WAEC SSCE - Economics - 2021
Question 1 Report
The relationship between the marginal revenue (MR) and the average revenue(AR) of a monopolist is that the marginal revenue curve____
Answer Details
The relationship between the marginal revenue (MR) and the average revenue (AR) of a monopolist can be described as follows: The MR curve slopes down to the right and is below the AR curve. This means that as a monopolist increases the quantity of goods sold, the marginal revenue (the extra revenue earned from selling one more unit) decreases, while the average revenue (the total revenue divided by the number of goods sold) also decreases, but at a slower rate. The reason for this is that, in a monopoly, the monopolist has the market power to set the price for their goods, so as they sell more, they may have to lower the price to entice more customers to buy. This leads to a decrease in the marginal revenue earned from each additional unit sold, and a decrease in the average revenue earned from all units sold. In simple terms, as a monopolist sells more goods, they will earn less from each additional unit they sell, causing both the marginal and average revenue to decrease, but the MR will decrease faster than the AR.
Question 2 Report
In order to enable the government of a country to increase its tax revenue, it will be advisable for it to increase taxes on_______
Answer Details
Question 3 Report
An increase in market supply is caused by the following factors except_________
Answer Details
Question 4 Report
Which of the following is not an argument for the policy of privatization in West Africa?
Answer Details
The argument that "Government is able to participate and control the operation of the privatized businesses" is not an argument for the policy of privatization in West Africa because the whole idea behind privatization is to transfer ownership and control of a government-owned asset or service to the private sector. Privatization is meant to reduce government involvement in business operations and to promote competition, efficiency, and accountability. If the government is still able to participate and control the operation of the privatized businesses, then it would not be considered a true privatization.
Question 5 Report
What will be the reaction of consumers in a market if there is a fall in the price of the substitute commodity X?
Answer Details
Question 6 Report
Examples of land that are non-renewable include___________
Answer Details
The examples of land that are non-renewable are farmland already used for many years and some natural resources such as natural gas. Farmland that has been used for many years can become degraded and depleted of nutrients, making it difficult to grow crops. This land may take a very long time, if ever, to recover its fertility, making it non-renewable. Natural gas is a non-renewable resource because it is formed over millions of years from the remains of dead plants and animals. Once it is extracted from the ground and used, it cannot be replaced. Marshy and water-logged land and oxygen and carbon dioxide in the atmosphere are not examples of non-renewable land. Marshy and water-logged land can be restored through land management practices, and oxygen and carbon dioxide in the atmosphere are constantly being replenished through natural processes such as photosynthesis.
Question 7 Report
If a country imposes a barrier on trade, the resultant effect will be _________
Answer Details
If a country imposes a barrier on trade, such as tariffs or quotas, it will result in an increase in the cost of imported goods. This makes them less competitive compared to domestically produced goods, leading to an increase in demand for locally produced goods. As a result, local industries will experience a boost in sales and may expand to meet the growing demand. This can result in the growth of infant industries, which may not have been able to compete with cheaper imports before the trade barrier was imposed. However, the downside is that it can also lead to higher prices for consumers and potentially limit the variety of goods available in the market.
Question 8 Report
A floating exchange rate means that the exchange rate is fixed by the __________
Answer Details
Question 9 Report
The leftward shift in the supply curve for a commodity indicates_________
Answer Details
A leftward shift in the supply curve for a commodity indicates a decrease in supply. In economics, the supply curve shows the relationship between the price of a commodity and the quantity that suppliers are willing and able to provide. When the supply curve shifts to the left, it means that at each price level, the quantity supplied is lower than before. This could be due to a number of factors such as a decrease in the number of suppliers, an increase in the cost of production, or a decrease in the quality of the commodity. In simpler terms, a leftward shift in the supply curve means that there is less of the commodity available for sale, and as a result, the price is likely to increase.
Question 13 Report
Government can increase farmers' incomes by__________
Answer Details
One way that government can increase farmers' incomes is by fixing minimum prices for their crops. This means that the government sets a floor price below which the farmers cannot sell their produce. By doing so, farmers are guaranteed a certain level of income even if the market prices fall due to oversupply or other factors. Fixing maximum prices is unlikely to increase farmers' incomes as it would limit the amount they can earn for their crops, while encouraging them to produce surplus output may lead to lower prices due to oversupply. Increasing taxes on inputs could also have a negative effect on farmers' incomes by increasing their production costs, which may lead to lower profits. Therefore, fixing minimum prices is generally considered the most effective way to increase farmers' incomes, as it ensures they receive a fair price for their produce and incentivizes them to continue farming.
Question 14 Report
The age distribution of a country's population is shown below. Use the information is answer the question below.
| Age group (YEARS) | Population |
| 0 - 15 16 - 40 41 - 60 Over 60 |
30% 45% 15% 10% |
What is the dependency ratio?
Answer Details
The dependency ratio is a measure of the number of people who are not of working age (0-15 and over 60) compared to the number of people who are of working age (16-60). In this case, 30% of the population is 0-15 and 10% is over 60, so 40% are not of working age. The remaining 60% of the population is of working age. So, the dependency ratio can be calculated as the number of people who are not of working age divided by the number of people who are of working age, or 40% divided by 60% which is 2:3. In simple terms, for every 3 people of working age, there are 2 people who are not of working age.
Question 15 Report
The distinguishing function of an entrepreneur is_______
Answer Details
The distinguishing function of an entrepreneur is risk-bearing. Entrepreneurs are individuals who take on financial risks and uncertainties to create new businesses or bring innovative ideas to the market. They are willing to invest their own money, time, and resources into a venture without any guarantee of success. This risk-taking behavior sets them apart from other business professionals. Entrepreneurs must also have the ability to identify and evaluate potential risks and opportunities, develop and execute business plans, and adapt to changes in the market. However, while planning, control, and management are all important aspects of entrepreneurship, it is the willingness to take on risk that distinguishes an entrepreneur from other business professionals.
Question 16 Report
Non-economic factors that influence the location of firms include ________
Answer Details
Non-economic factors that influence the location of firms are factors that are not necessarily related to profit or financial gain. These factors can include social, political, and environmental considerations. For example, the existence of required materials for production may be a key consideration for a firm when deciding where to locate. If a particular area has a rich supply of the raw materials that a company needs to produce its goods or services, it may make sense for that company to locate its operations in that area. The availability of a population of buyers is another factor that can influence where a firm decides to locate. If a particular area has a large and accessible population of potential customers, it may make sense for a company to locate its operations in that area to take advantage of this market. Adequate supply of power, good road and rail network can also be a key consideration for firms when deciding where to locate. These infrastructure considerations can impact a company's ability to transport goods and services to customers, as well as its ability to access the resources it needs to operate. The activities of politicians in deciding location of firms is not a common factor. However, sometimes government policies and regulations can have an impact on where firms decide to locate. For example, tax incentives or other government subsidies may be offered to companies that locate in certain areas, which can influence their decision-making process.
