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Institute of Certified Management Accountants of Sri Lanka Technician Stage March 2011 Examination
Examination Date : Examination Time: 27th March 2011 1.30 p:m.- 4.30 p:m. Number of Pages : Number of Questions: 06 09

Instructions to the Candidates

1. 2. 3. Time allowed is three (3) hours. Answer all questions in Part I and two (2) questions from Section A and two (2) questions from Section B in part II Answers should be entirely in the English language.

Subject
Economics & International Business
PART I

Subject Code
(ECN / 505)

Answer all parts of Question No.1. Select the most correct answer to each question. Write the number of the selected answer in your answer booklet with the English letter. E.g. (1) (a), (2) (b) etc

Question No.1 (20 Marks)

(1) All economies have to face the same basic economic problem, which is (a) opportunity cost. (b) choice. (c) scarcity. (d) wants. One economy differs from another economy due to the (a) basic economic problems. (b) different approaches to solve basic economic problems. (c) population. (d) international trade. The concept of opportunity cost can be illustrated by a (a) demand and supply diagram. (b) production possibility curve. (c) equilibrium price. (d) Philips curve. In a free market economy resources are allocated by the (a) central planning committee. (b) policy of the party in power. (c) market forces. (d) system of rationing.
1

(2)

(3)

(4)

Institute of Certified Management Accountants of Sri Lanka Technician Stage Economics & International Business (ECN / 505) March 2011 CMA Examination

(5)

A positive statement is one where (a) an opinion of a person is given. (b) can test the accuracy by referring to data. (c) The majority of the population is agreed upon. (d) A vote is taken at an election. An effective demand is demand backed by (a) complimentary goods and substitutes. (b) inferior or giffen goods. (c) purchasing power. (d) veblen goods. The diagram below shows a product with unit elasticity.

(6)

(7)

How should the price and quantity change? (a) 10% change in price leading to a 10%change in quantity demanded. (b) 10%change in price leading to a infinite change in demand. (c) 10%change in price leading to no change in demand. (d) 10%change in price leading to a 25% change in demand. (8) P in the diagram below show the equilibrium price for rice.

Price

P1 P

D 0 Quantity

What would happen if the government fixed the price at P1? (a) all the rice produced is sold. (b) There is excess rice in the market. (c) There is excess demand in the market. (d) There is rationing introduced by the state.
Institute of Certified Management Accountants of Sri Lanka Technician Stage Economics & International Business (ECN / 505) March 2011 CMA Examination 2

(9)

A multi national company is one that has (a) diversified business activities. (b) exports. (c) branches in other countries. (d) benefits from economies of scale.

(10) If there is a progressive tax system how should it function (a) more taxes from the richer section than the poorer section. (b) more taxes from the poorer section than the richer section. (c) all must be taxed at a higher rate. (d) all taxes must reduce to a lower rate. (11) Which policy should a government follow if it wants to bring about a higher rate of economic growth? (a) increase taxes to get more revenue. (b) decrease taxes to provide incentives to investors. (c) encourage competition in the market. (d) create more barriers and protection. (12) What will make the exports cheaper? (a) foreign direct investments. (b) appreciation of the currency. (c) depreciation of the currency. (d) a low interest rate. (13) What type of policy did USA follow to get over the recent recession? (a) increased unemployment benefits. (b) increased government expenditure as advocated in Demand management. (c) increased social security payments. (d) increased production according to Supply side policies. (14) Which is the huge single market today in the world, with a common currency and a common central bank? (a) ASEAN. (b) NAFTA. (c) EEC. (d) Caribbean free trade area. (15) International specialization helps to increase world output and bring about (a) globalization. (b) division of labour. (c) free trade. (d) reduce unemployment. (16) The developed economies are out sourcing their factories to the developing economies due to (a) the fall in import restrictions. (b) availability of cheap labour. (c) availability of modern technology. (d) a rise in exports from these countries.
Institute of Certified Management Accountants of Sri Lanka Technician Stage Economics & International Business (ECN / 505) March 2011 CMA Examination 3

(17) The concept of GDP and GNP are different. It is due to not considering (a) net foreign incomes from abroad. (b) depreciation. (c) indirect taxes and subsidies. (d) the trade deficit. (18) Perfect competition and Monopolistic competition are very similar, but there is a major difference due to? (a) selling an identical product. (b) selling a differentiated and branded product. (c) selling a substitute. (d) selling complimentary goods. (19) A shift of the Production Possibility Curve (PPC) to the right indicates that the economy has (a) not used all the resources. (b) used all the resources. (c) achieved economic growth. (d) achieved full employment. (20) the natural rate of unemployment is that rate which prevails when the economy is (a) in dis- equilibrium. (b) in equilibrium. (c) using all the available resources. (d) fully exhausted of resources. (20 1 Mark = 20 Marks) End of Part I

Institute of Certified Management Accountants of Sri Lanka Technician Stage Economics & International Business (ECN / 505) March 2011 CMA Examination

PART II Section A Answer any 2 questions Question No. 2 (20 Marks)

(a) Explain briefly what is meant by: free market economy, mixed economy and transitional economy. (12 Marks) What sort of a role will the price system play in a free market economy and a planned economy? (08 Marks) (Total 20 Marks)

(b)

Question No. 3 (20 Marks)

(a) (b) (c) Define Price, Income, and Cross elasticity of demand. How useful are the concepts in (a) to a producer, seller and the government. (06 Marks) (06 Marks)

Prepare a demand and supply schedule and draw a diagram to show the equilibrium price. (08 Marks) (Total 20 Marks)

Question No. 4 (20 Marks)

(a) (b) Describe the barriers of entry to an industry. (06 Marks)

What is the market structure that is most affected by this and discuss the .benefits of that market to the producer and the consumer. (14 Marks) (Total 20 Marks)

Question No. 5 (20 Marks)

(a) (b) (c) (d) Describe the main functions of money. What do you mean by the supply of money? What do you mean by the demand for money? What is the relationship between the supply of money and Inflation? (06 Marks) (04 Marks) (06 Marks) (04 Marks) (Total 20 Marks) End of Section A

Institute of Certified Management Accountants of Sri Lanka Technician Stage Economics & International Business (ECN / 505) March 2011 CMA Examination

Section B Answer any 2 questions Question No. 6 (20 Marks)

(a) (b) Explain with a numerical table the theory of comparative cost advantage. (10 Marks)

The aim of the WTO is to encourage freer trade in the world .Describe the gains from free trade to an economy. (10 Marks) (Total 20 Marks)

Question No. 7 (20 Marks)

(a) (b) (c) What is a Budget? Describe the main areas of expenditure to a government. (04 Marks) (12 Marks)

If the revenue is not enough how will a government find the finance for it expenditure? (04 Marks) (Total 20 Marks)

Question No. 8 (20 Marks)

(a) (b) Explain why firms engage in international business. Describe problems associated in International Business. (10 Marks) (10 Marks) (Total 20 Marks)

Question No. 9 (20 Marks)

(a) Describe the main external environmental factors which affect international business. (10 Marks) List and describe in brief 5 modes of entry into international business. (10 Marks) (Total 20 Marks) End of Section B End of Part II End of Question Paper

(b)

Institute of Certified Management Accountants of Sri Lanka Technician Stage Economics & International Business (ECN / 505) March 2011 CMA Examination