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1. The nature of business
1. a Two advantages of doing business as a sole
trader are:-
(Choose any two)
Easy to establish and manage. z
Decision-making is speedy, since sole z
traders own and operate their own
businesses.
Customers receive special attention. z
Profits are not shared. z
Two disadvantages of doing business as a
sole trader are:-
(Choose any two)
Unlimited liability, that is, all losses and z
debts incurred by the business must be
borne by the owner.
Problems in raising capital. z
Limited managerial skills. z
Lack of competitiveness. (Discounts, if z
offered to the sole trader may be small
in comparison to big business
operations).
Lack of continuity, if the owner dies, the z
business also dies.
Long working hours. z
b Multinational corporations are giant
international firms, which operate from their
corporate headquarters in their home
countries, but conduct their business
activities through their subsidiaries across
the globe. They specialize in related
activities, for example energy production
or banking.
Conglomerates are large companies which
own a variety of businesses producing
different goods or services.
c Multinational corporations:- Bank of Nova
Scotia; British Petroleum (BP); Alcoa
Conglomerates:- Neal and Massy Ltd.; Ansa
McCall; Grace Kennedy Ltd.
d Two benefits of a franchise for an individual
starting a business are:-
the entrepreneur enjoys the goodwill z
associated with the franchise and can use
an international brand name.
there are fewer risks involved than in z
starting a new business (e.g. in
developing markets for products etc.).
Two disadvantages of a franchise for an
individual starting a business are:-
the entrepreneurial spirit is restricted as z
the business must follow the regulations
of the franchisor
the entrepreneur has to pay a portion of z
the profits in the form of royalties to the
franchisor.
e Two differences between a private limited
company and a public limited company are:-
Please note that these are not the only possible answers. Most CSEC

Principles of Business examination questions can be


answered in many ways, using a variety of different examples.
Areas of difference Private limited company Public limited company
Accounts Accounts may be kept
confidential.
Reports and financial
information must be made
public.
Raising Capital Private companies cannot issue
shares to raise capital for the
business.
They can raise large amounts
of capital through the issue of
shares to the public.
2. a The four different types of economic
systems are:-
Subsistence economy z
Market or capitalist economy z
Planned or command economy z
Mixed economy. z
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b Two differences between any two economic
systems listed in (a) above are:-
(Choose any two systems and compare)

Areas of
differences
Subsistence
Economy
Market
Economy
Planned
Economy
Mixed Economy
Ownership of
the factors of
production
Individual and
family
Private
individuals
and firms
The state or
government
Both government and private
individuals and firms. (Private
Sector)
Who decides what,
how much and for
whom to produce?
(areas & levels of
production)
Individual and
family
Consumers
choices and
demand
The state or
government
Government provides essential
services (hospitals, education,
infrastructure, etc.) and the
private sector provides goods
and other services.
Government
participation or
involvement
No government
involvement.
Little or no
government
involvement.
Total
government
involvement in
all areas.
Government involvement
only in certain areas of
national importance, (national
security, hospitals, education,
infrastructure, etc)
c Three areas of differences between the
private and public sectors are:-

Areas of difference Private Sector Public Sector
Ownership & control It is that part of the economy
that is owned and controlled by
private individuals and firms.
It is the operations in the economy that
are undertaken by the government for
the benefit of its citizens, and all central
and local government activities which are
funded by the public.
Motive of operation Its primary motive for being in
business is making profits.
Its primary motive is to provide essential
services to the citizens of the country; the
making of profits is secondary.
Sources of funding
(capital)
Loans from local financial
institutions.
Personal savings.
Loans from family members.
Sale of shares to the public.
Taxation.
Loans from local and/or international
financial institutions.
Sale of Treasury Bills and Government
bonds and securities.
Sale or divestment of public assets.
d Two groups of people who may form a
co-operative are:-
(Choose any two)
Producers
Consumers
Savers.
e One purpose for which a co-operative might
be formed for each of the two groups in (d)
above are:-
Producers to ensure that the best price
is obtained for their products.
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Consumers to obtain goods at higher z
quality and lower prices.
Savers to encourage savings and to z
obtain low-interest loans, etc.
3. a Barter is the exchange of goods/services
without the use of money.
b Two problems associated with the barter
system are:-
(Choose any two)
Double coincidence of wants (each z
person has to have what the other wants).
Rate of exchange (deciding how much of z
one good is exchanged for another).
Store of value (can't save goods for use z
at a future date without spoiling).
Divisibility (some goods can't be split into z
smaller parts without losing its value).
c The four functions of money are:-
Medium of exchange. z
Standard for deferred payments. z
Measure of value. z
Store of value. z
d Three advantages of making payments
with money rather than through the
barter system are:-
there is no longer a need for a double z
coincidence of wants to take place. Money
is widely accepted for any transaction.
Money is divisible, and can be used for z
both large and small payments
money is portable, and can be used to z
make payments at any distance.
e Two ways in which payments may be made
using money, other than the use of notes and
coins are:-
by the use of cheques which are not legal z
tender but an order to the banker to
make the payment to the bearer.
by the use of debit cards which is a z
non-cash transaction at the point of sale.
The merchant will receive his/her money
from the bank.
4. a A shareholder is a person who is part owner
of a business through the purchase of shares.
b Two ways in which a shareholder may
benefit from a successful business are:-
the shareholder can receive dividends on z
his shares
the shareholder can expand his equity, z
that is, the value of his shareholdings.
c Three functions of a business are:-
(Choose any three functions)
to create employment and incomes for z
people in the society.
to maintain and expand its market and z
the economy.
to compete by producing goods and/or z
services to satisfy the needs and wants of
the population.
to maintain its social status as a z
corporate citizen by assisting the
community in which it operates.
to satisfy the need or desire for making z
more money by maximizing profits.
to take on the risks associated with z
running a business.
d A stakeholder is any person, group of people,
or organisation that has an interest in the
business.
e Three groups of stakeholders, and one way
in which each may benefit from the
successful operation of a business are:-
Owners, from the receipt of profits. z
Employees, from improved wages and z
working conditions.
Customers, from quality products and z
reasonable prices.
Society, from the funding of community z
groups and activities.