Question 18 Report
When a commodity market operates without government interference, commodities are distributed through_______
Answer Details
When a commodity market operates without government interference, commodities are distributed through the operation of price mechanism. This means that the price of the commodity is determined by the interaction of supply and demand in the market, without any intervention from the government. As the demand for a commodity increases, the price of the commodity increases, leading to a decrease in demand and an increase in supply. On the other hand, when the supply of a commodity increases, the price decreases, leading to an increase in demand and a decrease in supply. In this way, the price mechanism helps to ensure that commodities are distributed efficiently, with those who are willing to pay the most for the commodity receiving it first.
Question 19 Report
When a government cuts down her expenditure to reduce inflation, she has embarked on___________
Answer Details
Question 21 Report
Separation of ownership of resources and their control is mostly found in a __________
Answer Details
The separation of ownership of resources and their control is mostly found in a joint stock company. A joint stock company is a type of business organization where ownership is divided into small units called shares. These shares are owned by individual investors who are known as shareholders. Shareholders have limited liability, meaning that they are only liable for the amount of money they have invested in the company, and are not personally responsible for the company's debts or obligations. In a joint stock company, shareholders elect a board of directors who are responsible for making important decisions about the company's operations and strategy. The board of directors hires managers to run the day-to-day operations of the company, but the ultimate authority still rests with the shareholders. This separation of ownership and control is not as prominent in other forms of business organizations such as sole proprietorship, partnership, or consumer co-operative. In a sole proprietorship, the owner has complete control over the business and is personally liable for its debts. In a partnership, control is shared between the partners and they are jointly liable for the business's debts. In a consumer co-operative, ownership and control are in the hands of the members who use the co-operative's services, and they have equal voting rights in the decision-making process.
Question 22 Report
The coefficient of price elasticity of supply of land is usually____________
Answer Details
Question 23 Report
The supply of mangoes is represented as P=0.3Q, where P is the price ($) and Q is the quantity. What is P when Q is 50?
Answer Details
To find the price (P) when the quantity (Q) is 50, we can substitute Q = 50 into the given equation P = 0.3Q. P = 0.3 x Q P = 0.3 x 50 P = 15 Therefore, when the quantity of mangoes supplied is 50, the price is $15. This means that if a buyer wants to purchase 50 mangoes, they would need to pay $15 in total. Hence, the correct answer is option B: $15.00.
Question 24 Report
One way of obtaining the median of a given data is to__________
Answer Details
To obtain the median of a given data, we need to find the middle value that separates the data into two equal parts. One simple way to do this is by arranging the data in either ascending or descending order and finding the item that falls in the middle. If there is an odd number of items, the median is simply the middle value. For example, if we have the following set of data: {2, 4, 5, 7, 9} We can arrange it in ascending order as: {2, 4, 5, 7, 9} The middle value is 5, which is the median of the data set. If there is an even number of items, we need to find the average of the two middle values. For example, if we have the following set of data: {1, 3, 4, 6, 8, 9} We can arrange it in ascending order as: {1, 3, 4, 6, 8, 9} The middle values are 4 and 6. To find the median, we take the average of 4 and 6 which is (4+6)/2=5. Therefore, the correct option to obtain the median of a given data is to arrange the data in either ascending or descending order and find what item divides the set into two equal parts.
Question 25 Report
Functions of money does not include_______
Answer Details
The function of money that is not typically considered is "general acceptability". This is because general acceptability is not actually a function of money, but rather a characteristic of money that enables it to serve its functions effectively. The three primary functions of money are: 1. Medium of exchange: Money is used to facilitate transactions by acting as a medium of exchange, allowing people to trade goods and services without having to rely on barter. 2. Store of value: Money serves as a store of value, meaning that it can be saved and used to make future purchases. 3. Standard of deferred payment: Money can also be used as a standard of deferred payment, meaning that it can be used to settle debts and make payments at a later time. General acceptability is a characteristic of money that ensures that it is widely accepted by people in an economy as a means of payment for goods and services. This means that money needs to be trusted and recognized as having value by everyone in the economy. Without general acceptability, money would not be able to function effectively as a medium of exchange, store of value, or standard of deferred payment.
Question 26 Report
The study of economics IS Important to every society because it______
Answer Details
Question 27 Report
People who dispose of their assets are expected to pay ______________
Answer Details
When people dispose of their assets, such as by selling them, they may be required to pay a tax on any profit they made from the sale. This tax is known as a capital gains tax. The capital gains tax is a tax on the increase in value of an asset between the time it was acquired and the time it was disposed of. For example, if someone bought a piece of real estate for $100,000 and sold it for $150,000, they would have a capital gain of $50,000. The capital gains tax would be calculated based on that $50,000 gain. The capital gains tax is not a tax on the total amount received from the sale of the asset, but only on the profit made from the sale. This is different from a sales tax or an expenditure tax, which are taxes on the total amount spent on a good or service. A value added tax is a type of sales tax that is applied at each stage of production, from the raw materials to the final product, based on the value added at each stage. This tax is not directly related to the sale of an asset. Therefore, the correct answer is "capital gains tax."
Question 28 Report
An increase in cash ratio by the central bank will_______
Answer Details
An increase in cash ratio by the central bank will reduce the supply of money. Cash ratio refers to the proportion of cash that commercial banks are required to hold in reserve with the central bank. When the central bank increases the cash ratio, it is essentially increasing the amount of cash that commercial banks must hold in reserve, which in turn reduces the amount of money available for lending and other economic activities. This reduction in the amount of money available in the economy reduces the supply of money. Therefore, an increase in the cash ratio by the central bank will not increase the supply of money, increase bank lending or encourage borrowing, but will reduce the supply of money available in the economy.
Question 29 Report
Two factors which can improve the efficiency of labour are_________
Answer Details
Two factors that can improve the efficiency of labor are the work environment and the health status of workers. A good work environment can include factors such as comfortable temperature, proper lighting, and ergonomic design of work spaces and equipment. This can reduce stress and fatigue among workers, leading to higher levels of productivity and motivation. A worker's health status can also play a role in their efficiency at work. A healthy worker is more likely to be productive and able to perform their job tasks effectively. Employers can encourage healthy habits among workers through benefits such as on-site fitness facilities or wellness programs. It's important to note that both of these factors can have a significant impact on worker satisfaction and motivation, which can lead to higher levels of productivity and efficiency in the long term.
