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ffi TEST CODE 02216010

FORM TP 201517 MAY/JUNE 2OI5
CARIBBEAN EXAMINATIONS COUNCIL
CARIBtsEAN ADVANCED PROFICIENCY EXAMINATION@
ECONOMICS

Unit2-Paper01

t hour 30 minutes

08 JUNE 2015 (a.m.)

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

l. This test consists of 45 items. You will have I hour and 30 minutes to answer them.
2. In addition to this test booklet, you should have an answer sheet.

J. Do not be concerned that the answer sheet provides spaces for more answers than there are
items in this test.

4. Each iterrr in this test has four suggested answers lettered (A), (B), (C), (D). Read each item
you are about to answer and decide which choice is best.

5. On your answer sheet, find the number which corresponds to your item and shade the space
having the same letter as the answer you have chosen. Look at the sample item below.

Sample Item

Prime cost is caloulated by adding direct factory expenses

to the cost of Sample Answer

(A)
(B)
goods used
goods bought
@@ o@
(C) materials used
(D) materials produced

The best answer to this item is "materials used", so (C) has been shaded.

6. If you want to change your answer, erase it completely before you fill in your new choice.
7. When you are told to begin, turn the page and work as quickly and as carefully as you can.
If you cannot answer an item, go on to the next one. You may return to that item later.
8. You may do any rough work in this booklet.
I 9. You may use silent, non-programmable calculators to answer questions.
-
I DO NOT TURN TIIIS PAGE UNTIL YOU ARE TOLD TO DO SO.
-FI Copyright O 2013 Caribbean Examinations Council
I
- All rights reserved.
I
 2-

1. Which of the following phrases BEST 4. Classical theorists believe that the
describes the underground economy? underlying cause of unemployment is

(A) The production of intermediate (A) cyclical

goods (B) seasonal
(ts) Economic activities that foster (C) structural
growth (D) voluntary
(C) Economic activities which are
heavily taxed
(D) Economic activities that are 5. Which of the following variables MOST
hidden from the government accurately fneasures econom ic growth?

(A) Technical progress

Item 2 refers to the I'ollowing diagram which (B) Net national product
shows the simple circular flow of income (c) Real GDP per capita
for an economy. (D) Real national income

Items 6-7 referto the following information.

Country X produces two goods, P and

Q. The table below shows the quantities
produced and the prices in the respective
years with the base year being 201 3.

20t3 2014
7 What is the economic agent labelled X? Commodity Quantity Price Quantity Price
Good P 20 6 30 l0
(A) Households
Good Q 100 L 90 6
(B) Government
(C) Foreign sector
(D) Financial sector 6. NominalGDP in 2014 was

(A) $320
3. Gross domestic product is the market value (B) $480
of all (c) $840
(D) $e6o
(A) transactions in an economy during
a one-year period
(B) goods and services exchanged in 1 Real GDP in 2014 was
an econonry during a one-year
period (A) $ 360
(C) final goods and services produced (B) $ 800
in a domestic economy during a (c) $ 960
one-year period (D) $l 920
(D) intermediate goods and services
producer.l in a domestic
economy during a one-year
period

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02216010/C.APE 20rs
 Item E refers t0 the following diagram Item 10 referstothe following graph which
which shows two aggregate supply (AS) shows aggregate demand (AD) curves for
curves ofan economy. an economy.

Price
Level

Nationel Income
Output

E, Which of the following outcomes is 10. The movement fi'om AD, to AD, is MOST
LIKELY to result in a shift from AS. to likely caused by an increase in
AS,?
(A) inflation
(A) An increase in wage rates (B) taxation
(B) A decrease in labour productivity (C) interest rates
(C) An increase in labour productivity (D) government spending
(D) An increase in the cost of raw
materials

9. The difference between induced

consumption and autonomous consumption
is that induced consumption is influenced
by changes in

(A) income
(B) investment
(c) inheritance
(D) national expectation

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02216010/CAPE 2015
 4

Item 11 refers to the following diagram Item 14 refers to the following information.
which shows the aggregate demand (AD)
and aggregate supply (AS) curves for a Consumption spending: $700
country. Government spending : $500
Investment spending : $200
Net exports : $300
t4. What is the value of aggregate demand?