Government, from taxes, both direct and z
indirect.
5. a An entrepreneur is a person who undertakes
the risks involved in establishing and
running a new business.
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b Two reasons why James may be interested in
starting his own business are:-
(Choose any two)
Desire for financial independence, and z
to earn their own money and be
financially secure.
Self-fulfilment. He may want to be z
successful and to determine that
success.
Self-actualisation. It may have always z
been a dream or goal to own and
operate his own business.
To improve his status in life, by z
improving his income, and their
economic standing in society.
c Two advantages and one disadvantage for
James if he starts his business on the
Island of St Anne as against the island of
St George
Advantages:-
Manufacturers are free to produce what z
the consumers require, and the
consumers in turn are free to spend their
money as they see fit.
Decision-making is not controlled, so z
there is greater participation in the
decision on what is to be produced to
satisfy the needs of the consumer.
Disadvantage:-
Businesses could be exploited through z
the imposition of high prices for
utilities and materials if there is
insufficient competition among
producers or government regulation of
business.
d Two functions of a business owner when
starting operations are:-
(Choose any two)
planning in order to achieve the goals z
and objectives of the business
sourcing finance for the day to day z
operations of the business
hiring staff to operate the various areas z
of the business
e Two roles that James would have to perform
with respect to any employees hired by his
organization are:-
(Choose any two)
Pay workers a fair and reasonable wage z
Provide safe and proper working z
conditions
Train workers to perform their tasks z
effectively and efficiently
Promote workers based on merit z
2. Organization and management
1. a The four main functional departments of a
typical business are:-
Production z
Marketing and Sales z
Finance and Accounting z
Personnel or Human Resource z
Management.
b Two responsibilities which would be
assigned to each of the departments listed
above are as follows:-
Production
sourcing of raw materials
manufacturing of the products.
Marketing and Sales
promoting the products (e.g. advertising,
sales promotion, etc)
selling the products to customers.
Accounting and Finance
making and receiving payments on
behalf of the company
preparing the financial statements of the
company.
Personnel or Human Resource Management
recruiting, disciplining or dismissing staff
training, promoting or redeploying staff.
c One way in which an increased demand will
affect each of the major departments of a
sports goods manufacturing company is:-
Production department will have to source
more materials to manufacture more
equipment.
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Personnel or Human
Resources manager
Reporting relationship
Lateral relationship
Marketing
manager
Production
manager
Managing
Director
Marketing and Sales departments will have
to distribute and sell more items.
Accounting and Finance department will
have to release more funds to purchase the
materials needed to manufacture the
additional equipment, as well as pay
overtime or new staff.
Personnel or Human Resource Management
department will have to hire workers to meet
the production demands.
2. a Management is the bringing together of
all the resources (human and non-human)
in an effort to meet the goals of an
organization.
b Four functions of management are:-
(choose any four)
Planning is the process by which a z
manager prepares for the future.
Organizing is the process of pulling z
together all resources needed, to meet
the goals of the organization.
Controlling is the process of checking z
and measuring how activities are being
carried out in the business and steering
them towards meeting the goals set by
the organization.
Delegating involves assigning tasks or z
goals to subordinates whilst at the same
time granting them the necessary
authority to carry out the tasks.
Staffing is the process of selecting, z
orienting, assigning, training,
promoting, and retiring the labour force
as well as matching the right personnel
with the right job.
Communicating is the process of z
transmitting information and ideas to
people within the various levels of the
organization.
Directing/Coordinating is the process z
by which actual performance is guided
towards the goals to be met.
Evaluating is the process of assessing z
work performance to determine how
well the tasks have been done, and what
steps are to be taken to improve future
performance.
Motivating is the process by which z
workers are encouraged or influenced to
take the right action to get the tasks and
jobs done.
c Two responsibilities of management to the
employees of a business are:-
(Choose any two)
to provide fair wages z
to provide safe working conditions and z
equipment
protection against unfair dismissal z
providing opportunities for promotion z
and growth within the organization
to provide compensation for job-related z
injuries
to provide proper training and education. z
d i Lateral relationships exist among people
who are at the same level within an
organisational structure.
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3. a Motivation is the process by which workers
are encouraged or influenced to take the right
action to get the tasks and jobs done.
b Maslows hierarchy of needs are:-
Physiological or basic needs z
Safety and security needs z
Social and belonging needs z
Esteem needs z
Self-actualization needs. z
c Theory X assumes that most workers dont
like work and prefer to be directed, do not
like responsibility and focus more on safety
than anything else.
Theory Y assumes that the workers like work
and are willing and capable of making a
positive contribution to the organization.
d One purpose for which a business may
establish a committee:-
to advise the executive and to assist it in z
developing policies and procedures for
scheduling staff vacations.
Two members likely to be appointed to this
committee are
Chairperson z
Secretary z
e i The usual role of the chairman or
chairwoman is to convene and to
coordinate the proceedings of the
meeting.
ii The usual role of the secretary is to
record the minutes of the meeting and
provide members with copies.
ii Line management represents lines of
commands or authority; it is a vertical
relationship in which the line director/
manager gives orders or instructions to
subordinates, who may pass these
further down the line.
iii Span of control is the number of
subordinates a manager supervises, or
the effective limit to the number of staff
that a manager can supervise efficiently.
Accounts
clerks
Accounts
Receivable manager
Chief
accountant
Financial
manager
Managing
Director
M. D.
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iii The minutes are a summary of what
took place in the meeting, decisions,
issues for further discussion, etc.
4. a Four different leadership styles are:-
Authoritarian z
Democratic z
Charismatic z
Laissez Faire. z
b One advantage and one disadvantage of any
two styles from (a) above are:-
(Choose any two styles)
Authoritarian
Advantage:-
Quick decision making which might be z
essential in a crisis.
Disadvantage:-
No participation from employees in z
decision-making
Democratic
Advantage:-
Participation by employees in decision- z
making can lead to more effective
decisions as employee experience can be
useful for managers.
Disadvantage:-
Time must be devoted to involving staff z
and this can slow down decision-making.
This can be a problem when a quick
decision is essential.
Charismatic
Advantage:-
The charismatic leader inspires z
employees with personal magnetism and
communication skills and this is a
motivating factor.