Question 30 Report
A major source of finance to the Railway Corporation in West African countries is_______
Answer Details
The major source of finance to the Railway Corporation in West African countries is government subvention. This means that the government provides financial support to the Railway Corporation in order to help them fund their operations, maintain and upgrade their infrastructure, and purchase new equipment. This support can come in the form of direct funding, grants, or loans, and is usually included in the national budget. The government subvention is important for the Railway Corporation because it allows them to continue providing transportation services to the public, without having to rely solely on revenue from ticket sales or other sources. Other sources of finance, such as sale of shares or trade credit, may also be used by the Railway Corporation, but they are typically less significant compared to government subvention. Surplus, on the other hand, is a financial term used to describe a situation where the Railway Corporation's revenues exceed its expenses, which can then be reinvested in the company or distributed to shareholders as dividends. However, surplus is not a reliable or consistent source of finance, and is not something that can be relied on to fund the Railway Corporation's operations.
Question 31 Report
Use this data below to answer the question
The following data relates to the national income of a country.
Gross domestic product = $2800
Net factor income from abroad = $250
Depreciation = $700
Indirect taxes = $120
What is the country's Gross National (GNP)?
Answer Details
Question 32 Report
A firm incurred the following costs in production. Use the information in the table to answer the question below.
| Output (bags of rice |
0 | 10 | 20 | 30 | 40 | 50 | 60 |
| Total Cost ($) | 100 | 200 | 300 | 380 | 440 | 520 | 600 |
The fixed cost of production is___________
Answer Details
The fixed cost of production is $100. This is because the fixed cost is the portion of the total cost that does not change with the level of output. Looking at the table, we can see that when the output is zero, the total cost is $100. This means that even if the firm produces zero bags of rice, they still have to pay this $100 fixed cost. As the level of output increases, the total cost also increases. However, the increase in total cost is due to the variable cost, which is the cost that varies with the level of output (e.g. cost of raw materials, labor, etc.). Therefore, based on the given information, the fixed cost of production is $100.
Question 33 Report
The supply of land for agricultural purpose can be increased through _______
Answer Details
The supply of land for agricultural purposes can be increased through the processes of reclamation and irrigation. Reclamation involves making land that is unsuitable for farming, such as swamps and deserts, usable for agricultural purposes. Irrigation involves providing water to farmland to increase productivity. These processes increase the amount of land that can be used for agriculture and help to improve crop yields. The other options mentioned are not effective ways to increase the supply of land for agriculture. Mechanized farming can improve productivity, but it does not increase the amount of land available for farming. An increase in land prices may encourage more people to sell their land, but it does not increase the overall amount of land. Converting building sites to farmland may be possible in some cases, but it is not a scalable or sustainable solution for increasing the supply of agricultural land.
Question 34 Report
Use this data below to answer the question
The following data relates to the national income of a country.
Gross domestic product = $2800
Net factor income from abroad = $250
Depreciation = $700
Indirect taxes = $120
What is the country's Net National Product (NNP) at factor cost?
Answer Details
Net National Product (NNP) is the total value of all goods and services produced by the residents of a country in a given period, minus the value of capital that has been used up in the process of production. To calculate NNP at factor cost, we need to start with Gross Domestic Product (GDP) and make adjustments for net factor income from abroad, depreciation, and indirect taxes. Using the given data, we can calculate NNP at factor cost as follows: NNP at factor cost = GDP - depreciation + net factor income from abroad - indirect taxes NNP at factor cost = $2800 - $700 + $250 - $120 NNP at factor cost = $2,230 Therefore, the country's Net National Product (NNP) at factor cost is $2,230.
Question 35 Report
Balance of payments and trade problems that arose after the world wars were resolved by the____________
Question 36 Report
Records of a country's invisible trade are recorded in her_____________-
Answer Details
Question 37 Report
A firm incurred the following costs in production. Use the information in the table to answer the question below.
| Output (bags of rice |
0 | 10 | 20 | 30 | 40 | 50 | 60 |
| Total Cost ($) | 100 | 200 | 300 | 380 | 440 | 520 | 600 |
The average cost of producing 40 bags of rice is_____
Answer Details
The average cost of producing 40 bags of rice is $11. To find the average cost, we divide the total cost by the output. In this case, the total cost of producing 40 bags of rice is $440. Therefore, the average cost of producing 40 bags of rice is: $440 / 40 = $11 So the answer is $11. It's important to note that the average cost is calculated by taking the total cost and dividing it by the output, not by taking the average of the total costs for each level of output. This is because the cost per unit of output can change as production levels increase or decrease, and taking the average of the total costs for each level of output could result in an inaccurate average cost.
Question 38 Report
The law of diminishing returns is applicable to the__________
Answer Details
The law of diminishing returns is applicable to the variable factors of production. This law states that as more and more of a variable input, such as labor or raw materials, is added to a fixed input, such as capital or land, the marginal product of the variable input will eventually decline. This means that each additional unit of the variable input will add less to the total output than the previous unit did. To put it simply, imagine you're making pizzas in a small restaurant with a fixed amount of oven space (fixed input). As you add more and more pizza makers (variable input), each additional pizza maker will help to increase production, but only up to a certain point. After a certain number of pizza makers, adding more won't increase production as much because they'll start getting in each other's way or not enough oven space to cook more pizzas. This is an example of the law of diminishing returns in action.
Question 39 Report
If a country's import bill is high, she can encourage exports by___________
Answer Details
If a country's import bill is high, that means the country is spending more money on importing goods from other countries than it is earning from exporting its own goods to other countries. To encourage exports and reduce the trade deficit, the country can take several measures. One such measure is to allow its currency to depreciate. When a country's currency depreciates, its goods become relatively cheaper compared to other countries. As a result, other countries may be more willing to buy goods from that country, increasing its exports. Additionally, when the country's currency depreciates, its own citizens may also be more inclined to buy locally produced goods instead of imported goods because imported goods will become relatively more expensive. Allowing the country's currency to appreciate, on the other hand, would make its goods more expensive compared to other countries. This could lead to a decrease in exports and an increase in imports, exacerbating the trade deficit. Liberalizing importation could make it easier for foreign goods to enter the country, which could increase competition for local producers. This may lead to an increase in imports, but it may not necessarily encourage exports. Increasing taxes on all locally produced goods would likely decrease demand for those goods, leading to a decrease in production and potentially leading to higher unemployment. This measure would not encourage exports and would not necessarily reduce imports either.
