CANDIDATE PLEASE NOTE!

You must sign below and return this booklet with

the Answer Sheet. Failure to do so may result
in disqualification. TEST CODE 02216010
FORM TP 20 13169.....____ _ _----'-sig_na_tur_e ----l
MAY/JUNE 2013
CARIBBEAN EXAMINATIONS COUNCIL
CARIBBEAN ADVANCED PROFICIENCY EXAMINATION
ECONOMICS
Unit 2- Paper 01

1 hour 30 minutes
( 10 JUNE 2013 (a.m.))

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

1. This test consists of 45 items. You will have 1 hour and 30 minutes to answer them.
2. In addition to this test booklet, you should have an answer sheet.
3. Do not be concerned that the answer sheet provides spaces for more answers than there are
items in this test.
4. Each item 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 calculated by adding direct factory expenses to the cost of
Sample Answer
(A) goods used
(B) goods bought
(C) materials used
(D) materials produced
The best answer to this item is "materials used", so answer space (C) has been shaded.
6. If you want to change your answer, erase it completely and 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, omit it and go on to the next one. You may return to that item
later. Your score will be the total number of correct answers.
8. You may do any rough work in this booklet.

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iiiiiiiiiii 9. You may use silent non-programmable calculators to answer questions.

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

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iiiiiiiiiii
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Copyright 2009 Caribbean Examinations Council
All rights reserved.

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 -2-

1. Which of the following BEST describes Item 4 refers to the following diagram
the underground economy? which shows the savings function.

(A) The producton of intermediate

goods Expenditure
(B) Economic activities that foster and
growth Savings
(C) Economic activities that are hidden
from the government
(D) Economic activities which are
heavily taxed s

2. The consumption function is given as

C = a + bY. In this equation 'b' represents +

(A) autonomous investment

(B) autonomous consumption T
National Income
(C) marginal propensity to save
(D) marginal propensity to consume

Item 3 refers to the following information.

4. Which of the following expressions
represents the marginal propensity to save?
Consumption spending= $700
Government spending = $500
Investment spending = $200 (A)
NT
Net export = $300 OT

3. What is the value of aggregate demand? VT

(B)
MT
(A) $1 100
(B) $1 300
MT
(C) $1 700 (C)
(D) $2 300 OT

(D)
MT
VT

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0221601 0/CAPE 2013
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5. The aggregate supply of a labour curve shows Item 9 refers to the diagram below showing
the the classical model for a labour market.

(Aggregate labour supply)

(A) total number of people willing and ASL N
able to work at different wage Wage
Rate
rates
(B) total number of people who are
willing to work
(C) amount of goods a particular
(Aggregate labour demand)
producer is selling ADL
(D) amount of factor services a
particular producer is selling 0
Number of Workers
Items 6-7 refer to the following information.

Country X produces two goods, Good P 9. The broken line between the ASL and the
and Good Q. The table below shows the N curves represents the
quantities produced and the prices in the
respective years. (A) total labour force
(B) equilibrium wage rate
2011 2012 (C) natural level of unemployment
Commodities Quantity Price Quantity Price (D) disequilibrium level of unemploy-
Good P 20 6 30 10 ment
GoodQ 100 2 90 6
Item 10 refers to the following graph which
6. Norminal GOP in 2012 was
shows aggregate demand curves for an
(A) $320 economy.
(B) $480
(C) $840
(D) $960 Price
level

7. Real GOP in 2012 was

(A) $ 360
(B) $ 800
(C) $ 960
(D) $1 920
ADl
7
National Income
8. Which of the following BEST defines 'real
national income'? 10. The movement from AD 1 to AD 2 is MOST
likely caused by an increase in
(A) The actual GOP in any given year
(B) The money value of national income (A) inflation
(C) GOP minus net property income (B) taxation
from abroad (C) interest rates
(D) National income adjusted for (D) government spending
inflation

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Item 11 refers to the table below which shows data from the Balance of Payments figures of a
Caribbean territory.