Disadvantage:-
A charismatic leaders decisions may be z
accepted uncritically. Unwise or
unscrupulous leadership may bring
disaster to a business.
Laissez Faire
Advantage:-
Gives employees a sense of z
empowerment, as they are allowed to
use their initiative to complete the tasks
required.
Disadvantage:-
Employees could be given too much z
freedom, to the extent that they begin
operating outside of the goals of the
organisation.
c One benefit of teamwork and one difficulty
associated with teamwork are:-
(Choose any one)
Benefit:-
creative problem-solving from the z
inputs of individuals of the team.
the pooling of resources, ideas and z
expertise.
motivation of the workers personally z
and collectively.
increases the level of productivity. z
improvement in the quality of work. z
fostering a participative approach to z
work, giving a feeling of belonging and
making a significant contribution to the
organization.
providing for continuity in the carrying z
out of projects if a member leaves.
increase in the efficiency and z
effectiveness of the negotiation process.
Difficulty:-
(Choose any one)
incompatibility of the team members z
may lead to rivalry within the team.
there may be too much rivalry between z
teams.
a team member who is not interested in z
the particular task may weaken the
overall effort.
d Four channels of communication which may
be used in a business context are:-
(Choose any four)
consultation z
suggestion box z
meetings (formal or informal) z
reports z
memorandum (a memo) z
telephone z
electronic mail (e-mail) z
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letters z
newsletters z
interviews z
manuals z
notice boards z
speeches z
courses and seminars z
intercoms. z
e One purpose for which each in (d) above
would be suitable is:-
(Choose any four)
consultation (to have discussions z
between management and staff on
particular issues)
suggestion box (to get feedback from z
workers to improve procedures)
meetings (formal or informal) (to discuss z
issues affecting the organization)
memorandum (to inform staff about z
decisions and issues)
telephone (to contact anyone within or z
outside the organization, usually for
informal communication)
electronic mail (e-mail) (to transmit or z
receive information rapidly)
interviews (to select the appropriate z
candidate for a position within the
organization)
manuals (to provide instructions for z
particular tasks or jobs)
intercoms (to contact a specific person z
or groups of people).
5. a Management Information System is the
development and use of effective information
systems in organizations to support monitoring
and decision-making by management.
b Two advantages of a Management
Information System over a paper-based
management system are:-
data can be retrieved and processed in a z
much shorter time.
Less space is needed for storage than a z
paper-based system.
c Two types of Management Information
System are:-
(Choose any two)
Transaction processing system (TPS) z
Decision-making support system (DSS) z
Office automation system (OAS) z
Executive support system (ESS) z
d Two ways in which one type of Management
Information System may be used, and two
requirements for effective operation are:-
(Choose any one)
Transaction Processing System (TPS) z
it can be used to handle point-of-
sale transactions
it is used by the automatic teller
machines
it requires quick systems response
it requires the system to be reliable.
Decision Support System (DSS) z
it is used to enhance decision-
making, for example on production
volume or staff recruitment.
it is used to collect and organize
information in a less structured
environment
it requires adaptability to deal with
new requirements
it requires the ability to use many
different types of information.
Office Automated System (OAS) z
it may be used for internal e-mails
it may also be used for
teleconferencing
it requires flexible, adaptable and
stable technology
it requires a local or wide area
network system to facilitate its
operations.
Executive Support System (ESS) z
it is used to support management
decision-making
it is used to obtain high-level,
aggregated and standardised
information from many sources
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it must be flexible for use in many
different situations
it must be easy to operate for
executives with no specific computer
training.
e Two challenges likely to arise in the
introduction or operation of a Management
Information System are:-
(Choose any two)
the cost of setting up and maintaining z
the system (establishment, maintenance
and security)
the cost of training workers to operate z
the system
the possibility of human error in the z
input of data.
6. a A leader is one who is able to employ the most
appropriate strategies for getting work done in
order to meet the goals of the organization.
b Abigails former leadership style was laissez
faire, because she always allowed people to
choose when, and how, they wanted to get
the job done as long as it was completed
within the timelines set.
c Two advantages and two disadvantages of
Abigails former leadership style are:-
Advantages:-
it gives employees a sense of z
empowerment, as they are allowed to
use their initiative to complete the tasks
required
the employees self-esteem is developed z
and they feel more involved.
Disadvantages:-
employees could be given too much z
freedom, and might become lazy and
ineffective
they could begin operating outside of z
the goals of the organisation.
d i The new structure will affect the span of
control for senior managers to the extent
that they will have more subordinates to
supervise.
ii One benefit the organization hopes to
derive from introducing the flat
organizational structure is to speed up
the flow of communication and
information as there will be fewer levels
to go through.
e Two forms of industrial actions that are
available to the employees if differences
cannot be resolved are:-
(Choose any two)
Go slow, that is taking a longer time z
than normal to perform a task
Work to rule, that is the workers will z
only do a certain amount of work and
nothing more
Sick out, that is staying at home and z
pretending to be sick
Striking, that is withholding their labour z
entirely and walking off the job.
3. Establishing a business
1. a i Enterprise is one of the factors of
production which organises the other
factors of production (land, labour and
capital) to produce goods and services
and make a profit (or loss).
ii An entrepreneur is a person who
undertakes the risks involved in
establishing and running a new business.
b Four qualities of a successful entrepreneur are:-
Creativity. z The entrepreneur must be
able to take the step of setting up a new
business.
Determination. z The entrepreneur must
be firm in his goal and objectives for the
business to ensure that they are met.
Flexibility. z The entrepreneur must be
will to adjust strategies as circumstances
changes within the business environment.
Willing to take risk. z The entrepreneur
must be willing to take the risks involved
in starting any new business, and be
aware of all the pitfalls or obstacles that
may be involved.
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c Two reasons why someone may decide to
establish their own business are:-
Desire for financial independence, and z
to earn money and be financially secure.
Self-fulfilment. The desire to be z
successful and to determine that success.
d Four sources from which an entrepreneur
may obtain capital to start a business are:-
your own money (personal savings) z
loans from family or friends z
loans from financial institutions (Banks, z
Credit Unions, etc.)