Question 40 Report
A country may be able to earn more from exports if she_____________
Answer Details
Question 41 Report
An increase in the rice harvest, all things being equal, may cause____________
Answer Details
An increase in the rice harvest, all things being equal, is likely to cause the price of rice to fall substantially. This is because an increase in the supply of rice will result in a surplus, which will lead to a decrease in price as producers try to sell their excess rice. Conversely, if there is a decrease in the rice harvest, all things being equal, the price of rice is likely to increase due to a shortage of supply. Therefore, the law of supply and demand states that an increase in supply results in a decrease in price, while a decrease in supply results in an increase in price.
Question 42 Report
The demand for wood and labour is an example of______
Answer Details
The demand for wood and labor is an example of "derived demand." This means that the demand for these goods and services is derived from the demand for another product or service that they are used to produce. For example, if there is an increase in demand for housing, there will be a derived demand for wood and labor to build the houses. The demand for wood and labor is not a direct demand from consumers, but rather a demand that is derived from the demand for housing. Similarly, the demand for coal is derived from the demand for electricity, and the demand for steel is derived from the demand for construction and manufacturing. Derived demand is an important concept in economics, as it helps to explain the interdependence of different industries and the ripple effects that changes in one industry can have on others.
Question 43 Report
The standard of living in two countries can be compared using the___________
Answer Details
The standard of living in two countries can be compared using the gross national product (GNP) per head. GNP per head is a measure of a country's average economic output per person. It takes into account the total income generated by a country, divided by the number of people living there. This gives us a good idea of the average standard of living in a country, and allows us to compare the standard of living between two countries. For example, if two countries have the same total national income, but one country has a smaller population, its GNP per head will be higher, indicating a higher standard of living for its citizens.
Question 44 Report
Demand-pull inflation can be as a result of___________
Answer Details
Demand-pull inflation refers to a situation where the demand for goods and services in an economy exceeds the available supply, leading to an increase in prices. This type of inflation can be caused by several factors, but it is not caused by an increase in the cost of production or an increase in import duties. One of the main causes of demand-pull inflation is excessive demand in an economy, which can result from factors such as an increase in consumer confidence, higher disposable income, or increased government spending. When demand outstrips supply, sellers can increase their prices, leading to inflation. Another factor that can contribute to demand-pull inflation is deficit financing by the government. When a government spends more than it collects in taxes, it can create a situation where there is more money in circulation, which can drive up demand and prices. Excessive supply of foodstuff, on the other hand, can lead to a decrease in prices, known as deflation. Therefore, it is not a cause of demand-pull inflation. In summary, demand-pull inflation is caused by excess demand in an economy or deficit financing by the government. An increase in the cost of production or import duties is not a cause of demand-pull inflation.
Question 45 Report
Abundant natural resources do not contribute to economic growth in developing countries because of_________
Answer Details
Abundant natural resources do not contribute to economic growth in developing countries because of mismanagement and corruption. While natural resources can provide significant opportunities for economic development, their abundance alone does not guarantee success. In many developing countries, mismanagement and corruption are major obstacles to realizing the full potential of natural resources. Corruption can take many forms, such as bribery, embezzlement, and nepotism, and can occur at all levels of government and industry. This can lead to inefficiencies, waste, and a lack of accountability, which can undermine the effective management and use of natural resources. Similarly, mismanagement can also impede economic growth. Poor planning, inadequate infrastructure, and insufficient investment in education and training can limit the capacity of a country to effectively exploit its natural resources. In addition, over-reliance on a single commodity can leave a country vulnerable to fluctuations in global prices, which can have a negative impact on economic growth. Therefore, to fully benefit from their natural resources, developing countries need effective governance, sound economic policies, and investment in human capital. This can help to ensure that natural resources are managed efficiently, transparently, and sustainably, and that the benefits of resource wealth are shared more widely across society.
Question 46 Report
A measure that can be adopted to correct a country 's balance of payments deficit is ____________
Answer Details
Question 47 Report
The age distribution of a country's population is shown below. Use the information is answer the question below.
| Age group (YEARS) | Population |
| 0 - 15 16 - 40 41 - 60 Over 60 |
30% 45% 15% 10% |
What is the percentage of the working population?
Answer Details
The working population can be defined as the population aged between 16 to 60 years old, as they are typically considered to be of working age. Using the age distribution table, we can see that the percentage of the population aged between 16 to 40 years old is 45%, while the percentage of the population aged between 41 to 60 years old is 15%. Adding these two percentages gives us a total of 60% of the population aged between 16 to 60 years old, which represents the working population. Therefore, the correct answer is 60%.
Question 48 Report
By passing the middlemen in the chain of distribution can lead to _________
Answer Details
Question 49 Report
The price of soap rose from $10 to $20 causing a trader to increase her supply from 50 to 120 boxes per week. This makes supply_________
Answer Details
The trader increased her supply from 50 to 120 boxes per week when the price of soap rose from $10 to $20. To determine whether the supply is unitary elastic, perfectly inelastic, fairly elastic, or inelastic, we need to look at the responsiveness of the quantity supplied to the change in price. If the quantity supplied changes proportionally to the change in price, then supply is unitary elastic. If the quantity supplied does not change at all despite the change in price, then supply is perfectly inelastic. If the quantity supplied changes significantly in response to the change in price, then supply is fairly elastic. If the quantity supplied changes only slightly in response to the change in price, then supply is inelastic. In this case, the trader increased her supply from 50 to 120 boxes per week, which is a significant increase. This suggests that the supply is fairly elastic, meaning that the quantity supplied is responsive to changes in price. Therefore, the correct answer is "fairly elastic".
Question 50 Report
A consumer with $10 needs a dress, a pair of shoes, a handbag and jewelry costing $20, $10, $7 and $3 respectively. The opportunity cost of buying the pair of shoes Is the________
Answer Details
The opportunity cost of buying the pair of shoes is the next best alternative that the consumer must give up in order to buy the shoes. In this case, the consumer has a budget of $10, and they want to buy a dress, a pair of shoes, a handbag, and jewelry, but they can only afford to buy some of these items. To buy the shoes, the consumer must spend $10, which leaves them with no money to buy the dress or the handbag. Therefore, the opportunity cost of buying the pair of shoes is the value of the dress and the handbag, which is $20 + $7 = $27. In other words, the consumer must give up the opportunity to buy the dress and the handbag, which are their next best alternatives, in order to buy the shoes. So, the correct answer is option number 3, which is "Handbag and Jewelry".
