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BA1 Fundamentals of Business Economics Questions and Answers

Questions 4

Which of the following is an example of regulation as a form of government intervention in the economy?

Options:

A.

The government requiring that seat belts are fitted in all coaches and regularly tested

B.

The government announcing the abolition of rules which restrict the number of commercial radio stations allowed by law to operate

C.

The government encouraging the General Medical Council to discipline doctors judged to be professionally negligent

D.

The government selling a state-owned industry such as Air Traffic Control to private ownership

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Questions 5

A financial intermediary takes the small deposits of millions of savers and uses them to buy an issue of government (treasury) bills and bonds.

Identify from the list below the principle this illustrates:

Options:

A.

Maturity transformation

B.

Aggregation

C.

Risk transformation

D.

Money transmission

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Questions 6

Which of the following businesses would benefit most from an expansionary monetary policy?

Options:

A.

Companies with high levels of borrowing producing consumer durables.

B.

Companies with low levels of borrowing in the supermarket industry.

C.

Cash rich companies producing consumer durable goods.

D.

Low geared companies whose inputs are mainly imported.

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Questions 7

Which of the following would result from a depreciation in the exchange rate for a country's currency?

i. A fall in the foreign exchange price of that country's exports.

ii. A rise in the foreign exchange price of that country's imports.

iii. A rise in production costs for businesses using imported inputs.

iv. A worsening in that country's terms of trade.

v. A fall in the domestic prices of that country's imports.

vi. A rise in the domestic price of that country's exports.

Options:

A.

(i), (ii) and (iv) only

B.

(i), (iii) and (iv) only

C.

(ii), (v) and (vi) only

D.

(iv), (v) and (vi) only

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Questions 8

All of the following are examples of structural unemployment except which one?

Options:

A.

Redundancies in shipbuilding caused by competition from abroad.

B.

Falling employment in manufacturing industry resulting from a decline in consumer incomes.

C.

Unemployment in coal mining caused by the advent of new energy sources.

D.

Above average unemployment rates among low skilled workers.

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Questions 9

In a market economy, prices act as all of the following except which one?

Options:

A.

Signals to consumers about costs

B.

Signals to producers about consumer preferences

C.

A substitute for barter

D.

A means of allocating scarce resources

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Questions 10

Which of the following statements is always true for a merit good?

Options:

A.

It is characterized by non-excludability and non-rivalry

B.

When consumed, the social benefits exceed the private benefits

C.

Zero negative externalities result from the consumption of a merit good

D.

It is provided free by the government

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Questions 11

If the demand curve for good A is negatively sloped, a fall in the price of a substitute good B results in

Options:

A.

An increase in the quantity demanded of good A

B.

A rightward shift in the demand curve for good A

C.

A leftward shift in the demand curve for good B

D.

A leftward shift in the demand curve for good A

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Questions 12

Which ONE of the following would tend to make the demand for a product price inelastic?

Options:

A.

Expenditure on the product accounts for a large part of total household spending

B.

There are many close substitutes for the product

C.

The product is regarded as a luxury

D.

The price changed a short while ago

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Questions 13

If in the short run a business raises the output of its product then

Options:

A.

average fixed cost will remain constant over the whole range of output

B.

average variable cost will fall over the whole range of output

C.

average total cost will initially fall and then rise as output is increased

D.

average total cost will fall until constant returns to scale achieved

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Questions 14

Select the best definition of a regressive tax from the options below:

Options:

A.

A tax which rises proportionately with income

B.

A tax which rises more than proportionately with income

C.

A tax which rises less than proportionately with income

D.

A tax on expenditure

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Questions 15

In a fully employed economy, which one of the following would lead to demand pull inflation?

Options:

A.

A reduction in the rate of income tax

B.

A rise in value added tax

C.

An increase in the world price of oil

D.

A rise in interest rates

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Questions 16

If the price elasticity of supply for a good over a certain price range is 0.8, the increase in the quantity supplied of that good, following a 10% increase in its price, will be

Options:

A.

0.8%

B.

8.0%

C.

18%

D.

80%

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Questions 17

All of the following are characteristics of a recession except which one?

Options:

A.