Loans or grants from government z
institutions (e.g. the National Enterprise
Development Company in Trinidad and
Tobago)
2. a A business plan is an explanation of who will
be responsible for a new business, what the
business is intended to do, how it is going to
get the money and other resources to do it,
and what profit it hopes to make.
b Two ways in which a business plan helps
entrepreneurs are:-
(Choose any two)
Providing a blueprint for the operations z
of the business
Identifying the likely income and z
expenditure
Giving the entrepreneur a baseline to z
monitor progress of the business
Providing a guide to the goals of the z
business and future financial flows for
those financing the firm
Enabling professional advisers to z
monitor the progress of the business.
c Two types of data which may be used in the
preparation of a business plan are:-
(choose any two)
market data on who the intended z
customers are, customer needs,
competition, size of market, etc., and
proposed marketing strategy
financial data on how the business will z
be financed, profit and loss forecasts,
cash flow forecast, capital expenditure
requirements
management data on the ways in which z
the business is expected to grow,
recording procedures, and methods for
monitoring progress.
d One topic which should be covered by a
business plan under each of the following
headings is:-
i Finance
(Choose one of these)
Capital requirements to start the z
business (e.g. plant, machinery,
stocks) and operate the business for
the first six months.
Sources of capital, that is, where the z
entrepreneur can obtain funding to
start the business.
ii Legal aspects
Whether the business will be z
organised as a sole trader, a
partnership, a company or another
form of organization.
e i Contingency plan. This is an plan to
deal with an event outside the control of
the business, such as a natural disaster.
ii Long-term plan. This is outlines
strategies for change over a period of at
least three years, and usually longer.
iii Project plan. This is planning for a
specific project or task; it is time specific
to the respective project.
3. a Three steps that John must take before
starting his own business are:-
to find a proper location to operate the z
business
to register the name of the business with z
the Registrar of Companies
to register the business with the z
Revenue Authority for taxes.
b Two regulations affecting Johns Burger
Palace which would be applied by each of
the following are:-
i Local government
food handlers licences (food badge) z
for himself and any employees
building regulations for his business z
premises.
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ii National government
registration with the Revenue z
Authority for the payment of taxes
registering all employees with the z
National Insurance Board for the
payment of NIS
c i The risk faced by the bank if there is no
collateral is that it will lose its money if
the borrower fails to pay.
ii The benefit that a bank may get from
the use of collateral is that it can recover
the money loaned to a borrower by
selling the collateral if he fails to repay
the loan.
iii Two possible sources of collateral are:-
(Choose any two)
Government tax-free savings bonds. z
Stocks and shares. z
Fixed deposit certificate. z
A loan guarantee from a third party. z
Land titles or deeds of property. z
Life assurance policies (cash value). z
d Two ethical issues that John must be mindful
of if he is to start a new business are:-
(Choose any two)
the danger of selling substandard goods z
due to the use of poor quality
ingredients
improper or misleading advertising z
he has to pay all taxes and NIS z
contributions to the relevant authorities
he must properly dispose of all garbage z
and waste to avoid polluting the
environment.
4. Business and the law
1. a A contract is an agreement between two or
more parties that is legally binding or
enforceable by law.
b The three essential features of a valid simple
contract are:-
offer z
acceptance z
consideration. z
c Three ways in which a contract may be
terminated or discharged are:-
(Choose any three)
by breach, that is when one party to a z
contract fails to carry out their side of
the agreement
by performance, that is when both z
parties carry out their side of the
contract.
by agreement, that is when both parties z
agree to cancel the contract before it is
completed
by death, that is one party might die and z
cause termination. However, in some
cases, that partys agent or beneficiaries
may be liable to continue the terms of
the contract.
d Two remedies for a breach of contract are:-
(Choose any two)
financial compensation, or z
compensatory damages.
specific performance for example where z
the vendor is ordered to complete a sale
of land.
declaratory relief, in which the courts z
state each partys rights and obligations.
2. a An invitation to treat is an expression of
intent to negotiate or an invitation to make
an offer.
A social agreement is a bare promise that is
not enforceable by law.
b Three differences between a simple contract
and a specialty contract are:-
A simple contract
can be either oral or implied. It need not
be in writing
does not always need to be signed
does not usually need to be witnessed.
A specialty contract
is a formal agreement that must be done
in writing
must always be signed by all parties
agreeing to it
in most countries, a deed or specialty
contract must be witnessed.
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c Three types of specialty contracts and their
purposes are:-
Sale of land (deed of conveyance)
Deed of gift, transferring land or
property by gift
Deed of partnership, setting out the
rights and duties of each partner.
d The difference between a void contract,
a voidable contract and an unenforceable
contract are:-
Void contract. These are contracts that
never came into existence, for example
an agreement to break the law.
Voidable contracts. These are contracts
which may be overturned by legal
action, for example because they were
based on misrepresentation of an
important fact, or because one of the
parties was under duress.
Unenforceable contract or transaction is
one that is in conflict with the legal
rights of one party, for example a
contract for the sale of goods which
states no refund, no return.
3 a The difference between insurance and
assurance is:-
Insurance is about uncertainty, for
example insurance against loss by fire.
Assurance is about certainty, as in life
assurance.
b Two benefits which may be provided by
assurance are:-
to provide for a payment after death to
the beneficiaries (whole life policy)
to provide for a payment of a basic sum
at a certain age or on the death of the
insured, whichever comes first
(endowment policy).
c The pooling of risk is where a risk is defined
as a loss that may or may not occur, and the
insurance company undertakes to bear the
risks of many insured persons in return for
the premium they pay the company. When a
person makes a claim for a loss arising from
an insured risk, the insurance company
compensates the person from the premiums
it has received from its clients.
d Four principles of insurance are:-
(Choose any four)
Utmost good faith (the parties must be
truthful in their declaration and must
disclose all relevant facts)
Insurable interest (the insured must be
the one that would suffer financially if
an event occurred)
Proximate cause (the damage that is
incurred is caused by the risk insured
against)
Indemnity (the policy holder is
compensated for the actual loss
incurred)
Contribution (if the same risk is insured
with several insurance companies, each
insurer will contribute a percentage
towards payment of the claim).
e Two forms of insurance which are
appropriate for businesses, but not for
most individuals or households are:-
liability insurance protects businesses
against liability as a result of losses or
injury incurred by people on the
property
cargo insurance protects exporters and
shippers against the hazards of the sea,
or damage or loss of cargo.
