Download INTRODUCTION TO ECONOMICS -MAI N PAPER

INSTITUTE OF BANKERS IN MALAWI
CERTIFICATE IN BANKING EXAMINATION
SUBJECT: INTRODUCTION TO ECONOMICS
(IOBM - C106)
Date: Wednesday, 3rd November 2010
Time Allocated: 3 hours (08:00 – 11:00 am)
INSTRUCTIONS TO CANDIDATES
1
This paper consists of TWO Sections, A and B.
2
Section A consists of 4 questions, each question carries 15 marks.
Answer ALL questions.
3
Section B consists of 4 questions, each question carries 20 marks.
Answer ANY TWO questions.
4
You will be allowed 10 minutes to go through the paper before the
start of the examination, when you may write on this paper but not
in the answer book.
5
Begin each answer on a new page.
6
Please write your examination number on each answer book
used. Answer books without examination numbers will not be
marked.
7
DO NOT open this question paper until instructed to do so.
SECTION A
(60 MARKS)
Answer ALL questions from this section.
QUESTION 1
Mr. Yohane Maluzi is a young entrepreneur. Below is a table showing a
record of accounts for the first year of his Malambe Juice Production
Company (MJPC).
Activities
Value in Kwacha
Initial investment on capital 150,000.00
goods:
furniture
and
equipment
Costs: rent, telephone bills, 500,000.00
water and electricity
Sales value
700,000.00
(a)
Assuming there is no depreciation, what is the profit in the first
year?
(b)
How would an economist define the “profit” above as compared to
an accountant?
(c)
(3 marks)
(4 marks)
A high profile Chinese investor has read about Mr Maluzi’s
business in the Daily City newspaper and wants to have a joint
venture with him. What four advantages would accrue to MJPC if
he accepts the offer?
(8 marks)
(Total 15 marks)
QUESTION 2
(a)
Mention three differentiate between “Perfect Competition” and
“Oligopoly” market structures.
(b)
(6 marks)
An application at the Ministry of Energy and Mining for a license to
operate a new electricity company has induced debate in the
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country. Most citizens are supporting the venture whilst the
government is reluctant to grant the license to the applicant.
(i)
What could be two reasons behind government’s reluctant
to grant the license?
(ii)
(c)
(4 marks)
State two methods that the government can use to prevent
entry into the electricity industry.
(2 marks)
Explain the term “Price Discrimination”.
(3 marks)
(Total 15 marks)
QUESTION 3
(a)
What does the term “Liquidity Preference” mean?
(b)
Explain the difference between nominal interest rates and real
(3 marks)
interest rates.
(c)
(4 marks)
With the aid of a graph, explain how the government of a small
economy would manage to dampen expenditure using interest rate
as a tool.
(7 marks)
(Total 15 marks)
QUESTION 4
(a)
State any three forms of money.
(b)
In relation to currencies, distinguish the following terms:
(c)
(3 marks)
(i)
devaluation and depreciation
(2 marks)
(ii)
revaluation and appreciation
(2 marks)
What is the difference between monetary policy and fiscal policy?
(8 marks)
(Total 15 marks)
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SECTION B
(40 MARKS)
Answer ANY TWO questions from this section.
QUESTION 5
(a)
Outline two advantages and two disadvantages of a “Command
Economy”.
(b)
(4 marks)
Malawi is a mixed economy. What factors would you present in
agreement with this statement?
(c)
(4 marks)
Maize is considered a merit good in Malawi, therefore the
government decided to introduce a universal fertilizer subsidy to
improve the production quantities of this staple food. Draw a graph
and explain how the subsidy will increase production.
(12 marks)
(Total 20 marks)
QUESTION 6
(a)
Explain the concept of “ diseconomies of scale”
(b)
Briefly explain the six major sources of internal economies of scale.
(4 marks)
(12 marks)
(c) Give two advantages that a firm might expects to gain from “Vertical
Growth”
(4 marks)
(Total 20 marks)
QUESTION 7
Development
economists
have
in
recent
years
questioned
the
effectiveness of foreign aid to developing countries particularly Africa as
people have remained poor and the countries are still under-developed.
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(a)
Briefly explain two uses of aid in Malawi.
(4 marks)
(b)
What other two sources do developing countries get there funding
from apart from aid?
(c)
(4 marks)
State any four conditionalities imposed by the International
Monetary Fund and World Bank on developing countries.
(4 marks)
(d)
What four benefits may arise when
government reduces
borrowing?
(8 marks)
(Total 20 marks)
QUESTION 8
(a)
Define the term “natural rate of unemployment”.
(4 marks)
(b)
Explain four forms of unemployment.
(8 marks)
(c)
Briefly state two internal (within the economy) and two external
effects of inflation.
(8 marks)
(Total 20 marks)
END OF EXAMINATION PAPER
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