Rising levels of unemployment.

B.

Increased inflationary pressure.

C.

Improving trade balances.

D.

Increased government budget deficits.

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Questions 18

If a manufacturing firm contributes to global warming as a byproduct of its production process, this is an example of

Options:

A.

A merit good

B.

An external social cost

C.

A diseconomy of scale

D.

A public good

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Questions 19

All of the following will tend to increase the number of firms in any one industry except which one?

Options:

A.

Decreasing returns to scale

B.

High transport costs

C.

Low barriers to entry

D.

Product differentiation

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Questions 20

If the government imposed a legal minimum wage that was above the market equilibrium wage, the resulting unemployment would be the greatest when:

Options:

A.

the demand for labor and the supply of labor are both price inelastic

B.

the demand for labor and the supply of labor are both price elastic

C.

the demand for labor is price inelastic and the supply of labor is price elastic

D.

the demand for labor is price elastic and the supply of labor is price inelastic

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Questions 21

Which ONE of the following circumstances is essential if producer incomes are to rise following the imposition of a price floor (minimum price) in a market?

Options:

A.

Market supply is price inelastic

B.

Market demand is price inelastic

C.

Market supply is price elastic

D.

Market demand is price elastic

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Questions 22

In the long run a firm may find its average cost of production rising because

Options:

A.

of the operation of diminishing returns to a fixed factor

B.

of the effect of diseconomies of scale

C.

over time the price of purchased inputs rises

D.

in the long run all costs are variable costs

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Questions 23

The main purpose of government competition policy is to

Options:

A.

Prevent mergers between large companies

B.

Restrict anti-competitive behavior by firms

C.

Limit the ability of firms to secure long run excess profits

D.

Enforce competition by breaking up large firms

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Questions 24

Which of the following best defines a fiscal policy?

Options:

A.

A policy that increases government spending to increase national income

B.

A policy which seeks to influence the economy through manipulation of government spending and taxation

C.

A policy aimed at influencing the level of aggregate demand in the economy

D.

A policy which controls inflation by controlling the amount of money in the economy

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Questions 25

Some not-for-profit organizations (NPOs) are required to show they are effective. Which one of the following most closely defines effective?

Options:

A.

Conducts its activities and operations at low cost

B.

Achieves the goals and objectives set for it

C.

Finds the correct balance between cost and benefit

D.

Doesn't make losses

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Questions 26

If in a boom a government adopted a contractionary (restrictive) monetary policy, a typical business would expect to experience:

i. Higher interest payments on its bank borrowing.

ii. Falling credit based sales.

iii. Higher income and corporate taxes.

iv. Lower sales to government agencies.

v. Difficulties in securing working capital

vi. Higher prices for imported components.

Options:

A.

(i), (ii) and (vi) only

B.

(i), (ii) and (v) only

C.

(ii), (iii) and (iv) only

D.

(i), (iii) and (iv) only

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Questions 27

Which of the following is a primary objective of a not-for-profit organisation?

Options:

A.

To satisfy the needs of a particular sector of society

B.

To maintain the growth of the organisation.

C.

To make a profit.

D.

To continue to exist.

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Questions 28

Which global financial institution is responsible for making long term loans to assist developing countries to invest and develop?

Options:

A.

The IMF

B.

The World Bank

C.

The World Trade Organization

D.

The G20

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Questions 29

A 'supply-side' economist would recommend that in the long term, a country's unemployment problem should be tackled by

Options:

A.

A reduction in the money supply

B.

Income tax cuts to promote labor market incentives

C.

Tax cuts to expand aggregate demand

D.

Increasing the job-seekers allowance and the period for which it can be claimed

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Questions 30

Which of the following statements about macroeconomic policy objectives is correct?

Options:

A.

Governments always regard control of inflation as the most important policy objective

B.

Conflicts between objectives mean that macroeconomic policy can never be regarded as successful

C.

Expanding demand to reduce unemployment may mean that the balance of payments worsens

D.

The pursuit of economic growth inevitably increases unemployment

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Questions 31

Which of the following would not be a reason for a government to impose a quota on imports?

Options:

A.