Current Account $Million

Exports 100
Imports 150
Transfers out 20
Transfers in 15

11. What is the balance on the Current Account?

(A) -$50m
(B) +$ 50m
(C) -$55m
(D) +$285m

Item 12 refers to the diagrams below showing Equilibrium National Income (Y E).

(I) y (III)
y
AE AE
Aggregate
Aggregate
Expenditure
Expenditure
(AE)
(AE)

YF YE
Real National Income Real National Income

y
(II) (IV)

AE
Aggregate Aggregate
Expenditure Expenditure
(AE) (AE)

Real National Income Real National Income

12. Which ofthe diagrams represents a recessionary gap?

(A)
(B) II
(C) III
(D) IV

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0221601 0/CAPE 2013
 d

-5-

13. The classical economists believed that Item 15 refers to the following diagram.
the existence of unemployment had to be
1
voluntary because

(A) governments usually step in with Consumption 2

measures designed to reduce
unemployment
(B) those persons who are unemployed
are so because they refuse to be
self-employed
(C) the possibility of emigration allows Q Q 1 Income ($)
those persons who cannot find
jobs to leave the labour market
15. Which of the following segments BEST
(D) market forces will always clear
represents dissavings?
the labour market, therefore
those persons without jobs have
(A) be
chosen to be out of the labour
market (B) QQ!
(C) Q2Q
(D) Oeafd
14. According to classical economists, why
will the labour market always maintain
equilibruim?
16. The speculative motive for holding money
is based on money's function as a
(A) Prices, including wages rates, are
flexible.
(A) store ofvalue
(B) The market is not allowed to
(B) unit of account
operate freely.
(C) medium of exchange
(C) Financial instititutions have excess
(D) means of deferred payment
funds.
(D) Commercial banks have a shortage
of funds.
17. Which of the following CANNOT be used
to measure inflation?

(A) GOP deflator

(B) Expenditure method
(C) Producer price index
(D) Consumer price index

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0221601 0/CAPE 201 3
 -6-

18. Which diagram below shows how monetary 19. The velocity of money circulation can be
policy is ineffective in influencing the gross defined as the
national product?
(A) average time in which households
Mt M2
spend their money income
(A)
(B) money stock in a given time period
....co:
~
divided by the level of prices
.....""' (C) number of times in a given time
"'
~
period that a unit is used to purchase
.....""'
~

,_.= final output

LP (D) total value of transactions in a given
time period divided by the average
Q Ql price level
Quantity
of money

M 20. Which of the following are automatic fiscal

(B)
....co:
~ stabilizers?
....""' (A)
"'
~ State-required pensions
""'
~
..... (B) Unemployment benefits
,_.=
(C) Fixed cost of living allowances
(D) Contributions to national income
LP
Q
Quantity
21. The relationship between inflation and
of money
unemployment is that as unemployment
M Mt
falls inflation
(C)
~
.....co: (A) nses
....""' (B) falls
"'
~
r (C) fluctuates
....""'
~

(D) remains unchanged

,_.=
LP
Q Q 22. Given the following data
Quantity
of money Money supply (M) = 100
Number of Transactions (T) = 200
(D) Mt Velocity of circulation (V) = 4

....co:
~
If the price level rises by 50% then by
""'
.....
r how much would the money supply (M)
"'
~

....""'
~ increase?
,_.=
(A) 25%
(B) 50%
Ql Quantity (C) 75%
of money (D) 100%

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23. One of the limitations of monetary policy 27. Changes in taxes and transfer payments that
is that it dampen economic fluctuations are known
as
(A) is not permissive enough
(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) automatic destabilizers
money supply

28. The precautionary motive for holding

24. A fiscal surplus is BEST defined as the money is based on

(A) excess of total government (A) the fact that bond and share prices
revenues over total government have been on a downward trend
expenditures (B) the fact that money is needed for
(B) excess of total government purchasing bonds and shares and
expenditures over total money is received at intervals
government revenues (C) uncertainties about the movement
(C) amount of money spent by the of bond and share prices
government on social welfare (D) uncertainties about the timing
benefits of receipts and payments by a
(D) sum of income collected by the firm's customers
government

29. Which of the following statements are

25. The quantity theory of money may be TRUE about automatic stabilizers?
expressed as
I. They cushion the economy from
(A) MV=PT the full effects of a recession.
(B) MT=PV II. They cause output and unemploy-
(C) V=M-:-P ment levels to be very volatile.
(D) V = PT-:- P III. They reduce the volatility of output
and employment levels.

