• • "C.

TEST CODE 01216010

IVI4. 001\ FE 2007
CARIBBJ1LA N '.EXAMItN.A.TIONS cOUNCIL
SECONPARY EDUCA. ION CIA C1-11CATE
EXAI~`i TA ZION
ECONOMICS
Paper01 —General Proficien cy
75 minutes
( 06 JUNE 2007 (p.

• .READ THE FOLLOWING DIRECTIONS CAR FULLY-

1. In addition to this test booklet, you should have an answer sheet,
2. Each item in this testh asfoursuggested answers lettered (A), (B), (C), (D); Afterlisteningto orreading
each item you are about to answer, decide which choice is best
3. On youranswer sheet, find the number which corresponds to your item and blacken the space having
the same letter as the answer you have chosen. Look at how it is done in the sample item below.
•
Sample Item .
Economics may be described as a 'Social Science' Sample Answer
since it deals with
(A) the environment
(B) the economy
(C) human behaviour
(D) production and consumption

The best answer to this item is "human behaviour" , so answer space (C) has been blackened
Ifyou want to change your answer, be sure to erase your old answer completely and fill in yournew
choice.
When you are told to begin, turn thepage and work as quickly and as carefully asyou can. Ifyou cannot
answer an item, omit it and go on to the next one. You can come back to the harder item later. Your
score will be the total number ofcorrect answers.
This test consists of60 items. You will have 75 minutes to ansvver them.
7. Do not be concerned that the answer sheet provides spaces for more answers than there are items in
this test.
8. The use ofsilent electronic calculators is allowed.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO `SO

Copyright 2006 Caribbean Examinations Council CD.
All rights reserved.
01216010/F2007
 Why do consumers have tO make choices
among the goods and: services that they
purchase?
(A) Their wants are scarce and their
resources are limited. -
(B) Their resources are insufficient to:
satisfy all their wants.
(C) Theirresources increasemore rapidly
than their wants.
(D) They receive most oftheirgoods and
services at no cost.
2. Which ofthe following statements BEST
describes an 'economy'?
(A) A system where suppliers produce
all the goods arid services needed
by the consumers
(B) A system whereby all the goods
and services used by citizens of a
country are provided by the
government
(C) The utilization of resources to
produce goods and services to
meet the needs and wants of
society
(D) The utilization of resources by
manufacturers to produce goods
and maximiseprofits
3. Sita and Peter are planning to buy a new
house. All of the following factors should
• affect their decisions EXCEPT
theirjointmonthly income
the possibility ofa jobpromotion for
Peter
Sita's best friend also has a, new
home
the high cost of renting where they
now live
01216010/F2007
_'..The' GoYeri-iment of Country X decides to
ii:viteh resources from in-vestmeargoods to
crop production. The opportuniP&eestofthis
decision is the .
profit earned by farmers
rent of the land on which crops are
grown
,
(C) reauction in investment goods
(D) Wages earned by farm workers
In an attempt to in the efficiency °fits
Staff, Management assigns specific tasks to
'each worker. This is an example of
.:( ).. .::: specialisation
(B) progress
(C) : ,productivity
(D) entrepreneurial ability
. An economy produces two goodS, namely
- sugar andbauxite. Whatriame is given to the
curve which shows the maximum arnount of
bauxite that can be produced for every given
amount ofsugar?
Market supply curve
Demand curve
Productionpossibility frontiercurve
Individual supply curve
GO. ON TO THE NEXT PAGE
 Item 7 refers to the diagram below. Prices ofgoodain market economiesfluctu-
ate whileprices of goods in planned econo-
- mies tendjo be fixed., The .1\4977 likely
reason for this difference isthatinthe market
S Supply before subsidy
economy •
Ss
rice
Supply after subsidy
(A) buyers and sellers determineprices
(B) producers are never efficient
(C) • profits are lower
(D) there are high erunemplOyment levels

7. In the diagram above, S is the supply curve A MAJOR disadyrantage of a planned

before a subsidy is given and Ssis the supply economy is that it
curve after th e subsidy is given. As a result
ofthe granting ofthe subsidy, it is expected. (A) causes inequality in the distributiori cf
that income.
(B) discourages, individual initiative and
(A) • supply will increase. enterprise,
(B) supply will decrease (C) results in widespread unernpl cryment •
(C) demand will decrease: (b) causes high rates of inflation
(D) pricewill increase

In a commercial bank, wages and salaries

Which ofthe following determines the alloca- are paid to ALL ofthe following EXCEPT
tion ofresources in a m ixed economy?
(A) bank tellers and superviSors
(A) Consumers only (B) Shareholders o f the bank
(B) Governmentonly (C) investnient managers iri the bank
(C) Government and producers only (D) maintenance workers employed by
(D) Government, producers and the bank
consumers

13 In which ofthe following economic systems

. Which ofthe following is an advantage of a does the state own ALL the factors of
marketeconomic system? production EXCEPT labour?