To plan the orderly decline of industries that have lost comparative advantage

B.

To prevent dumping

C.

To protect infant and strategic industries

D.

To prevent completely the country's citizens consuming an imported demerit good

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Questions 32

Which ONE of the following best explains the statement 'In not for profit organizations money is a constraint and not a goal'?

Options:

A.

Money be ignored because reaching the goals of the organization is all that matters

B.

There is no need for the organization to be efficient

C.

There is a trade off between financial and non-financial goals

D.

Money limits how far the organization can achieve its goals

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Questions 33

Which ONE of the following statements best defines the principal-agent problem in a company?

Options:

A.

A lack of consultation of shareholders by directors

B.

Personal goals are pursued by directors that are inconsistent with the welfare of shareholders

C.

Shareholders don't always know what management is doing

D.

Directors get paid too much for the job they do

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Questions 34

A typical supply curve of a good shows:

Options:

A.

The quantities of the good firms actually sell at different possible prices

B.

The quantities of the good firms are prepared to supply at different possible prices

C.

Different possible equilibrium prices

D.

Quantity supplied varying inversely with price

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Questions 35

When central banks adopt a policy of 'quantitative easing' this means that they:

Options:

A.

Lift quantitative restrictions on bank lending

B.

Lower the capital adequacy requirements for banks

C.

Buy government bonds from the banks

D.

Ease the liquidity ratios banks need to hold

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Questions 36

Which of the following are known as automatic stabilizers because they tend to reduce the fluctuations in economic activity associated with the business cycle?

(i). Progressive income taxes

(ii). Unemployment benefits

(iii). Means-tested welfare benefits

(iv). Regressive taxation

Options:

A.

(i) and (iv) only

B.

(ii) and (iii) only

C.

(i), (ii) and (iii) only

D.

(ii), (iii) and (iv) only

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Questions 37

Which theory of the firm is described by the following statement?

'The decisions of management are the result of a political maneuvering of the various stakeholders connected to the organization.'

Options:

A.

Profit maximizing

B.

Satisfying

C.

Behavioral

D.

Managerial

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Questions 38

All of the financial instruments are traded on the long term capital market except one. Which ONE is the exception?

Options:

A.

Shares

B.

Certificate deposit

C.

Government undated stock

D.

Long dated bonds

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Questions 39

Which of the functions of a financial intermediary is described by the following statement 'Bundles small deposits of liquidity into larger loans'?

Options:

A.

Aggregation

B.

Risk management

C.

Maturity transformation

D.

Introducing borrows and lenders

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Questions 40

Which of the following have been recommended in order to prevent a repeat of the 2008 financial crisis?

Options:

A.

Higher capital adequacy ratios for commercial banks

B.

A reduction in the required liquidity ratio for commercial banks

C.

The merging of retail and investment banking

D.

The purchase of bank shares by the government

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Questions 41

Which of the following describes a 'spot rate' in foreign currency dealing?

Options:

A.

It is a short term rate that may change in the immediate future

B.

It is the price for a currency that is to be delivered immediately

C.

It is the exchange rate minus any commissions or transactions charges

D.

It is the exchange rate minus the inflation rate

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Questions 42

All of the following are functions of a central bank except one. Which ONE is the exception?

Options:

A.

Lender of the last resort

B.

Banker to the commercial banks

C.

The conduct of fiscal policy

D.

Regulation of the banking system

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Questions 43

The central bank can increase liquidity in the banking system, by:

Options:

A.

selling government bonds and lowering interest rates

B.

selling government bonds and raising interest rates

C.

buying government bonds and raising interest rates

D.

buying government bonds and lowering interest rates

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Questions 44

Market price refers to:

Options:

A.

the price that is determined by demand and supply.

B.

the price that includes tax

C.

the value that is adjusted for inflation.

D.

the price that maximise profits.

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Questions 45

The following cash flows are for a capital project where the required rate of return is 8 percent

Calculate the NPV for the project. Give your answer to the nearest whole number

Options:

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Questions 46

Country A's tax system is one where every citizen pays tax on earned income over S12,000 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?

Options:

A.

Progressive

B.

Regressive

C.

Retentive

D.