Question 51 Report
(a) What Is economies of scale?
(b) Outline three internal economics of scale a firm can enjoy
(c) State three factors that can influence where a firm is sited.
(a) Economies of scale refer to the cost advantages that a firm can enjoy by producing goods or services in large quantities. As the scale of production increases, the average cost of production per unit decreases, resulting in increased efficiency and profitability for the firm.
(b) The three internal economies of scale that a firm can enjoy are:
- Technical economies: These refer to the cost savings that result from using more advanced technology or specialized machinery in production.
- Managerial economies: These refer to the cost savings that result from hiring specialized managers or using more efficient management techniques.
- Marketing economies: These refer to the cost savings that result from advertising and promoting products on a large scale, which can reduce per-unit costs.
(c) The three factors that can influence where a firm is sited are:
- Availability of resources: Firms may choose to locate near sources of raw materials, labor, or other key resources to reduce transportation costs and improve efficiency.
- Market access: Firms may choose to locate near their customers to reduce transportation costs and improve responsiveness to market needs.
- Infrastructure: Firms may choose to locate in areas with good transportation networks, such as ports, highways, and airports, to facilitate the movement of goods and services. Additionally, access to reliable utilities such as electricity and water may also influence a firm's decision to locate in a particular area. Overall, the location of a firm can significantly impact its success and competitiveness in the market.
Answer Details
(a) Economies of scale refer to the cost advantages that a firm can enjoy by producing goods or services in large quantities. As the scale of production increases, the average cost of production per unit decreases, resulting in increased efficiency and profitability for the firm.
(b) The three internal economies of scale that a firm can enjoy are:
- Technical economies: These refer to the cost savings that result from using more advanced technology or specialized machinery in production.
- Managerial economies: These refer to the cost savings that result from hiring specialized managers or using more efficient management techniques.
- Marketing economies: These refer to the cost savings that result from advertising and promoting products on a large scale, which can reduce per-unit costs.
(c) The three factors that can influence where a firm is sited are:
- Availability of resources: Firms may choose to locate near sources of raw materials, labor, or other key resources to reduce transportation costs and improve efficiency.
- Market access: Firms may choose to locate near their customers to reduce transportation costs and improve responsiveness to market needs.
- Infrastructure: Firms may choose to locate in areas with good transportation networks, such as ports, highways, and airports, to facilitate the movement of goods and services. Additionally, access to reliable utilities such as electricity and water may also influence a firm's decision to locate in a particular area. Overall, the location of a firm can significantly impact its success and competitiveness in the market.
Question 52 Report
(a) Define price elasticity of demand
(b) Distinguish between elastic demand and Inelastic demand
(C) Using diagrams. explain what happens to a traders total revenue demand for his product is:
(i) elastic
(ii) inelastic
(a) Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price. It is used to determine the extent to which a change in price will affect the quantity demanded.
(b) Elastic demand refers to a situation where a small change in price leads to a relatively large change in the quantity demanded. Inelastic demand refers to a situation where a change in price has little effect on the quantity demanded.
(c) (i) If the demand for a product is elastic, a small change in price will result in a relatively large change in the quantity demanded. This means that if the price of a product increases, the quantity demanded will decrease, and the total revenue of the trader will decrease as well. On the other hand, if the price of a product decreases, the quantity demanded will increase, and the total revenue of the trader will increase. This can be illustrated through a downward-sloping demand curve, as shown in the diagram.
(ii) If the demand for a product is inelastic, a change in price will have little effect on the quantity demanded. This means that if the price of a product increases, the quantity demanded will only decrease slightly, and the total revenue of the trader will increase. On the other hand, if the price of a product decreases, the quantity demanded will only increase slightly, and the total revenue of the trader will decrease. This can be illustrated through a flatter demand curve, as shown in the diagram.
Answer Details
(a) Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price. It is used to determine the extent to which a change in price will affect the quantity demanded.
(b) Elastic demand refers to a situation where a small change in price leads to a relatively large change in the quantity demanded. Inelastic demand refers to a situation where a change in price has little effect on the quantity demanded.
(c) (i) If the demand for a product is elastic, a small change in price will result in a relatively large change in the quantity demanded. This means that if the price of a product increases, the quantity demanded will decrease, and the total revenue of the trader will decrease as well. On the other hand, if the price of a product decreases, the quantity demanded will increase, and the total revenue of the trader will increase. This can be illustrated through a downward-sloping demand curve, as shown in the diagram.
(ii) If the demand for a product is inelastic, a change in price will have little effect on the quantity demanded. This means that if the price of a product increases, the quantity demanded will only decrease slightly, and the total revenue of the trader will increase. On the other hand, if the price of a product decreases, the quantity demanded will only increase slightly, and the total revenue of the trader will decrease. This can be illustrated through a flatter demand curve, as shown in the diagram.
Question 53 Report
Table 2 below show the unit prices and quantities of hats produced by a firm
Study it and answer the questions that follows
| Quantity | Unit Price (S) | Total Revenue (S) | Marginal Revenue (S) | Average Revenue (S) |
| 10 | 180 | 1800 | - | 180 |
| 20 | 150 | 3000 | 120 | X |
| 30 | U | 3600 | 60 | 120 |
| 40 | 100 | V | W | Y |
| 50 | 80 | 4000 | 0 | 80 |
| 60 | 60 | 3600 | 40 | 60 |
a) Compute the values of U, V, W, X and Y
b) In what type of market is the firm operating? Explain your answer
c) If the firm's marginal cost is $60.00 at all levels of output, at what level of output will it be in equilibrium? Explain your answer
d) If a total cos of $600,00 is incurred when 50 units of hats are produced. Determine the margin of profit or loss made.
e) What is another name for marginal cost?
a)
U = 120/3 = 40
V = 4000 - 60*40 = 1600
W = 100*40 = 4000
X = 150
Y = 80
b) The firm is operating in a monopolistic competition market, where there are many sellers producing similar but not identical products, and each firm has a certain degree of market power to influence the price of its product.
c) In equilibrium, the firm's marginal cost should equal its marginal revenue. From the table, we can see that the marginal revenue is equal to $60 at two levels of output: 30 units and 60 units. Therefore, the firm will be in equilibrium at either 30 units or 60 units of output.
d) Total cost = $600, so average cost per unit = $600/50 = $12. The unit price is $80, so the profit per unit is $80 - $12 = $68. Therefore, the total profit is $68*50 = $3400.
e) Marginal cost is also known as the cost of producing one additional unit of output. It is the increase in total cost that arises from producing one more unit of output. In other words, it is the cost of the last unit produced.