(A) There is equality of income. (A) A mixed economy

(B) Price control measures can be (B) A market economy
effected. (C) A planned economy
(C) It gives an incentive to produce. (D) A:subsistence economy
(D)' It reduces pollution and congestion.

GO ON TO THE NEXT PAGE

- 010/F2007
 14. Many developing co
untries have-ohanged.
their economies froma • .19. - .- .ACcording
coinmandeconoznyto toeconomietheery; se
amarket-baSedecono cigarette smoke Is an cond hand'
rily Sri orderto increa eiatripleil".
se
(A) goveminerrt control private good
(B) efficiency (B) positive externality
(C) subsidies negative externality'
(D) price control* .(D) meritgood.

15. Sam and Jack starte 2

d a catering busines A shift in the demand
They organised the fac s. curve fora commodity
tors ofproduction and could result from'a ch
pooled their financia ange in •
l resources to produc
the goods and service e
s. In which factor of price • . •
production willyou cla
ssify Sam and Jack? ::supply •
(C).: .conditions.ofsu
(A) Worker pply •
(D) •• conditions of
(B) demand
Investor
(C) Entrepreneur
(D). Manager
olioWing diagrams.
•
16. The sugar industry in P D
Ne*Island uses ahigh
ratio of labourers to
capital as inputs in th
production ofsu gar. e
Which ofthe following
economic questions is
being answered in thi
production arrangeme s
nt?
D
flow much to produc
e (S)
F or whom to produce
What to produce
How to produce

17. Which ofthe following

is NOTarleiampl e of
a factor ofproduction
in a commercial bank
?
(A) Shareholders of the ba
nk
(B) The building
(C) Special savings acco
unt for students
(D) The bank' s vau it 21. Which diagram above
indicates that demand
is perfectly elastic?
18. An increase in the pr
ice of flour is MOS (A) R
likely to be followed T (B)
by an immediate S.
(C) T
(A) rise in the quantity de (D) • U
rnand for bread
(B) fall in the quantity su
(C) pp ly offlour
rise in the quantity su
pply offlour
(D) fall in the quantity de
mand for flour

1216010/F2007
GO ON TO THE NE
XT PAGE
 Hybrid electric cars are more expensive than 25. In which of the following situ ons will a
22.
cars which use gasolene,I-Towever, a major normal supply curve for farm produce slope
feature of el ectri c cars is that they are pollia- upwards from left to right?
0 l.
ti on free. Which costs will fall as consumers
(A) Farmers' profit margins increase as
start using electric cars?
price increases.
(A) Total fixed cost (B) Farmers are willing to increase supply
(B) Marginal cost as demand increases.
(C) Private cost (C) Fai mers pass on increased cost to
(D) External cost consumers.
Farmers are willing to produce more
as price increases.
23. All of the folloWing are features Of perfect. •
•coMpetition EXCEPT
Which of the f011e•Wirig is NOT TRUE of
(A)' selling of homogeneousproducts perfect competition? •
(B) freedom ofentry and exit
(C) many buyers and one seller Firms are price takers.
perfect knowledge of market Products are homogenous.
(D) .
conditions Firms engage inprice discrimination.
There are no barriers to entry.

heft), 24 refers to the diagram below which

shows the market for soft drinks in Country 27.. All things being equal, an increase in the
Y. supply of a good willresult in

an increase in price and quantity

traded
a fall in price and an increase in the
quantity traled
a decrease in price and quantitytraded
arise in revenue and a fall in quantity
traded

0 Q
24.. Which ofthe following is MOST likely to be
responsible fOr the shift in the supply curve
from S to S,?
An increase in advertising of soft
drinks
A fall in the price o f sugar •
Increased wages for workers in the
soft drink industry
An increase in income
Which ofthe following will NOT occur when
there is market failure? .
(A) A decline iri social welfare
(B) An 'increase in poverty throughout
the economy
(C) Increasing levels ofunemployment
among skilled and unskilled labour
(D) Adequate amounts of all goods and
services for consumers

GO ON TO THE NEXT PAGE

 -6-
29. A treasury bill is an instrument for
short-term 34. One ofthe functions ofa commercia
borrowing by l bank is