(A) $l 100
(B) $l 300
(c) $ I 700
(D) $2 300

Item 15 refers to the following diagram

Output which represents the market for loanable
funds.
11. The country experiences an increase in the
Interest
cost of its imported raw materials.
Rates

Which of the following points will show

the new equilibrium position?

(A) I
(B) 2
a Quantity of Loanable Funds
(c) J
(D) 4 15. According to classical economists, this
market will always maintain equilibrium
because
12. lf the margirial propensity to save is 0.4,
then the simple multiplier will be (A) financial institutions have excess
funds
(A) 2.0 (B) prices, including interest rates, are
(B) 2.5 flexible
(c) 3.0 (C) the market is not allowed to
(D) 4.5 operate freely
(D) commercial banks have a shortage
of funds
13. The consumption function is given as
C: a + bY. In this equation 'b'represents
16. Which measure of the money stock takes
(A) autonomous investment into consideration bank deposits, building
(B) autonomous consumption society deposits and money market
(c) marginal propensity to save deposits?
(D) marginal propensity to consume
(A) Fiat
(B) Quasi
(C) Broad
(D) Narrow

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02216010/CAPE 2015
t7. The statement 'too much money chasing 19. Which of the following is NOT a function
too few goods' refers to of money?

(A) economic boom (A) Store of value

(B) cost-push inflation (B) Unit of account
(C) economic recession (C) Source of credit
(D) demand-pull inflation (D) Medium of exchange

18. Which ofthe fbllowing diagrams shows how 20. Which of the following measures is an
monetary policy is ineffective in influencing example of fiscal policy?
the gross national product?
(A)
q)
(A) A relaxation of credit controls
6t (B) A redr"rction in value-added tax
il (C) The alteration of the foreign
0
o)
(u exchange rhte
iir (D) A change in the required reserve
ratios of banks

of Money
21. Which of the following groups of persons
(B) is included in the labour force participation
o)
rate?
/c
G
q)
L
(A) Stay-at-home housewives
{)
tr (B) Full-time university students
(c) Persons seeking employment
(D) New prisoners sentenced to hard
Quantity labour
of Money

(c)
c) Item 22 refers to the following data.
6t
g
0
q)
Money supply (M) = 100
L
q) Number of transactions (T) :200
Velocity of circulation (V):4

Quantlty 22. If the price level increases by 5002, then

of Money
by how much would the money supply (M)
(D) increase?
6)
6l
x
(A) 2s%
o (B) 50o/o
6)
I LP,
(c) Tsyo
(D) r00yo

Quantity
of Money

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022160r0/cAPE 20ls
 6-

23. One of the limitations of monetary policy 27. Changes in taxes and transfer payments that
is that it darnpen econonric fluctuations are known
AS
(A) is not fully permissive
(B) is weakened by fiscal indiscipline (A) budget deficits
(c) can eliminate lags in policy (B) money multipliers
implementation (C) automatic stabilizers
(D) is too effective in controlling the (D) automaticdestabilizers
I
money supply
I

28. According to the Keynesian model, the

24. The term 'price index' is BEST defined as primary cause of large-scale unemployment
a is

(A) continuous increase in the overall (A) an increase in exports

price level (B) the existence of low prices
(B) decrease in the overall price level (C) the existence of high prices
of all goods produced in a (D) inadequate aggregate demand
coi.rntry
(c) rneasurement showing the cost of
goods at a particular point in 29. The 'crowding out'effectrefers tosituation
a
time in which a rise in government spending
(D) measurement showing how the
average price of a basket of (A) results in a rise in private savings
goods changes over time (B) results in a rise in private
investment spending
(C) causes both interest rates and
25. Examples of automatic fiscal stabilizers private investment to rise
include (D) causes interest rates to rise and
private investment spending to
(A) state required pensions fall
(B) unemployment benefits
(c) fixed cost of living allowances
(D) contribution s to national insurance 30. What is the effect of a surplus budget on
government's total debt?