Proportional

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Questions 47

What does the term 'equity financing' mean?

Options:

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.

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Questions 48

Company A is looking to protect itself from transaction exchange rate risk.

Company A does not require 100% of the value of transaction to be protected, and it would like the method it uses to have the following characteristics

• An agreed exchange rate for a specified period where both parties have a legal obligation

• A separation of the contract guaranteeing the pnce of the currency from the underlying transaction.

Which of the following would best provide the type of protection from exchange rate risk company A wants?

Options:

A.

Future

B.

Option

C.

Forward contract

D.

Floating exchange rate

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Questions 49

Which of the following is correct in regards to organisations?

Organisations achieve more than individuals can achieve on their own because they enable people to

(1) share skills and knowledge

(2) maximise individuals' interests.

(3) specialise

(4) pool resources

Options:

A.

(1), (2)and(3)

B.

(2), (3) and (4)

C.

(1),(2)and(4)

D.

(1), (3) and (4)

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Questions 50

According to the principle of comparative advantage which of the following explains how country V may benefit from international trade?

Options:

A.

Specialisation and international trade will only be successful if tariffs are used to protect country V's economy.

B.

Jobs historically done by country V's nationals have been off-shored to countries with cheaper labour costs.

C.

Country V can specialise in exporting oil which it can produce relatively cheaply, and import goods.

D.

Country V will only benefit from international trade if another country loses.

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Questions 51

Which of the following will NOT cause an increase in the demand for public transport in City L?

Options:

A.

A change in consumer preferences favoring transportation that reduces carbon emissions

B.

An increase in the price of car insurance

C.

A drop in the price of City L cab rides

D.

An increase in the population of City L.

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Questions 52

Which of the following is the most likely policy response to an economic recession?

Options:

A.

Revaluation of the domestic currency

B.

Deflationary policy to prevent rising inflationary pressure

C.

Reduce aggregate demand by raising interest rates, taxation, and reducing public expenditure.

D.

Raise aggregate demand by lowering interest rates, reducing taxation and raising public expenditure

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Questions 53

Which of the following equations is correct regarding interest rates?

Options:

A.

Real interest rate = Nominal interest rate + Expected inflation rate

B.

Real interest rate = Nominal interest rate + Market risk premium

C.

Nominal interest rate = Real interest rate + Expected inflation rate

D.

Nominal interest rate = Real interest rate + Market risk premium

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Questions 54

Which of the following would tend to make the market supply of a good price inelastic?

Options:

A.

There are few barriers to entry into the industry.

B.

Many firms in the industry have unused production capacity.

C.

Most firms in the industry have high stock levels of finished goods.

D.

Newly employed workers in the industry require high levels of initial training.

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Questions 55

Which TWO of the following business costs are directly affected by a rise in the interest rate*? D The cost of procuring equity finance

Options:

A.

The cost of complying with government regulations.

B.

The cost of borrowing from private lenders.

C.

The cost of accessing government subsidies

D.

The cost of procuring intermediate goods.

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Questions 56

Complete the table inputting the relevant effect for each of the scenarios listed.

Options:

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Questions 57

Which THREE of the following can be used to reduce the principal-agent problem in business organisations?

Options:

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.

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Questions 58

The graph shows house prices in Lingford, a large urban town in a prosperous region.

Which of the following would be the equilibrium price for houses in Lingford?

Options:

A.

£390,000

B.

£400,000

C.

£410,000

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Questions 59

Which of the following will NOT affect the price elasticity of supply?

Options:

A.

The time period considered.

B.

Production costs.

C.

The level of stocks.

D.

Proportion of income spent.

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Questions 60

The managing director of Polly's, a department store, has found that ten of its stores located in the south east of England have seen a significant fall in profit margin.

Which of the following is most likely to be the cause of this?

Options:

A.

An increase in rent for the premises in which the store is located

B.

A decrease in sales at these stores

C.

An increase in footfall at these stores

D.

A decrease in rent for the premises in which the store is located

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Questions 61

If out of every £20 million increase in national income, £2 million is saved, £4 million is spent on imports and £4 million is paid to the government in taxation, an increase in exports of £40 million will lead to an eventual increase in national income of

Options:

A.