4. a The purposes of the following documents are:-
i A bill of lading is for goods transported
by ship. It acts as a receipt for the goods,
summarizes the shipping contract and
transfers ownership to the consignee.
ii A bill of exchange is a document often
used in international trade a which
promises payment of a particular sum on
a later date.
iii A credit note is sent by the supplier, to
the customer, (for example when there is
an error in the invoice or when goods
are returned to the supplier due to
damage) and the customers account is to
be decreased.
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iv An invoice is a document that lists the
goods purchased and informs the
purchaser of the amount owed to the
supplier. It also states the terms of
purchase and payments.
v A statement of account is a document
that summaries all the transactions of a
customer; debits and credits for the
previous month and shows any amount
due for payment.
b Three instruments of payment that can be
used for international trade are:-
(Choose any three)
Telegraphic Money Order (wire transfer). z
It is a quick way of making payments or
transferring sums of money to persons in
local or overseas locations. It is part of the
electronic banking system.
Bill of exchange. z
It is an unconditional order in writing
from the purchaser, addressed to his
banker giving instructions to make
payment on demand or at a fixed or
determinable future time, a certain sum
of money to a specific person (supplier)
or to a bearer.
Documentary credit. z
It is a facility for paying debts arising
from international trade. It allows the
exporter to receive immediate payment
from the importers bank as long as
documentary evidence of the transaction
such as a bill of lading is presented.
Bank draft. z
It can be used when payments for goods
or services are to be in foreign currency.
It is guaranteed by the bank on which it
is drawn (issued) because the equivalent
amount was paid when the draft was
purchased.
c Two differences between payment by credit
card and debit card are:-
Credit card z
it is a form of credit facilitated by
the bank
interest is charged on unpaid
amounts or balances after the end
of the monthly billing period.
Debit card z
it is directly linked to the holders
personal bank account
no interest is charged by the bank
as the payments are automatically
deducted from the holders account
at the time of sale.
5. Production
1. a The four factors of production are:-
Land z
Labour z
Capital z
Enterprise. z
b i Four natural resources that are found in
the Caribbean are:-
bauxite z
oil z
beaches z
gold. z
ii One country in which the resources
stated in (b)(i) above can be found:-
Bauxite can be found in Jamaica z
Oil can be found in Trinidad and z
Tobago
Beaches can be found in The Bahamas z
Gold can be found in Guyana. z
iii One way in which a business could make
use of the resource listed above for
production is:-
(Choose any one)
oil for the manufacture of gasoline z
and motor oils
bauxite for the manufacture of z
aluminium
Beaches can be used for the z
development of tourism
Gold can be used to manufacture z
jewellery.
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c Production is the process of employing
labour and capital and other inputs to make
goods and services available to consumers.
Productivity refers to how much output can
be achieved for each unit of one of the
factors of production, for example average
production for each worker employed.
2. a Two ways in which migration may benefit
each of the following are:-
i The migrant
to be able to obtain a higher salary z
from employment
an opportunity to gain further work z
experience and training.
ii The home country
The migrant may send funds home z
as cash remittances to relatives
The migrant may return after some z
years with improved skills and
accumulated capital.
b Two factors which may affect the quality of
labour are the:-
(Choose any two)
education of the labour force their z
skills and competencies
technology in use how trained are the z
workers to use the technology
type of on-the-job training provided for z
employees
managerial systems in place for z
communicating with employees
health and well being of the workers. z
Attitude of workers is critical, whether
or not they enjoy their work and make
an effort to perform at their best.
c Four factors that may affect the location of a
business are:-
(Choose any four)
location of raw materials, are they z
available close to the site?
location of the market, is it close to the z
business?
location of energy sources, are they z
available close by?
availability of transportation, is there z
easy access?
availability of labour, are the required z
skills available?
government incentives for locating a z
firm in a particular area.
3. a Three levels of production are:-
Subsistence production involves z
producing goods for ones self and
family
Domestic production involves z
producing goods and services for the
local market
Surplus production involves producing z
excess goods and services for export.
b Three types of production are:-
Primary production involves extracting or z
gathering the raw materials from nature
Secondary production involves z
converting the raw materials into
finished or semi-finished goods, and
building construction
Tertiary production involves providing z
services to customers, either directly or
indirectly.
c Three characteristics of a cottage
industry are:-
(Choose any three)
based in or close to the home of the z
entrepreneur
uses mainly manual labour z
operates on a small scale z
uses mainly local raw materials z
uses family members as labour z
often produces handicrafts or foods. z
d One way in which a cottage industry may
benefit the economy is:-
(Choose any one)
contributes to the GDP of the country z
by adding (to a small extent) to total
production
the worthwhile engagement of persons z
by the creation of employment
helps the economy by earning foreign z
exchange, through exports or tourism.
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4. a The distinction between a forward and
backward linkage, and an example of each is:-
Backward linkage is when one industry or
sector joins with another industry that
produces its raw materials, to ensure that they
will always have access to a ready supply.
Example:- a cheese and butter manufacturer
links with a dairy farm for its milk supply.
Forward linkage is when one industry joins
with another industry as a market for its
finished or semi-finished products.
Example:- a furniture manufacturer links
with a department store to sell its furniture.
b The growth of a business may affect:
i Organizational structure
the business become more complex, z
and loses the personal touch linking
manager and employees in a small
business.
managing the many business z
activities becomes more difficult
ii Exports
mass production allows for lower z
costs of production
this allows the firm to sell its product z
more cheaply and become more
competitive in the export market
The firm can sell to overseas z
supermarkets and other customers
who require large-volume
production.
c Economies of scale are the benefits that are
derived by a firm, from engaging in large
scale production.
d Two examples how economies of scale may
benefit a growing business are:-
the business can afford large-scale z
machinery and equipment, which
reduces the cost of production
The business can negotiate a discount z
from its suppliers, if it buys goods and
services in large quantities.
5. a The difference between capital intensive and
labour intensive is:-
Capital intensive means that the z
production processes relies more on
machinery and equipment than on
human labour.