Answer Details
a)
U = 120/3 = 40
V = 4000 - 60*40 = 1600
W = 100*40 = 4000
X = 150
Y = 80
b) The firm is operating in a monopolistic competition market, where there are many sellers producing similar but not identical products, and each firm has a certain degree of market power to influence the price of its product.
c) In equilibrium, the firm's marginal cost should equal its marginal revenue. From the table, we can see that the marginal revenue is equal to $60 at two levels of output: 30 units and 60 units. Therefore, the firm will be in equilibrium at either 30 units or 60 units of output.
d) Total cost = $600, so average cost per unit = $600/50 = $12. The unit price is $80, so the profit per unit is $80 - $12 = $68. Therefore, the total profit is $68*50 = $3400.
e) Marginal cost is also known as the cost of producing one additional unit of output. It is the increase in total cost that arises from producing one more unit of output. In other words, it is the cost of the last unit produced.
Question 54 Report
(a) Define product retailing
(b) Outline any three roles performed by the wholesaler to the manufacturer
(C) ldentify any three problems associated with distribution ol products
(a) Product retailing refers to the process of selling goods directly to consumers through various sales channels, such as physical stores, online marketplaces, or direct sales. Retailers buy products from wholesalers or manufacturers and sell them to customers at a markup.
(b) Wholesalers play an important role in the distribution of products. They serve as intermediaries between manufacturers and retailers, performing the following three functions:
- Inventory Management: Wholesalers purchase large quantities of goods from manufacturers and hold them in inventory until they are sold to retailers. They manage the inventory levels, ensuring that the products are always available to retailers when needed.
- Logistics and Transportation: Wholesalers are responsible for transporting products from the manufacturer to the retailer. They also handle the logistics of storing, packing, and shipping products to ensure they reach the retailer in good condition.
- Financing: Wholesalers provide financing to manufacturers by paying for their products upfront and then selling them to retailers on credit. This helps manufacturers maintain a steady cash flow while allowing retailers to purchase goods without having to pay for them immediately.
(c) The three problems associated with the distribution of products are:
- Supply Chain Disruptions: Supply chain disruptions occur when there is a sudden and unexpected interruption in the flow of products from the manufacturer to the retailer. This can be caused by a variety of factors, such as natural disasters, labor strikes, or transportation issues.
- Inventory Management Issues: Managing inventory levels can be challenging, especially when dealing with perishable goods or products with a short shelf life. Retailers may end up with excess inventory that they are unable to sell, leading to losses.
- Channel Conflicts: Channel conflicts can occur when multiple retailers are selling the same product, leading to price competition and reduced profits for all involved. Additionally, retailers may choose to sell competing products, causing manufacturers to lose market share.
Answer Details
(a) Product retailing refers to the process of selling goods directly to consumers through various sales channels, such as physical stores, online marketplaces, or direct sales. Retailers buy products from wholesalers or manufacturers and sell them to customers at a markup.
(b) Wholesalers play an important role in the distribution of products. They serve as intermediaries between manufacturers and retailers, performing the following three functions:
- Inventory Management: Wholesalers purchase large quantities of goods from manufacturers and hold them in inventory until they are sold to retailers. They manage the inventory levels, ensuring that the products are always available to retailers when needed.
- Logistics and Transportation: Wholesalers are responsible for transporting products from the manufacturer to the retailer. They also handle the logistics of storing, packing, and shipping products to ensure they reach the retailer in good condition.
- Financing: Wholesalers provide financing to manufacturers by paying for their products upfront and then selling them to retailers on credit. This helps manufacturers maintain a steady cash flow while allowing retailers to purchase goods without having to pay for them immediately.
(c) The three problems associated with the distribution of products are:
- Supply Chain Disruptions: Supply chain disruptions occur when there is a sudden and unexpected interruption in the flow of products from the manufacturer to the retailer. This can be caused by a variety of factors, such as natural disasters, labor strikes, or transportation issues.
- Inventory Management Issues: Managing inventory levels can be challenging, especially when dealing with perishable goods or products with a short shelf life. Retailers may end up with excess inventory that they are unable to sell, leading to losses.
- Channel Conflicts: Channel conflicts can occur when multiple retailers are selling the same product, leading to price competition and reduced profits for all involved. Additionally, retailers may choose to sell competing products, causing manufacturers to lose market share.
Question 55 Report
(a) Stale three characteristics of perfect competition,
(b) With the aid of diagrams, explain equilibrium positions of a perfectly competitive firm in the: (i) short-run: (ii) long-run
(a) The three characteristics of perfect competition are:
- Large number of buyers and sellers: In a perfectly competitive market, there are a large number of buyers and sellers. No single buyer or seller can influence the market price.
- Homogeneous products: In a perfectly competitive market, all products are identical or homogeneous, meaning that there is no differentiation among the products sold by different firms.
- Free entry and exit: Firms are free to enter or exit the market without any barriers to entry or exit. This means that there are no legal or economic barriers that prevent new firms from entering the market or existing firms from leaving the market.
(b) In a perfectly competitive market, a firm's equilibrium position is determined by the intersection of the firm's marginal cost (MC) curve and the market price (P).
(i) Short-run equilibrium: In the short-run, a perfectly competitive firm will produce at the point where its marginal cost (MC) curve intersects the market price (P), as shown in the diagram below:
In this diagram, the short-run equilibrium for the firm occurs at point E, where the MC curve intersects the market price line P. At this point, the firm is producing Q units of output and is earning a profit (represented by the shaded rectangle). If the market price were to decrease, the firm may operate at a loss or shut down in the short-run.
(ii) Long-run equilibrium: In the long-run, firms are able to enter or exit the market freely. If firms in the market are earning a profit, new firms will enter the market, increasing the supply of goods and driving down the price. Conversely, if firms are operating at a loss, some firms will exit the market, reducing supply and driving up the price. In the long-run, a perfectly competitive firm will produce at the point where its long-run marginal cost (LMC) curve intersects the market price (P), as shown in the diagram below:
In this diagram, the long-run equilibrium for the firm occurs at point E, where the LMC curve intersects the market price line P. At this point, the firm is producing Q units of output and is earning zero economic profit (represented by the point where the LMC curve intersects the horizontal axis). In the long-run, all firms in the market will be earning zero economic profit, as new firms will continue to enter until the price is driven down to the point where firms are only earning a normal rate of return.
Answer Details
(a) The three characteristics of perfect competition are:
- Large number of buyers and sellers: In a perfectly competitive market, there are a large number of buyers and sellers. No single buyer or seller can influence the market price.