(A) public corripaniv.. (A) igsuingn.otes andcoiri7

03) governments: (B)' . making loanS
insurance companies (C) determining the foreign exchange
(C) rate
(D) importers': keeping the accounts ofgovemm
ent
:i.eparttnents

30. The MAIN.objeetiyeOfabredit

i on isto 35. The ability to turn an asset into cas
h withOut
(A) encourage conSurner spending loss or delay is known as
(B) provide investment funds
for (A) durability
companies
(C) develop the habit of thri ft among (B) liquidity .
its (C) portnbility
members
(D) provide credit ."to governme (D). divisibility
nt
agencies
tontiti A is experiencing .a bal
ance Of
31. Joe Brown sells his produce atthe payments deficit. Which of the
market and following
saves his money until he has eno measures should it take to reduce
ughto buy a the deficit
tractor.. Which ofthe following in the short-term?
functions is
money performing in this case?
Engage in trade with other low cos
t
(A) Unit of account producen3ofgoods.
(B) Store ofvalue Impose restictions on goods importe
d
(C) Standard of deferred payment from other countries.
(D) Medium of exchange (C) Increase the importation of goo
ds.
(D) Reduce the volume of exports
to
other countries.
32. Which of the following is NOT
a financial
institution in an economy?
37. Which of the following will be
included in
(A) Share Market. the capital account of the bal
ance of
(I3) Developtnenti3ank payments of a country?
(C) Credit union
(D) Trade union Items bought from a foreig
n
supplier through the internet
Outstanding loan repayments ma
de
33. Which ofthe following financial to a bank in a foreign country
instruments (C). Investment in a local manufactur
is issued by the Government? ing
industry by a foreign company
(A) Treasury bonds (D) The value of goods exported dur
ing
(B) Corporate bonds the year
(C) Equity security
(D) Shares on the stockexchange

01216010/F2007 GO ON TO THE NEXT PAGE

 38_ Which of the following factors will MOST Item 41 refers to the following table.
likely cause afall in a country,' s exchange rate
under a flexible change rate required? . Vein 'AMbunt
(ST14)
(A)' An increased demand for its imports
(B) An increased demand for its exports Consumption 100
(C) An increased inflow ofcapital Net income from abroad 20
(D) A reduced rate ofdomestic inflation Investment 80
Government§pending ' 60
Item 39 refers to the table below which
shows the rate of inflation and the average
percentage increase in wages Over a four- 4 Using the data provided in the table above
yearperiod. calculate the Gross Domestic Product.

(A) $200 M
YEAR RATE OF WAGE (B) $220 NI
INFLATION INCREASES (%) (C) $2101A
2003 5 20. (D) . $260M:
2004 - 10 20
2005 10
2006 15 5 . Some developing countries are trying to
achieve; economic growth :with less
3 In which year was the increase in real wages governmental participatipn. This is MOST
GRF_A I I - likely to be achieved through increased

(A) 2003 (A) private investment

(B) 2004 (B). public expenditure
(C) 2005 (C) • state planning
(D) 2006 - (D) trade barriers'

40. Which ofthe following measures is MOST 43 - Large firms achieve savings in unit costs from
I ikelyto reduce inflation? advertising or packaging. This is a result of
which ofthe following economies ofscaie?
(A) An increase in bank lending
(B) An increase in import duties (A)
(C) A reduction in government (B) Marketing
expenditure (C) Managerial
(D) A reduction indirect taxation (D) Technical -

GO ON TO THE NEXT PAGE

01216010/F 2007
 item 44 refers to the following figure.
:46. CotintrYX dec icles.to protect its agricult
ural
Cord seetOrfrornforeign competition bkzestr
icting
try p the amount 6fagricultural goods importe
d into
the country. This measure is referred
'tom' to as a
(A 'trade barrier
"(6):. .trade bloc
(C) 14uota trading
(D) trade embargp

Q ..Co..od >C.
44. With reference to the diagram above, Which O'f the following is NO
: state T a•
which ofthe following is TRUE.. characteristic of Caribbean econom
ies?