Labour intensive means that more z
human effort is being used than
machinery, with the employment of a
large number of workers.
b Two labour intensive industries that operate
in my country are:-
(Choose any two)
banana industry z
tourism industry z
handicraft industry z
sugarcane industry z
c Mechanization is the replacing of human
and animal labour with machines in order to
produce more quickly and efficiently.
Automation is use of machines which can
complete a task with minimal human
intervention.
d Two positive and two negative effects of
automation and mechanization are:-
tasks can be completed in a shorter time z
more dangerous tasks can be safely done z
by machines
unemployment is created as workers are z
replaced by machines
new technology is costly to install and z
maintain.
6. a Two effects that Sues migration may have on
her prospective destination country are:-
Sue is a well-educated which will benefit z
her employer and may also relieve a
shortage of labour in her destination
country.
Sue will contribute to the variety of z
cultural differences in her destination
country, and may add to its quality
of life.
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b Three actions which Sue would need to take
if she decides to establish a new business at
home are:-
she would have to find a location to set z
up her business
she would have to source the funds z
(capital) to start and operate her business
she would have to hire workers to z
operate the business.
c Three effects that the new business would
have on her home community if she decides
to stay are:-
she would be providing goods and z
services to the community
she would be providing opportunities z
for employment to people
she would be providing a market for z
other local industries producing inputs
for her business.
d Two ways in which the increase in size of the
business would have an effect on her
operations are:-
(Choose any two)
it would be easier to raise large amounts z
of capital
there will be more capital available for: z
extensive advertising
research and development
employing specialist personnel
labour-saving machinery
mass production allows greater
possibilities for specialisation.
she would be able to obtain special
prices and discounts from her
suppliers.
6. Marketing
1. a The product life cycle describes the way in
which sales rise and eventually fall. The
stages in the life cycle include.
Introduction (development, advertised z
for sale)
Growth (sales and profits increase z
steadily)
Maturity (market established, sales z
stabilise and competition is faced)
Decline (sales and profits fall, product is z
either pulled or revived, some goods
never reach this stage. e.g. salt, matches).
b The stage in a product life cycle in which
sales revenue covered initial development
and marketing costs is at the maturity stage.
c It is important for both the production and
marketing departments to be aware of the
position of their products in the life cycle
because:-
the production department need to z
know when to begin research and
development on new products or
improvements to old products.
the marketing department need to z
know in order to develop the
appropriate promotional strategies to
boost sales, etc.
d The stage in a product life cycle when there
is a focus mainly on:
i Design and development is the pre-
launch stage
ii Defending and maintaining market share
is the maturity stage
iii Developing awareness of the new
product is at the introduction stage.
e Three activities which could be used to
promote a new consumer product such as a
soap or deodorant are:-
advertising a non-personal sales
presentation technique that is used to
encourage consumers to buy a product
(radio, television or print).
sales promotion short-term incentives
given to customers to encourage sales (free
samples or banded offers).
personal selling a presentation by a
representative of a firm to prospective buyers
to persuade them to purchase a product.
2. a Two characteristics of perfect competition are:-
(Choose any two)
very large numbers of buyers and sellers. z
no buyer or seller can influence the z
ruling market price by individual action.
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all buyers and sellers have accurate z
knowledge about the market in which
they are engaged.
the product is uniform or homogeneous, z
that is, it is similar in all aspects.
in the long run, firms can enter this z
market or leave when they want to do so.
b One distinction between monopolistic
competition and each of the following:
i Perfect competition.
ii A monopoly.
Areas of difference Monopolistic
Competition
Perfect Competition
(i)
Monopoly
(ii)
Market size Competition among
many sellers.
Very large numbers of
buyers and sellers
Only one firm operating in
the industry.
Type of product Product differentiation. The product is uniform or
homogeneous, that is, it is
similar in all aspects.
The production of a
product with no close
substitute.
Barriers to entry Free entry into the
industry in the long run.
In the long run, firms can
enter this market or leave
when they want to do so.
There is no entry of other
firms (often legal or
government restriction).
c Demand refers to the willingness and ability
of consumers to purchase a product at a
particular price over a given period of time.
If demand is reduced, price will fall and a
smaller quantity will be produced.
At the equilibrium price
demand equals supply
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In this area supply is greater than
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At the equilibrium price
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In this area supply is greater than
demand. Price is pushed down.
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demand equals supply
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d One pricing strategy which may be used
under monopolistic competition is:-
(Choose any one)
Predatory pricing. (lowering prices to z
get rid of unwanted competition).
Differential pricing. (different prices for z
different groups of customers and
markets).
Promotional pricing (i.e. a low z
introductory price to encourage sales of
a new product)
3. a Three factors which may affect consumer
behaviour are:-
(Choose any three)
Price of the goods. A low price may z
encourage sales.
Price of substitutes for a particular good, z
X. If substitutes are expensive, then
people will buy X instead.
Quality of the goods. Poor quality goods z
discourages sales.
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Taste of the consumer (likes and styles z
for a type of clothing or food).
Income level of the consumers z
(affordability). High incomes allow the
purchase of luxury goods.
Brand loyalty of consumers to particular z
manufacturers products.
b Four activities which make up the marketing
mix are:-
Product: developing a product which z
will appeal to the market. This may
include market research by gathering,
analysing and interpreting information
in a systematic way.
Pricing, which is the determination of a z
particular pricing strategy for a product.
Promotion, for example through short- z
term incentives given to customers to
encourage sales or through advertising
campaigns.
Placing the product, for example by z
choosing distribution channels to get a
product to the consumers.
c Three methods of sales promotion are:-
(choose any three)
giving free samples to customers to try z
the product
giving discount coupons (%-off ) to z
customers to encourage them to buy
more of the product
giving premiums (gifts or banded offers) z
as an incentive to purchase more of a
product
organizing competitions to boost sales z
in a particular product
advertising the product on television to z
increase public awareness.