26. The decision by government to increase (A) Total debt increases.

spending levels is BEST referred to as (B) Total debt decreases.
(c) Total debt fluctuates.
(A) public debt (D) 'Iotal debt remains the same.
(B) fiscal policy
(C) a budget deficit I
(D) monetary policy
I

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022t60t0tcAPE 2015
 31. Which of the following phrases BEST 31, Which ofthe following institrtions provides
defines'economic growth'? funding to countrires facing chronic ba lance
of payments deficits?
(A) The increase in real per capita
output over time (A) World Bank
(B) An increase in the standard of (B) European Union
living over time (C) World Trade Organization
(C) The meeting of two production (D) International Monetarv Fund
possibility boundaries
(D) A representation of the maximum
recovery of existing resources 35. Which of the following features is NOT
over time a structural characteristic of Caribbean
economies?

32. Sustainable development refers to a situation (A) Small size

in which (B) Limited resource base
(c) Economic independence
(A) non-receivable resources are fully (D) Limited composition of export
employed
(B) a high value is placed on
conservation for its own sake 36. One advar,rtage of flexible exchange rates
(C) there is a constant increase in real is that
GDP per capita over a nurnber
of years (A) more goods and services are sold
(D) an improvement in people's abroad
welfare can be maintained (B) more currency is kept within the
indefinitely without depleting home country
resources (c) market forces establish demand
for goods and services
automatically
33. What is the LIKELY effect of a currency (D) market forces establish balance
devaluation on exports and imports in the of payments equilibrium
long run? automatically

Exports Imports
(A) Increase Decrease 37. A systematic record of accounts that
(B) monitors economic transactions between
Decrease Increase
one country and the rest of the world is
(c) Decrease Decrease referred to as a
(D) Increase Increase
(A) capital account
I (B) cuirent account
I (c) balance of trade
I
(D) balance of payments

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022160r0tcAPE 20ls
 8-

38. One advantage of a floating exchange rate Itern 41 refers to the following diagram
system is that it showing the demand for imports of a
particular good into Country B (assuming
(A) forces the government to constantly a perfectly elastic world supply).
monitor its value
(B) reduces the uncertainties caused
by fluctuating import and export
prices
(c) provides an automatic solution to
balance of payments problems
(D) requires the strong support of
government to maintain its
value

39. Which of the following terms refers to the

creation of a single monetary and fiscal Qr a Quanttty
authority havingjurisd iction over a number
of countries?
41. How does an imposition of a quota at S,
(A) Free trade area by the government affect the price and
(B) Customs union quantity of goods imported?
(C) Economic union (A) Price increases, quantity decreases
(D) Common market (B) Price increases, quantity increases
(C) Price decreases, quantity increases
(D) Price decreases, quantity decreases
40. Country Y had a nominal growth rate of
TYoandan inflation rate of 87o. This means
that Country Y experienced 42. An example of foreign direct investment
in the Caribbean is
(A) positive growth
(B) negative real growth (A) financial aid given to the
(C) little growth in the economy Caribbean by the USA
(D) both nominal growth and real (B) the construction of a new resort by
growth a Japanese leisure company
(C) the investment in pepper sauce
production in Europe by
Caribbean pepper sauce
producers
(D) an increase in the number of
cruise passengers visiting the
Caribbean

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022t60r0lcAPE 2015
 4J. T'he use ofexchange controlto eliminate a 44. For several years the national currency
country's balance ofpayments defi cit results of Zetaland, a country in the Eastern
in a decrease in the country's Caribbean, has been losing value against
other currencies. This situation is called
(A) exports
(B) imports (A) revaluation
(C) income (B) devaluation
(D) price level (C) depreciation
(D) appreciation

Jamaica is a large-scale producer and exporter of bananas. However,

it faces increasing competition
for export markets from producers in countries like Costa Rica and
Guatemala. Which of the
following graphs shows the impactof competition on the exchange
rate of the Jamaican dollar
against the US dollar?

/a\ L
tAl cg
(B)
/-\

6t
I
F 'H p'
Pr
'$
r* Pr
'S
3Pt
q) q)
A
L (,)

Quantity

(OL /n\ l-
tpt qt

A ,.\

e)

F
6lp
F!
l*
*p
IF

q) (u
I (,
L
A
L

END OF TEST

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS

TEST.

02216010/CAPE 2015