26. The term 'price index' is BEST defined as (A) I and II only
a (B) I and III only
(C) II and III only
(A) continuous increase in the overall (D) I, II and III
price level
(B) decrease in the overall price level of
all goods produced in a country 30. What is the effect of a surplus budget on
(C) measurement showing the cost of government's total debt?
goods at a particular point in
time (A) Total debt increases.
(D) measurement showing how the (B) Total debt decreases.
average price of a basket of (C) Total debt remains the same.
goods changes over time (D) Government spending decreases.

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0221601 0/CAPE 2013
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31. Which of the following phrases defines 35. Which of the following terms refers to the
'economic growth'? creation of a single monetary and fiscal
authority having jurisdiction over a number
(A) The increase in real per capita of countries?
output over time
(B) An increase in the standard of (A) Free trade area
living over time (B) Customs union
(C) The meeting of two production (C) Economic union
possiblity boundaries (D) Common market
(D) A representation of the maximum
recovery of exisiting resources
over time 36. Which of the following features is NOT
a structural characteristic of Caribbean
economies?
32. One advantage of a fixed exchange rate is
(A) Small size
(A) that there is a lot of speculation (B) Limited resource base
(B) that foreign goods appear cheaper (C) Economic independence
(C) reduced risks to business and (D) Limited composition of export
investors
(D) high rate of foreign currency
37. A systematic record of accounts that moni-
tors economic transactions between one
33. The transactions in the balance of payments country and the rest of the world is referred
are regarded as to as

(A) flows (A) capital account

(B) debits (B) current account
(C) stocks (C) balance of trade
(D) credits (D) balance of payment

34. The use of exchange control to eliminate a 38. One advantage of a floating exchange rate
nation's balance of payments deficit results system is that it
in a decrease in the country's
(A) forces the government to constantly
(A) income monitor its value
(B) imports (B) reduces the uncertainties caused
(C) exports by fluctuating import and export
(D) price level prices
(C) provides an automatic solution to
balance of payments problems
(D) requires the strong support of
government to maintain its value

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0221601 0/CAPE 2013
 -9-
39. Which of the following phrases BEST 43. What effects will an import quota have on
explains the role of the World Trade the quantity of wheat imported by St. Lucia
Organization? from the United States?

(A) Setting the geographic boundaries I. Reduce the volume of wheat that
for the conduct of world trade is traded.
(B) Executing the taxes and tariffs for II. Raise the price of wheat in the
,~ world trade importing country and lower the
(C) Providing protection for less price in the exporting country.
developed countries III. Lower the price of wheat in the
(D) Setting the rules and regulations for importing country and raise the
the conduct of world trade price in the exporting country.

(A) I and II only

40. Country Y had an inflation rate of 8% and (B) I and III only
a nominal growth rate of 7%. This means (C) II and III only
that Country Y experienced (D) I, II and III

(A) positive growth

(B) negative real growth 44. For several years the national currency of
(C) little growth in the economy Zetaland, a country in the Eastern Caribbean,
(D) both nominal growth and real has been losing value against other currencies.
growth This situation is called

(A) revaluation
41. When the value of a country's currency
(B) devaluation
appreciates, the country's
(C) depreciation
(D) appreciation
(A) exports become cheaper
(B) balance of trade improves
(C) imports become more expensive
45. To which of the following do "equity,
(D) exports become more expensive
sustainability, productivity and empower-
ment" apply?
42. Which of the following is NOT a feature of
(A) Growth
globalization?
(B) Development
(C) Liberalization
(A) Increased international trade
(D) Economic integration
(B) Greater independence among
countries
(C) Greater flows of labour across
countries
~
I (D) Greater flows of investment across
countries
"'

END OF TEST

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

022160 10/CAPE 2013