Question 1

Which THREE of the following constitute injections into the circular flow of income? (Choose three.)

Accepted Answer

A)   Savings
B)   Exports
C)   Government expenditure
D)   Investment
E)   ImportsF)  Taxation B,C,D

Question 2

Which of the following statements defines a diseconomy of scale?

Accepted Answer

A)   A reduction in the unit average cost caused by increasing the scale of production in the long run.
B)   An increase in the unit average cost caused by increasing the scale of production in the long run.
C)   An increase in the unit average cost caused by decreasing the scale of production in the long run.
D)   A reduction in the unit average cost caused by decreasing the scale of production in the long run. C

Question 3

Which TWO of the following business costs are directly affected by a rise in the interest rate? (Choose two.)

Accepted Answer

A)   The cost of procuring equity finance.
B)   The cost of complying with government regulations.
C)   The cost of borrowing from private lenders.
D)   The cost of accessing government subsidies.
E)   The cost of procuring intermediate goods. A,C

Question 4

A company currently sells 10,000 bottles of "bright pink" nail varnish every year at $5 per bottle. If the price is reduced to $4.50 per bottle it is expected that the company will sell an extra 2,000 bottles. What is the price elasticity of demand of the nail varnish?

Accepted Answer

A)   -2.0
B)   +2.0
C)   -0.5
D)   +0.5

Question 5

What does the term 'equity financing' mean?

Accepted Answer

A)   A company financing a short term cash flow shortage by borrowing from a financial intermediary.
B)   A company investing its excess liquidity by purchasing shares.
C)   A company selling off some of its tangible assets to pay for debts.
D)   A company financing its liquidity deficit by issuing shares.

Question 6

Country A's tax system is one where every citizen pays tax on earned income over $12,000 per year. The amount of tax paid as a percentage of income rises as individuals income levels rise. Which of the following describes the nature of the tax paid by individuals in Country A?

Accepted Answer

A)   Progressive
B)   Regressive
C)   Retentive
D)   Proportional

Question 7

Which THREE of the following can be used to reduce the principal-agent problem in business organizations? (Choose three.)

Accepted Answer

A)   Requiring managers to uphold detailed disclosure and reporting practices.
B)   Introducing bonuses related to the profit performance of the business.
C)   Implementing a 'top-down' decision-making process.
D)   Implementing a share distribution scheme.
E)   Requiring managers to take into account the interests of external stakeholders.

Question 8

Quantitative easing, the purchase of government or private securities by the central banks from investors, is an example of:

Accepted Answer

A)   contractionary monetary policy.
B)   contractionary fiscal policy.
C)   expansionary fiscal policy.
D)   expansionary monetary policy.

Question 9

A clothes retailer has estimated a linear trend equation including trend, seasonal and cyclical components to forecast its sales for the next four quarters. Which of the following factors would generate actual sales figures that are likely to differ markedly from the forecast?

Accepted Answer

A)   A drop in sales due to emergency roadwork blocking access to the store.
B)   A drop in sales due to the ongoing economic recession.
C)   An increase in sales due to the increasing popularity of their brand.
D)   An increase in sales before a major religious festival.

Question 10

Which TWO of the following policy actions might be available to a government that wishes to reduce a deficit in the balance of payments? (Choose two.)

Accepted Answer

A)   Devaluate the exchange rate in order to increase exports.
B)   Increase the money supply in order to stimulate domestic consumption.
C)   Appreciate the exchange rate in order to reduce imports.
D)   Reduce the interest rate in order to stimulate investment.
E)   Introduce tariffs on imported goods in order to favour domestic producers.

Question 11

Which THREE of the following businesses are more likely to fare better during a recession? (Choose three.)

Accepted Answer

A)   A construction company specializing in road infrastructure.
B)   A producer of rice, a staple good.
C)   A producer of automobiles, a durable good.
D)   A producer of security equipment, a counter-cyclical good.
E)   A retailer specializing in fashion, a cyclical good.F)  A construction company specializing in private residential accommodation.

Question 12

A business has a contractual requirement to pay a sum of $6m in a foreign currency in 12 months time. It takes out a forward foreign exchange contract for this sum. This is an example of:

Accepted Answer

A)   translation risk avoidance
B)   economic risk reduction
C)   arbitrage
D)   hedging

Question 13

Which of the following are the likely consequences, in the domestic economy of a country, of an increase in interest rates? 1. A rise in demand for capital goods. 2. A fall in demand for consumer goods. 3. A fall in demand for housing. 4. A rise in the exchange rate.

Accepted Answer

A)   2, 3 and 4
B)   1, 3 and 4
C)   1, 2 and 4
D)   1, 2 and 3

Question 14

Which of the following is correct regarding data? Data can be recorded as: (1) numbers. (2) symbols. (3) raw facts.

Accepted Answer

A)   (1)  only
B)   (3)  only
C)   (1)  and (2) 
D)   (1) , (2)  and (3)

Question 15

A trade agreement that removes all import tariffs between member countries, sets up common external tariffs against non-members, but does not advance toward economic integration is called:

Accepted Answer

A)   an economic union.
B)   a customs union.
C)   a free trade area.
D)   a common market.

Question 16

The government of Country Z imposes a tariff on all imports of coal from other countries. Which THREE of the following are possible effects of this decision in Country Z? (Choose three.)

Accepted Answer

A)   The cost of living will fall.
B)   Employment in the coal industry will increase.
C)   The balance of payment will improve.
D)   Government's revenue will improve.
E)   Coal producers will adopt new technologies to improve efficiency.F)  More resources will be allocated to alternative energy sources.

Question 17

Setting a minimum wage above the equilibrium wage:

Accepted Answer

A)   has no effect on unemployment, and setting a minimum wage below the equilibrium wage results in increased unemployment.
B)   results in increased unemployment, and setting a minimum wage below the equilibrium wage has no effect on unemployment.
C)   results in decreased unemployment, and setting a minimum wage below the equilibrium wage results in increased unemployment.
D)   results in increased unemployment, and setting a minimum wage below the equilibrium wage results in decreased unemployment.

Question 18

An institution offers an 8 percent compound interest rate annually for six years, for an investment of $250,000. What is the total amount of interest that would be received over the six years?

Accepted Answer

A)   $370,000.00
B)   $396,718.58
C)   $146,718.58
D)   $120,000.00

Question 19

Which of the following organizational arrangements is an example of a multinational corporation (MNC)?

Accepted Answer

A)   An insurance company based in Country E opens a sales office in Country F in order to service the local market.
B)   A music production company based in Country C signs a contract with an artist's management company based in Country D.
C)   A retailer based in Country G uses an online retail platform in order to sell goods to customers in Country H.
D)   A chain of restaurants based in Country В signs a franchise agreement with a company that intends to open restaurants in Country A.

Question 20

A business sells soft drinks at $3 a bottle and its current sales are 20,000 bottles per month. The price elasticity of demand for this product is -2. If the price is reduced to $2.70, the change in the total revenue for the business will be:

Accepted Answer

A)   -$3,300
B)   +$4,800
C)   -$16,800
D)   +$4,000

Exam 3: BA1 - Fundamentals of Business Economics Question Tutorial