£20 million

B.

£40 million

C.

£80 million

D.

£400 million

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Questions 62

Best for Beer is a brewery based in the UK. In the last year, it has seen its sales decrease by 23%. During the same period, the British Government has launched and run a public health campaign against excessive

alcohol consumption due to the rising number of incidents related to excessive alcohol consumption or 'binge-drinking' in the country.

Which of the following sources would be most relevant for Best for Beer to discover more about the public health campaign's effect on sales?

Options:

A.

News media

B.

Online surveys for customers

C.

Employment briefings

D.

Trade journals

E.

Legal information

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Questions 63

Pills Pharmaceuticals has founded a new department which focuses on big data analysis. The organisation plans to perform this analysis using data collected by two subsidiaries, one based in London and the other in San Francisco.

Which of Gartner's 'Three Vs' is applicable to this scenario?

Options:

A.

Variety

B.

Volume

C.

Velocity

D.

Verification

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Questions 64

The managing director of Polly's has been given a pie chart showing the current proportion of sales across the chain's five stores.

Which of the below are the most significant reasons why the pie chart is an inappropriate way of expressing this data?

Select ALL that apply.

Options:

A.

It cannot be used to develop sales strategies moving forward

B.

It does not give specific details as to which items sold in store are experiencing poor sales

C.

It does not show the best and worst performing stores

D.

It does not track sales over time

E.

It does not show the store sales as raw figures

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Questions 65

Which THREE of the following businesses are more likely to fare belter during a recession?

Options:

A.

A construction company specialising 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 specialising in fashion, a cyclical good.

F.

A construction company specialising in private residential accommodation

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Questions 66

A wireless phone manufacturer currently sells 2,000 units per quarter at a price of $400 The estimated price elasticity of demand is -2.5.

The manufacturer is considering an increase in the price to $440

What will this raise (+) or reduce (-) total revenue by? Give your answer in whole numbers.

Options:

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Questions 67

The Competition and Markets Authority is a regulatory body in the UK. In 2017, the CMA found the proposed merger of Heineken and Punch Pubs in breach of its competition laws. Heineken and Punch Pubs have agreed

to divest in pubs in areas where they are the two dominant pub companies.

Which of the following are ways in which consumers might directly benefit from this decision?

Select ALL that apply.

Options:

A.

Heineken/Punch Pubs will not be able to charge excessive prices for alcoholic beverages served at their pubs

B.

There will be a greater variety of pubs for consumers to choose from in certain areas

C.

Heineken will divest in a certain number of pubs where the merger would have created monopolies

D.

The companies' divestment of pubs in certain areas could lead to the closure of the majority of pubs in said area

E.

The CMA will use this decision as a precedent for others in the future

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Questions 68

Which of the following is an internal economy of scale?

Options:

A.

The bank offering cheap loans to large companies

B.

The local government runs a scheme which allows business to get rid of their rubbish without charge

C.

A university discovers a new algorithm which makes manufacturing 3x faster

D.

A new highway is built from a large port into a manufacturing town

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Questions 69

Golden Crisp Cereals plans to build its new factory on the outskirts of Bimbleton, an affluent medium-sized town where its current headquarters is based. The area where they are planning to build the factory was

formerly a country park.

Of the following, which stakeholder would be most likely to protest against the construction of the new Golden Crisp Cereals factory?

Options:

A.

Environmental groups

B.

Current employees

C.

Trade unions

D.

Local residents

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Questions 70

Beth wants to take out an annuity in order to be able to leave more money to her children when she passes away. She has looked at three annuities with different payout rates.

Annuity A pays out £5340 each year over 14 years

Annuity B pays out £4900 each year over 9 years

Annuity C pays out £5445.64 each year over 20 years

The current interest rate is 8%.

Of these, which annuity would have the highest net present value and hence pay out more money for Beth over its lifetime?

Options:

A.

£53,460.10

B.

£44,024.23

C.

£30,609.75

D.

£60,455.63

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Exam Code: BA1
Exam Name: Fundamentals of Business Economics
Last Update: Nov 2, 2024
Questions: 468
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