Download FOE September 2015 Exam Paper – Final

Fundamentals of Economics
2 September 2015
Exam Paper
Section A
Section B
Answer ALL questions from this section.
Answer any TWO (2) questions from this section.
Clearly cross out surplus answers.
Failure to do this will result in only the first
TWO (2) answers being marked.
Time: 2.5 hours
The maximum mark for this paper is 100.
Any reference material brought into the examination room must be
handed to the invigilator before the start of the examination.
Section A
Answer ALL questions from this section
Marks
Question 1
a)
Explain what is meant by the term ‘scarcity’ in elementary economic theory.
b) Define briefly what is meant by the term the ‘economic problem’.
c)
3
3
What is meant by the term ‘opportunity cost’?
2
d) Distinguish briefly between the terms micro-economics and macro-economics.
2
Total 10 Marks
Question 2
a)
i)
State FOUR (4) assumptions necessary for perfectly competitive conditions
to hold.
6
ii)
Define what is meant by the term ‘monopoly firm’.
1
b) Discuss what the diagram below shows about a perfectly competitive firm.
3
Total 10 Marks
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Marks
Question 3
a)
Draw and label a diagram of the circular flow of income in a simple two sector
model of the economy.
6
b) If one adds the government and international trade sectors to the diagram above
identify the different flows of income or economic activity that would need to be
added to the diagram.
4
Total 10 Marks
Question 4
a)
Draw and label a version of the simple Phillips Curve.
3
b) What did the simple Phillips curve suggest about the relationship between
aggregate demand and inflation in an economy?
2
c)
2
What happened in the 1970s that cast doubt on the message of the simple
Phillips curve?
d) Draw and label the long run Phillips Curve.
3
Total 10 Marks
Question 5
a)
Provide the formula by which price elasticity of demand is measured.
2
b) Identify the main issues which affect a product’s price elasticity of demand.
4
c)
4
Explain the difference between price elastic and price inelastic demand
Total 10 Marks
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Fundamentals of Economics
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Section B
Answer any TWO (2) questions from this section
Marks
Question 6
a)
i)
Draw and label a simple supply and demand diagram.
2
ii)
In the context of the diagram define the following terms
 demand
 supply
 equilibrium price
2
2
1
iii) Identify the main factors that lie behind and determine the position of a
demand curve.
iv) Identify three factors that lie behind and determine the position of a supply
curve.
4
i)
Draw and label a diagram showing a short run average cost curve and its
corresponding marginal cost curve.
3
ii)
Explain the relationship between the two curves in the diagram above
4
3
b)
iii) Define marginal cost.
1
iv) Define average cost.
1
v)
2
Define the short run
Total 25 Marks
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Marks
Question 7
a)
Draw and label a diagram showing the long run equilibrium position of a
monopoly firm.
5
i)
4
b)
c)
Define a monopolistically competitive industry and state two of its features.
ii) Draw and label a diagram showing the long run equilibrium position of a
monopolistically competitive firm.
5
iii) Comment on and briefly explain the differences between the monopoly firm’s
long run equilibrium position and that of the monopolistically competitive firm.
6
Explain briefly how the kinked demand curve might help explain why prices are
relatively stable in an oligopolistic industry.
5
Total 25 Marks
Question 8
a)
Identify three different ways in which the overall economic activity of an economy
can be recognised and measured in the context of the circular flow model of
income.
3
b) Using an appropriate diagram of the consumption function, explain the
determinants of household consumption in a simple Keynesian model of the
economy.
6
c)
Explain how the simple Keynesian model of the economy understands the
relationship between firms’ planned investment and the current level of income in
the economy.
4
i)
Draw and label a diagram showing macro-economic equilibrium in a simple
two sector Keynesian model of the economy.
5
ii)
Explain what is meant by macro-economic equilibrium in the diagram above
and discuss how the model assumes the economy moves to that equilibrium
position.
5
iii) Explain what is meant by the term ‘involuntary unemployment’ in the context
of the above model/diagram.
2
d)
Total 25 Marks
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Marks
Question 9
a)
i)
Identify the four (4) main functions of money.
4
ii)
Define the term liquidity.
2
iii) Explain how banks are able to create money and thus expand the money
supply. Use a numeric example to support your explanation.
9
i)
State the formula for the ‘quantity theory of money’ and define each term
within it.
6
ii)
Explain how monetarist economists would interpret the formula in terms of
causes of inflation.
4
b)
Total 25 Marks
Question 10
a)
i)
Define fiscal policy.
2
ii)
Define monetary policy.
2
iii) Explain in detail how lower interest rates might be expected to lead to a
higher level of economic activity.
10
b)
i)
Explain the difference between a government’s budget deficit and
government debt.
4
ii)
Describe the major problems or constraints that face fiscal policy.
7
Total 25 Marks
End of paper
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Fundamentals of Economics
© NCC Education Limited 2015