4. a Consumerism refers to protection of
consumers as they engage in the process of
exchange to satisfy their demand for goods
and or services, while exercising their rights
and responsibilities.
b Three rights of a consumer are:-
(Choose any three)
redress if something is wrong you can z
get it solved
consumer education to be informed z
about your rights and responsibilities
safety to be safe from harmful products z
be heard to be given the opportunity z
to voice ones dissatisfaction
be informed to be told about the pros z
and cons of a product before purchase
to choose to be able to make an z
independent choice on the purchase of a
product.
c Two responsibilities of a consumer are:-
(Choose any two)
Be alert and aware of the safety of z
products before purchase
Collect all information and facts about a z
product
Make decisions independently z
Speak out and express needs and z
expectations
Complain and seek redress if treatment z
received is not fair and ethical
Show respect for the environment and z
thus avoid waste, littering and
contributing to pollution.
d Three ways government agencies can protect
the rights of consumers are:-
though the passing of consumer legislation z
by providing consumer education z
programmes
through the establishment and z
operations of government agencies e.g.
Bureau of Standards, Department of
weights and measures, etc.
e Two agencies in my country which support
consumers are:-
(Choose any two)
Consumer Affairs Division z
Office of the Ombudsman z
Regulated Industries Commission z
Bureau of Standards z
5. a A form of transport which is likely to be used
for each of the following are:-
i Long distance transport of oil or
natural gas.
Pipeline because it will be cheaper z
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ii Raw sugar transported by sea.
Bulk carriers because they can z
carry heavy loads, which gives
economies of scale.
iii Consumer goods transported in large
quantities by sea.
Containers because the handling z
costs and theft are reduced.
iv Bread transported from a bakery to
supermarkets.
Road because it can be transported z
by van which is cheaper and allows
for more flexibility.
b Two problems which may arise as a result of
inefficient sea or air transport systems are:-
delays in the delivery of goods due to z
poor scheduling or port congestion
loss of cargo as a result of improper z
documentation, misdirection of goods
and theft.
c Two ways in which each of the above
problems may be avoided or resolved are:-
proper scheduling of deliveries z
improved port facilities z
careful documentation and routing z
of cargo
proper security measures and frequent z
checks at port perimeter and gates
6. a A market is a situation in which buyers and
sellers come into contact and interact for the
purpose of exchange.
Marketing is the management process
responsible for identifying, anticipating and
satisfying consumers requirements and
profitably selling a product.
b i Two reasons why it is important to
invest in a market research are:-
(Choose any two)
to identify consumers taste and z
behaviour for a particular product
to determine how to price the z
product
to identify the target market for z
your product
to determine the best way to z
promote the product
to identify who are the competitors z
in the market-place and what is the
size of the market.
ii Three methods which could be used for
market research are:-
sample survey using telephone z
interviews
trying out a new product with a z
small focus group to gauge their
response
observing how consumers behave z
in the market place, e.g. how they
respond to shop layout and
displays.
c Two groups which a large company may
attempt to influence through its public
relations activities are:-
customers z
investors z
d Three activities which may form part of a
public relations strategy are :-
developing a good relationship with z
news and communications media
sponsorship of the sporting and cultural
events
business entertainment of selected z
clients
special awards to staff and customers in z
recognition of the part they played in
the success of the business.
7. Business finance
1. a Two functions of a commercial bank are:-
(Choose any two)
to keep money for customers in z
chequing and savings accounts
to encourage savings (by giving z
interests on deposits)
to lend money for investment and z
capital purchases
to provide services, such as purchase z
and sale of foreign currency.
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b Three services offered by a commercial
bank are:-
(Choose any three)
provides cheques for customers z
collects payments on the customers z
behalf
makes payments on customers behalf z
through standing orders
makes loans to customers z
provides foreign exchange facilities z
automated banking facilities to withdraw z
funds from accounts and make deposits
providing safety deposit facilities z
credit facilities such as credit cards z
acts as trustees and executors for z
customers.
c Two ways in which a commercial bank may
earn revenue are:-
(Choose any two)
by charging fees for the various services z
that they provide for customers
from the spread between interest rate on z
loans and deposits
from the spread between buying and z
selling rates for foreign exchange.
d Three ways in which a business may raise
long-term finance are:-
by selling shares z
by obtaining a loan from a development z
bank
by issuing bonds for sale to investors. z
2. a The main function of a stock exchange is to
provide a market where buyers and sellers of
stocks and shares can buy and sell.
b The role of the following within the stock
exchange are:-
i Stockbrokers
Stockbrokers buys and sells shares on
behalf of their clients (general public),
obtaining the best deals they can for
them, in return for the payment of a
commission.
ii Depository
It is an institution which holds shares
and securities deposited by others.
iii Dividend
Dividend is the return that shareholders
receive on their investment as a share in
the companys profits.
c i Two methods of saving or investment
available to individuals are:-
(Choose any two)
Bank deposits saving money in a z
fixed deposit the bank
Insurance policies purchasing an z
endowment policy
Mutual fund or Unit trust buying z
units in the different funds available
Shares buying shares in public z
companies
Buying bonds issued by the z
government or other organizations
in public or private sector.
ii One advantage and one disadvantage of
each method of saving or investment
described in (i) are:-
Bank deposits z
interest is received
may not always have access to your
money when needed (fixed
deposits), or a penalty is paid for
early withdrawal.
Insurance policies z
provides funding for the future
it earns very little in the first few years
and a penalty is paid for withdrawing
fund before the policy matures.
Mutual fund or Unit trust z
receives dividends or regular
payments
may lose when selling units, as the
market price may be lower than the
original purchase price.
Bonds, stocks and shares z
receives interest
If bonds are sold before maturity, they
may not fetch the original price paid.
3 a Three functions of a Central bank are:-
(Choose any three)
The government bank it manages the z
national debt and government accounts.
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The commercial bankers bank it is the z
banker to all commercial banks, which
must by law keep an account with the
central bank.
The note-issuing authority it is the z
only authority to issue bank notes.
The lender of last resort it helps z
commercial banks and other financial
institutions by lending them money.
Maintaining foreign exchange reserves z
it keeps the countrys foreign currency
reserves.
