central Bank.
(b)
Bank of England.
(c)
Bank of America.
(d)
Federal Reserve.
In a small open economy, if GDP = €5,000, Consumption = €1,300, Government Expenditure
= €450, Net Exports = €2,464. What is the value of investment?
(a)
€2,536.
(b)
€3,250.
(c)
€4,214.
(d)
€786.
Which of the following is a government objective as opposed to government policy?
(a)
Low interest rates.
(b)
Low unemployment.
(c)
Low taxation.
(d)
Low government spending.
The exchange rate of the Euro in terms of the US Dollar is currently:
(a)
At parity.
(b)
Below parity.
(c)
Above parity.
(d)
Undefined.
Page 5 of 8
Section B
B1.
The equations below describe the supply and demand conditions for a newly developed product.
Qs = 3p + 20
Price
Quantity Supplied
(Qs)
Quantity
Demanded (Qd)
€0.00
€1.00
Qd = 34 – 5P
€2.00
€3.00
€4.00
€5.00
€6.00
(a)
Transcribe and complete the table above in your answer booklet.
(2 marks)
(b)
Plot the supply and demand curves on the graph paper provided.
(4 marks)
(c)
Identify the equilibrium price and equilibrium quantity on your graph.
(2 marks)
(d)
Calculate equilibrium price and quantity using a mathematical approach.
(6 marks)
(e)
Determine and explain the market position, if price was €3.50.
(6 marks)
(20 marks)
B2.
Explain the market characteristics applicable to each of the following market structures. Identify four
characteristics and an example for each market structure.
(a)
Perfect Competition
(5 marks)
(b)
Monopoly
(5 marks)
(c)
Monopolistic Competition
(5 marks)
(d)
Oligopoly
(5 marks)
(20 marks)
B3.
Discuss any FOUR of the following, and include diagrams and examples, where appropriate.
(a)
Law of Demand.
(5 marks)
(b)
First Degree Price Discrimination.
(5 marks)
(c)
Law of Supply.
(5 marks)
(d)
Third Degree Price Discrimination.
(5 marks)
(e)
Sunk Costs.
(5 marks)
(f)
Opportunity Cost.
(5 marks)
(20 marks)
Page 6 of 8
Section C
C1.
A closed economy without a government sector is portrayed over a three-year period in the table below.
Year 1 is the base year. (Show all formulas and workings in your answer book to two decimal places).
Product
1
2
3
4
Year 1
Year 2
Year 3
Q
P(€)
Q
P(€)
Q
P(€)
150
110
100
130
0.50
0.30
0.40
0.20
170
140
120
150
0.70
0.40
0.60
0.40
180
150
140
160
0.80
0.50
0.70
0.50
(a)
Calculate the Gross Domestic Product (GDP) at current market prices for each of the three years.
(3 marks)
(b)
Calculate the Gross Domestic Product (GDP) at constant market prices for each of the three
years.
(5 marks)
(c)
Calculate the growth rate of GDP in real terms for the intervals Year 1 – Year 2 and Year 2 –
Year 3.
(6 marks)
(d)
Differentiate between GDP and GNP.
(6 marks)
(20 marks)
Page 7 of 8
C2.
Table 1: Government Budget & Public Sector Borrowing (€million)
Revenue from Customs & Excise Duties
250
VAT Revenue
100
Corporation Tax
50
Income Tax
300
Wage Bill for Government Departments
600
Revenue from Privatisation of Aer Lingus
200
Construction of new Bridge over River Lee
450
Interest on National Debt
150
Once off purchase of a statue of Katie Taylor
to be erected in Bray
Borrowing by State Sponsored Bodies and
Local Authorities
5
350
(a) Calculate the following based on the figures provided in Table 1:
(i)
(ii)
(iii)
The Current Budget Deficit (CBD)
The Exchequer Borrowing Requirement (EBR)
The General Government Deficit (GGD)
(4 marks)
(4 marks)
(4 marks)
(b) Describe the instruments of fiscal policy.
(4 marks)
(c) Explain discretionary policy.
(4 marks)
(20 marks)
C3.
(a)
Define Money and describe its characteristics.
(6 marks)
(b)
Describe any three functions of a Central Bank.
(6 marks)
(c)
Explain using an example, how banks create money. In your answer, explain the Required Reserve
Ratio and Deposit Multiplier.
(8 marks)
(20 marks)
Page 8 of 8