- Homogeneous products: In a perfectly competitive market, all products are identical or homogeneous, meaning that there is no differentiation among the products sold by different firms.
- Free entry and exit: Firms are free to enter or exit the market without any barriers to entry or exit. This means that there are no legal or economic barriers that prevent new firms from entering the market or existing firms from leaving the market.
(b) In a perfectly competitive market, a firm's equilibrium position is determined by the intersection of the firm's marginal cost (MC) curve and the market price (P).
(i) Short-run equilibrium: In the short-run, a perfectly competitive firm will produce at the point where its marginal cost (MC) curve intersects the market price (P), as shown in the diagram below:
In this diagram, the short-run equilibrium for the firm occurs at point E, where the MC curve intersects the market price line P. At this point, the firm is producing Q units of output and is earning a profit (represented by the shaded rectangle). If the market price were to decrease, the firm may operate at a loss or shut down in the short-run.
(ii) Long-run equilibrium: In the long-run, firms are able to enter or exit the market freely. If firms in the market are earning a profit, new firms will enter the market, increasing the supply of goods and driving down the price. Conversely, if firms are operating at a loss, some firms will exit the market, reducing supply and driving up the price. In the long-run, a perfectly competitive firm will produce at the point where its long-run marginal cost (LMC) curve intersects the market price (P), as shown in the diagram below:
In this diagram, the long-run equilibrium for the firm occurs at point E, where the LMC curve intersects the market price line P. At this point, the firm is producing Q units of output and is earning zero economic profit (represented by the point where the LMC curve intersects the horizontal axis). In the long-run, all firms in the market will be earning zero economic profit, as new firms will continue to enter until the price is driven down to the point where firms are only earning a normal rate of return.
Question 56 Report
(a) Distinguish between domestic trade and external trade.
(b) Distinguish between terms of trade and balance of trade
(c) Outline four causes of balance of payments deficit in a country
(a) Domestic trade refers to the buying and selling of goods and services within the boundaries of a country. It is also known as internal trade. External trade, on the other hand, refers to the exchange of goods and services between different countries. It is also known as international trade.
(b) The terms of trade (TOT) refer to the ratio of a country's export prices to its import prices. It measures the country's ability to purchase imports with the proceeds from its exports. A rising TOT indicates that a country is able to purchase more imports for the same amount of exports, which is generally considered a positive indicator of the country's trade performance.
The balance of trade (BOT) refers to the difference between a country's exports and imports. A positive BOT means that the value of exports is greater than the value of imports, while a negative BOT indicates that the value of imports is greater than the value of exports. The BOT is an important indicator of a country's trade performance and its impact on the economy.
(c) The causes of balance of payments deficit in a country can be broadly categorized into four main factors:
- Trade deficit: A trade deficit occurs when a country imports more goods and services than it exports. This leads to a decrease in foreign currency inflows and an increase in foreign currency outflows, which leads to a deficit in the balance of payments.
- Capital outflows: A country may experience a capital outflow when its residents and companies invest more money abroad than foreign investors invest in the country. This can also lead to a decrease in foreign currency inflows and an increase in foreign currency outflows, resulting in a balance of payments deficit.
- Government spending: Government spending that exceeds government revenue can also cause a balance of payments deficit. This is because the government may need to borrow money from abroad to finance its spending, leading to an increase in foreign currency outflows and a decrease in foreign currency inflows.
- Exchange rate fluctuations: Exchange rate fluctuations can also cause a balance of payments deficit. For example, if a country's currency depreciates, its imports become more expensive, leading to an increase in the trade deficit and a decrease in the balance of payments. Similarly, if a country's currency appreciates, its exports become more expensive, leading to a decrease in the trade surplus and an increase in the balance of payments deficit.
Answer Details
(a) Domestic trade refers to the buying and selling of goods and services within the boundaries of a country. It is also known as internal trade. External trade, on the other hand, refers to the exchange of goods and services between different countries. It is also known as international trade.
(b) The terms of trade (TOT) refer to the ratio of a country's export prices to its import prices. It measures the country's ability to purchase imports with the proceeds from its exports. A rising TOT indicates that a country is able to purchase more imports for the same amount of exports, which is generally considered a positive indicator of the country's trade performance.
The balance of trade (BOT) refers to the difference between a country's exports and imports. A positive BOT means that the value of exports is greater than the value of imports, while a negative BOT indicates that the value of imports is greater than the value of exports. The BOT is an important indicator of a country's trade performance and its impact on the economy.
(c) The causes of balance of payments deficit in a country can be broadly categorized into four main factors:
- Trade deficit: A trade deficit occurs when a country imports more goods and services than it exports. This leads to a decrease in foreign currency inflows and an increase in foreign currency outflows, which leads to a deficit in the balance of payments.
- Capital outflows: A country may experience a capital outflow when its residents and companies invest more money abroad than foreign investors invest in the country. This can also lead to a decrease in foreign currency inflows and an increase in foreign currency outflows, resulting in a balance of payments deficit.
- Government spending: Government spending that exceeds government revenue can also cause a balance of payments deficit. This is because the government may need to borrow money from abroad to finance its spending, leading to an increase in foreign currency outflows and a decrease in foreign currency inflows.
- Exchange rate fluctuations: Exchange rate fluctuations can also cause a balance of payments deficit. For example, if a country's currency depreciates, its imports become more expensive, leading to an increase in the trade deficit and a decrease in the balance of payments. Similarly, if a country's currency appreciates, its exports become more expensive, leading to a decrease in the trade surplus and an increase in the balance of payments deficit.
Question 57 Report
Table 1 below shows the distribution of the population of a country in various occupations.