Financial agent for the government it z
deals with international financial
agencies on behalf of the government.
b Three ways in which, Central bank could
reduce the level of demand and credit in the
economy are through:-
open market operations by intervening z
in the financial market as both buyer
and seller of bills, securities and other
credit instruments in order to control
the money supply
through the reserves and liquid asset z
requirements, the Central bank can
control the money supply within the
economy by adjusting the percentage of
their deposits which Commercial banks
are required to hold with the Central bank
changing the interest rate which the z
Central bank charges on its loans to
Commercial banks as lender of last
resort, in order to influence the cost of
borrowing.
c Three ways in which the Central bank may
regulate commercial banks are:-
all commercial banks must hold a z
banking licence from the Central bank
The Central bank monitors lending by z
commercial banks, to ensure that
depositors funds are not put at risk.
the lender of last resort. It helps z
commercial banks and other financial
institutions through their liquidity
problems by lending them money and
as such controls and monitors their
recovery.
d Two differences between purchasing shares
on the stock market and saving in a
commercial bank are:-
when purchasing shares you have to do z
it through a stock broker
to begin savings in a commercial bank z
you can open account yourself
a person can receive dividends on their z
shares if the company is profitable
a person will receive z interest on the
balances in their savings account
8. Business and government
1. a Two ways in which a government may benefit
the citizens of a country and two ways it may
benefit private sector businesses are:-
Citizens
security of the state by maintaining
law and order and ensuring that all
persons receive just treatment
social services by providing services to
the public such as education, health care,
sanitation, welfare, etc.
Businesses
trade promotion by providing various
forms of assistance to encourage export
trade
making grants and loans for small
businesses through agencies such as the
Jamaica Business Development
Corporation.
b The four principle of taxation described by
Adam Smith are:-
equity z
certainty z
convenience z
efficiency. z
c A direct tax is one in which the impact
(actual payment) and the incidence (the
ultimate burden) of a tax fall on the same
person. The taxpayer makes a direct payment
to the government.
Examples:- income tax, corporation tax,
property tax, capital transfer tax, estate tax and
motor vehicle tax
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An indirect tax is one in which the impact
and incidence of a tax fall on different people
Examples:- customs duties, and value added tax
For example, with value added tax, the
customer pays the cost (the ultimate burden)
but the store owner makes the actual
payment to the government.
d One way in which the government may use
the tax system to
i Redistribute income - by charging a
higher rate of income tax to those with
high incomes.
ii Encourage investment-by giving tax
exemption for investment spending on
capital goods
9. Social accounting and global trade
1. a i Standard of living indicates the value of
goods and services consumed.
Quality of life is the well being of the
people of a country, for instance their
lifespan. It includes many factors as well
as the standard of living.
ii Gross domestic product (GDP) is the
total money value of the goods and
services a country produces during a
year.
Gross national product is GDP plus
earnings from business activities
overseas, and minus the local earnings of
overseas companies.
iii National income is the sum total of
incomes received by individuals and
businesses of a country during a given
period of time
Per capita income is the average level of
income for each member of the
population.
iv Economic growth may be defined as an
increase in a countrys production, over
one or more years. It is a quantitative
change.
Economic development is more
concerned with the pattern of economic
change and it looks at the ability of a
country to meet the needs of its citizens.
It is a qualitative change.
b Two problems which may result from rapid
economic growth are:-
(Choose any two)
Growth involves change, which benefit z
some but harm others. Social change
may create discontent. For example the
use of technology may cause people to
lose their jobs. Economic growth may
render some jobs redundant. This can
lead to technological unemployment. In
other cases, rapid economic growth may
create a labour shortage, or cause a rapid
increase in property prices.
It can lead to environmental destruction. z
For example, landscape is damaged, flora
and fauna are destroyed, air and water
quality are damaged by pollution.
Growth may exploit finite resources and z
in the long run this could be detrimental
to the economy. If non-renewable
resources are used up economic growth
will not be sustained.
c Two ways in which human resource
development may be promoted are:-
by helping to improve the knowledge z
and skills of the workforce through the
educational system and on-the-job
training.
By improving the health of the general z
population and the labour force,
controlling diseases such as malaria and
providing a clean water supply.
d Economic growth may be promoted by
investment in new industries and new
technology.
For a country which depends on tourism for
its foreign exchange earnings, there will be
negative growth it there is a decline in the
international demand for tourism.
Answers to exam-style questions
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23
10. The regional and global business
environment
1. a (Choose any four)
Caribbean Single Market and Economy z
(CSME)
to provide free movement of capital,
labour (skills) and investment
to ensure an open market for goods
and services within region.
Organisation of Eastern Caribbean z
States (OECS)
to encourage reasonable and
workable trading arrangements
among members
to facilitate the use of a single
currency (EC dollar).
Caribbean Community (Caricom) z
to encourage growth and
development among members states
to facilitate trade among member
states free of duties.
World Trade Organization (WTO) z
to settle trade disputes between
member countries
to administer and monitor
multilateral trade agreements
among member countries.
International Monetary Fund (IMF) z
to finance temporary Balance of
Payment needs of members
to provide member countries with
technical advice and training.
Inter-American Development Bank z
(IDB)
to provide loans for development
projects in member countries
to invest in programs and activities
that expand economic opportunities
for the low-income majority of the
regions population.
b Two economic problems faced by the many
countries of the Caribbean are:-
(Choose any two)
Debt z
In many countries, government debt is
so high that much of the governments
revenue is used for interest payments.
There is not enough revenue to pay for
improvements to schools, health care
and other services.
Unemployment z
Unemployment means that there is
spare capacity in the economy. In the
Caribbean this arises from a number of
different factors such as a lack of
demand for local products, etc.
Economic dualism z
Economic dualism refers to the
existence of two separate, largely
independent economies within a single
national economic framework. One
economy is based on modern industry
that uses state-of-the-art-technology,
while the other is based on traditional or
old-fashioned businesses and agriculture
or even subsistence living.
c One possible solution for each of the
problems outlined above are:-
(Choose any two)
Debt z
The government may seek debt
forgiveness or restructuring from
foreign creditors, and be careful to
restrain expenditure so that additional
borrowing is not needed.
Unemployment z
Government might stimulate economic
activity through extra spending, so that
businesses take on additional staff.
Economic dualism z
Governments could try to narrow the
gap between the two sectors by investing
more in agriculture and the traditional
sector, so that hey become more
productive, and in turn making their
country more self-sufficient.