(A) Country P has an abscilute advantage (A) High leVels ofunemployment

in Good Y only.
(B) CountryP has an absolute advantage
in Good Y and Good X. • ,
(C) Country Q has an absolute advantage
in Good Y only: •
•(D) Country Q has an absolute advantage
in Good Y and Good X.
45. A country is said to have a compar
ative
advantage in theproduction ofa com
modity
when it
canproduce more ofthat commodity
than any other country
has a larger share of the market for
that commodity than any other
country
• lt in a
can produce that commodity at a
lower opportunity cost than any
other country
accounts for a greater percentage
of total world sales of that
commodity than any other
commodity
(B) Majorproducers ofrpanufabtured
goods
(C) io:w I evelS ofcapital formation
(D) •: A high debt burden
4 Country B had an increase of$300 000
000
in foreign direct investment. In wh
ich
section of the balance ofpayments will
this
transaction be recorded?
(A) Visible trade account
(B) Balance of trade account
(C) •Invisible trade account
(D) Capital account
49. Which ofthe following events will resu
surplus on the balance of trade ofa cou
ntry?
Volume ofexports is greater than the
volume ofimports. . .
Volume ofimports is greaterthan the
volume ofexports.
Value ofexpoi-ts is greater than the
value of imports.
Value of imports is greater than the
value ofexports.

.1216010/F2007' GO ON TO THE NEXT. PAGE

 Item 50 refers to the table be
low which' 54. Which of the following be
- showsfigures taken from the balanc nefits will
payments records for Country e Of . consumers 'derive as: a res
X in the year: Ulf-of trade
2006:: x
liberalisation?

They will enjoy greater access

'to a
variety ofgoods.
Goods and sen.rices will be provid
ed
Export of goods 500 at lower cost!. •
Import of goods 400 Prices ofallgoodS and services
will
Current balance 300: be red need.
(D) Prices of goods andServices wil
l be
more Stable.
50. What is the invisibl ebalance for
County- X?
(A). $ 100M 55. Which ofthe following are cha
racteristic of
(B) '.;$:.`200M MOST Caribbean economies?
(C)', $ 300M
(D) ,$1200M I. High percapita incomes
IT. A diversified manufacturing sec
III. tor
51. Equitable distribution ofincome
Which of the following measu s
res is MOST Dependency on primary pro
likely to reduce inflation? duct
exports
An increase in bank lending (A) TV only
.An increase in import duties (B) Iandllonly
A reduction in government (C) I and III only
expenditure (D) II and IV only
A reduction in direct taxation

52. Chasa Cosmetics seeks to marke 56. All ofthe following are examp
t itsproducts les ofprimary
in the United States. Such a mo products EXCEPT
ve is made
MOSTlikely through
bai 'Kite
the establishment of the Carib furniture
bean bananas
Single Market and Economy
direct foreign investment in the Un petroleum
States ited
effective marketing strategies
trade liberalization

3. The restriction of intern ati on al

trade
tariffs, embargoes, quotas and thro ugh
exchange
controls is referred to as

(A) structural adjustment

(B) globalisation
(C) bi-lateral agreements
(D) protectionism

a16010/F 2007 GO ON TO THE NEXT PAGE

 Item 57 refers to.
the table below w
shows a country's hie,11 . 58:
current account of Country A and COun
balance of paymen its" tryB aretradippartner
ts for the year 2006 1-10VVwilltlieir tradin s.
. g relatiOns be affected
the value Of the-. if
etiriency:.of Gdunt
Item increases against th ry A
($M) e value oftheturrenc
Country B? y of.
Invisible impotts -
Invisible exports 50
80 (A) EipOrts froth Coun
Visible imports try B to Country
70 A. will be cheaper..
Visible exports :
32 ( 3)• 'The Volume ofexpo
rts froni Country
What is its balanc A to Country 1. 3 will
e of merchandise tra (C) be cheaper.
de? Exports frorriCOUn
tryBto Country
-A will decrea
(A) -$38 M se:
(D) The Volume ofexpO
(B). rts from
(C)
$20 M to Country B will de Country
$38 M crease.
(D) $48 M
Item 59 refers to
the information be
which shows impo low
rt and export data
County X in 2006. for

Index of import price

s 100
Index Of export price
s 120
Volume of expor6
Volume of imports. 200
80
What were the tent
s ofirade for
in 2006? X

). .0.98
) 1.2
(C) 2.
(D) 120

Item 60 refers to th
e table below below
Domestic Product fo which shows manuf
r four countries. acturing output as a
share of Gross
YEAR COUNTRY A
1960 COUNTRYB
28% COUNTRY C
1980 40% COUNTRY D
23%. 29% . . 29%
1990 34 %
19% 26°A
- 31% 28%
21% 23
60. What trend is comm %
on to ALL countries
shown in the table?
(A) Employment in the
(B) manufacturing sect
There was a declin or increased.
(C) e in the Gross Domes
There was a declin tic Product.
(D) e in the sale ofman
There was a declin ufactured products.
e in manufacturing
output as a share of
Gross Domestic Pr
oduct.
IF YOU FINISH
BEFORE TIME
IS CALLED, CH
ECK YOUR WO
RK ON THIS TE
ST.
I216010/F 2007