INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

EXAMINERS’ COMMENTS

SUBJECT SESSION
Introduction to Economics and Finance Certificate in Accounting and Finance
– Autumn 2014

General:

Overall the paper was quite easy and the students scored very well. Some of the students
attempted extra questions which are not marked and result in wastage of time.

Question-wise comments are given below:

Question 1(a)

This was one of the best attempted questions as the topic of price elasticity of supply is
easy and is frequently asked. A significant number of students scored full marks.
However, in their enthusiasm, many students wrote very lengthy answers including
diagrams which were not required. This resulted in waste of precious time which affected
their performance in later questions.

Question 1(b)

A mixed response was seen in this question as a large number of students explained the
determinants of supply instead of determinants of price elasticity of supply. Many
students identified the determinants but did not explain them.

Question 2(a)

In this part, most of the candidates secured full marks.

Question 2(b)

Almost all the students explained and computed the Marginal Revenue correctly;
however, very few seemed to understand how the result is to be interpreted.

Question 2(c)

A significant number of candidates were able to identify that the profit of the firm is
maximized when 8 units are produced by the firm. However, many candidates
determined it by computing the profit at each level and did not specify that profit is
maximized when MR=MC.

Page 1 of 4
 Examiners’ Comments on Introduction to Economics and Finance - Autumn
2014

Question 3

The requirement in this question was to discuss the important features of Islamic
Economic System and most of the students did exceedingly well. However, many
students used guesswork. Many such students mentioned that acquisition of wealth is
forbidden in Islam.

Question 4(a)

This question was quite easy and almost all students secured good and even full marks.
However, in this question also many students wasted time in explaining the features of
monopoly whereas the requirement was to state those features only.

Question 4(b)

In this part, majority of the students explained the concept of equilibrium with the help of
a diagram whereas the requirement was to explain it with the help of a schedule.

Question 5

This question contained 15 MCQs. An above average performance was observed in this
question as most of the students scored 8 to 10 marks. Very few candidates gave correct
answer of the last MCQ, whereas frequent errors were noted in MCQ 4, 5, 13 and 14.

Question 6(a)

In this question the candidates were required to explain with the help of suitable diagrams
how increase in ‘GDP’ and ‘financial innovation’ influence the total demand for money
in an economy. Most of the students explained the impact of increase in GDP on demand
for money correctly but seemed confused while discussing the impact of financial
innovation. Some of them discussed the impact of innovation on GDP instead of demand
for money. In either case, many students named the MD curve as MEC curve. Further,
many students failed to label the diagrams correctly.

Question 6(b)

More than 80% of the students defined the concept of liquidity trap correctly but only
half of them identified that fiscal policy measures, raising inflationary expectations and
expectations of low interest rates can help in overcoming the situation of liquidity trap.

Question 7(a)

This question required explanation of fixed and floating exchange rates and their
advantages. It proved to be the highest scoring question for majority of the students.
However, many students also made diagrams which weren’t required.

Page 2 of 4
 Examiners’ Comments on Introduction to Economics and Finance - Autumn
2014

Question 7(b)

This was a 3 mark question about why governments may want to influence exchange
rates. Most of the students gave correct answers and scored high marks.

Question 8

In this question the candidates were required to analyse the effect of imposition of
indirect taxes on producers and consumers and its relationship with the elasticities of
demand and supply. This proved to be a difficult question. In fact, only about 30% of the
students attempted this question from Section B. Most of them could only explain the
impact on demand for the product and to some extent its linkage with elasticity of
demand but very few could explain the relationship with elasticity of supply.

Question 9(a)

Most of the students were able to describe balance of payments deficit correctly and
scored good marks. However, many students confused it with balance of trade. Further,
many students did not explain its bifurcation into current account and financial account.

Question 9(b)

In this question it was quite evident that majority of the students had resorted to rote
learning and therefore were unable to perform well because the question was formatted in
a different manner. Otherwise, the two aspects tested in the question i.e. "financing" as
against “correcting” balance of payment deficits are topics in which the students usually
perform well.

Question 10(a)

Majority of the students were able to describe all the four major objectives of government
policies namely to achieve economic growth, control inflation, correct balance of trade
account and achieve full employment.

Question 10(b)

The performance in this part was poor as most of the candidates highlighted one side of
the argument only i.e. some of them emphasized that by increasing interest rate, inflation
is controlled whereas many students discussed the other side i.e. generating investment
and growth by lowering interest rates. Only few candidates talked about creating a
balance.

Question 10(c)

Almost all the students gave right answer to this part of the question.

Question 11(a)

This part was attempted well by most of the students as they were able to produce correct
diagram of the circular flow of income.

Page 3 of 4
 Examiners’ Comments on Introduction to Economics and Finance - Autumn
2014

Question 11(b)

This was a three mark question with the requirement to just list down three types of
withdrawals and injections from/into the circular flow of income. Majority of the students
performed well and a significant number of students scored full marks.

Question 11(c)

In this part the candidates were required to explain the effects of an increase in the
household savings rate on an economy. The performance was below average as most of
the students could only write that undue increase in savings would slow the economy but
did not explain properly as how this process will work.

Question 12(a)

Most of the candidates did this part really well and described recession correctly and also
its characteristics.

Question 12(b)

An average performance was seen in this part as majority of the students explained the
demand deficient unemployment correctly but were not very sure about structural
unemployment.

THE END

Page 4 of 4