Study it and answer the questions that follow.
| OCCUPATION | TOTAL |
| Shoe Production Banking Fish Processing Warehousing Mining Fish Farming Food Crop Production Baking Laundry |
30 million 37 million 19 million 12.2 million 16.1 million 10.8 million 15.6 million 19 million 10.3 million |
a) Calculate the size of the entire labour force in the country
b) What percentage of the labour force is engaged in the
(i) Primary sector
(ii) Secondary sector
(iii) Tertiary sector
c) Calculate the ratio of the workers in mining to the workers in shoe production
d) Calculate the percentage of the people engaged in warehousing
e) (i) Identify the type of economy depicted in the table
(ii) Give a reason for your answer in (e)(i)
a) To calculate the size of the entire labor force in the country, we need to add up the total number of people in each occupation:
30 million + 37 million + 19 million + 12.2 million + 16.1 million + 10.8 million + 15.6 million + 19 million + 10.3 million = 170 million
Therefore, the size of the entire labor force in the country is 170 million.
b) To calculate the percentage of the labor force engaged in each sector, we need to add up the total number of people in each sector and divide by the total labor force, then multiply by 100 to get the percentage:
(i) Primary sector = (19 million + 15.6 million + 10.3 million) / 170 million x 100% = 22.35%
(ii) Secondary sector = (30 million + 37 million + 12.2 million + 16.1 million) / 170 million x 100% = 65.88%
(iii) Tertiary sector = (19 million + 19 million) / 170 million x 100% = 22.35%
Therefore, the percentage of the labor force engaged in the primary sector is 22.35%, in the secondary sector is 65.88%, and in the tertiary sector is 22.35%.
c) To calculate the ratio of workers in mining to workers in shoe production, we need to divide the number of workers in mining by the number of workers in shoe production:
16.1 million / 30 million = 0.54
Therefore, the ratio of workers in mining to workers in shoe production is 0.54.
d) To calculate the percentage of people engaged in warehousing, we need to divide the number of people in warehousing by the total labor force and multiply by 100:
12.2 million / 170 million x 100% = 7.18%
Therefore, the percentage of people engaged in warehousing is 7.18%.
e)
(i) The table depicts a mixed economy, as there are people engaged in primary, secondary, and tertiary sectors.
(ii) A mixed economy is a type of economic system that combines elements of both capitalism and socialism. In a mixed economy, the government intervenes in the market to some extent to promote social welfare and prevent excesses of the market, while still allowing for private ownership of property and the profit motive. The table shows that while there are some people engaged in traditional primary sector activities like farming and fishing, the majority of the labor force is engaged in industrial and service-based activities, which are typical of a capitalist economy. However, the fact that there are still people engaged in primary sector activities suggests that the government may be providing support for these activities to promote food security and self-sufficiency.
Answer Details
a) To calculate the size of the entire labor force in the country, we need to add up the total number of people in each occupation:
30 million + 37 million + 19 million + 12.2 million + 16.1 million + 10.8 million + 15.6 million + 19 million + 10.3 million = 170 million
Therefore, the size of the entire labor force in the country is 170 million.
b) To calculate the percentage of the labor force engaged in each sector, we need to add up the total number of people in each sector and divide by the total labor force, then multiply by 100 to get the percentage:
(i) Primary sector = (19 million + 15.6 million + 10.3 million) / 170 million x 100% = 22.35%
(ii) Secondary sector = (30 million + 37 million + 12.2 million + 16.1 million) / 170 million x 100% = 65.88%
(iii) Tertiary sector = (19 million + 19 million) / 170 million x 100% = 22.35%
Therefore, the percentage of the labor force engaged in the primary sector is 22.35%, in the secondary sector is 65.88%, and in the tertiary sector is 22.35%.
c) To calculate the ratio of workers in mining to workers in shoe production, we need to divide the number of workers in mining by the number of workers in shoe production:
16.1 million / 30 million = 0.54
Therefore, the ratio of workers in mining to workers in shoe production is 0.54.
d) To calculate the percentage of people engaged in warehousing, we need to divide the number of people in warehousing by the total labor force and multiply by 100:
12.2 million / 170 million x 100% = 7.18%
Therefore, the percentage of people engaged in warehousing is 7.18%.
e)
(i) The table depicts a mixed economy, as there are people engaged in primary, secondary, and tertiary sectors.
(ii) A mixed economy is a type of economic system that combines elements of both capitalism and socialism. In a mixed economy, the government intervenes in the market to some extent to promote social welfare and prevent excesses of the market, while still allowing for private ownership of property and the profit motive. The table shows that while there are some people engaged in traditional primary sector activities like farming and fishing, the majority of the labor force is engaged in industrial and service-based activities, which are typical of a capitalist economy. However, the fact that there are still people engaged in primary sector activities suggests that the government may be providing support for these activities to promote food security and self-sufficiency.
Question 58 Report
(a) Explain how the Central Bank controls money supply through the use of: (i) open market operation (ii) bank rate.
(b) Outline four functions performed by the Central Bank of your country.
(a) The Central Bank is responsible for controlling the money supply in an economy. To do this, it uses two main tools: open market operations and the bank rate.
i) Open market operations refer to the buying and selling of government securities by the Central Bank. When the Central Bank buys securities, it injects money into the banking system, increasing the money supply. When it sells securities, it absorbs money from the banking system, reducing the money supply.
ii) The bank rate, also known as the discount rate, is the rate at which the Central Bank lends money to commercial banks. When the Central Bank raises the bank rate, it becomes more expensive for commercial banks to borrow money, which can reduce the money supply. When the Central Bank lowers the bank rate, it becomes cheaper for commercial banks to borrow money, which can increase the money supply.
(b) The Central Bank performs several important functions in an economy, including:
- Regulating the banking system: The Central Bank is responsible for supervising and regulating the activities of commercial banks to ensure their stability and safety.
- Maintaining price stability: The Central Bank works to keep prices stable by controlling the money supply and interest rates.
- Facilitating payment and settlement systems: The Central Bank provides a secure and efficient system for banks and other financial institutions to make payments and settle transactions.
- Issuing currency: The Central Bank is responsible for producing and distributing the country's currency, ensuring its security and integrity.
Answer Details
(a) The Central Bank is responsible for controlling the money supply in an economy. To do this, it uses two main tools: open market operations and the bank rate.
i) Open market operations refer to the buying and selling of government securities by the Central Bank. When the Central Bank buys securities, it injects money into the banking system, increasing the money supply. When it sells securities, it absorbs money from the banking system, reducing the money supply.
ii) The bank rate, also known as the discount rate, is the rate at which the Central Bank lends money to commercial banks. When the Central Bank raises the bank rate, it becomes more expensive for commercial banks to borrow money, which can reduce the money supply. When the Central Bank lowers the bank rate, it becomes cheaper for commercial banks to borrow money, which can increase the money supply.
(b) The Central Bank performs several important functions in an economy, including:
- Regulating the banking system: The Central Bank is responsible for supervising and regulating the activities of commercial banks to ensure their stability and safety.
- Maintaining price stability: The Central Bank works to keep prices stable by controlling the money supply and interest rates.
- Facilitating payment and settlement systems: The Central Bank provides a secure and efficient system for banks and other financial institutions to make payments and settle transactions.
- Issuing currency: The Central Bank is responsible for producing and distributing the country's currency, ensuring its security and integrity.
