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CIMA BA1 Fundamentals of Business Economics Exam Practice Test

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Total 468 questions

Fundamentals of Business Economics Questions and Answers

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Question 1

Peter holds his current and savings accounts with Western Mutual.

Which of the following is a benefit that Peter should expect to enjoy from possessing accounts with Western Mutual?

Options:

A.

As a mutual organisation, Western Mutual will prioritise Peter's welfare over profits to be made

B.

Peter will receive dividends from Western Mutual as he possesses accounts there

C.

Peter will be able to make key decisions about Western Mutual as one of their customers

D.

External shareholders in the organisation will be prioritised above Peter

Question 2

Golden Crisp Cereals plans to build its new factory on the outskirts of Bimbleton, an affluent medium-sized town where its current headquarters is based. The area where they are planning to build the factory was

formerly a country park.

Of the following, which stakeholder would be most likely to protest against the construction of the new Golden Crisp Cereals factory?

Options:

A.

Environmental groups

B.

Current employees

C.

Trade unions

D.

Local residents

Question 3

The interest rate at TrowBank is currently running at 7%. The number of customers borrowing to invest has fallen drastically.

Which of the following explains why this is the case?

Select ALL that apply.

Options:

A.

The high interest rate means that it is more expensive to borrow to invest

B.

Many customers have decided to save rather than invest due to the high interest rate

C.

The high interest rate means customers are less confident about investing

D.

The high interest rate has caused prices to rise, meaning customers have not got enough disposable cash to make investments

E.

The high interest rate has resulted in customers' purchasing power decreasing

Question 4

Quantitative easing, the purchase of government or private securities by the central banks from investors, is an example of

Options:

A.

contractionary monetary policy.

B.

contractionary fiscal policy.

C.

expansionary fiscal policy.

D.

expansionary monetary policy.

Question 5

RubTech has decided to build a new rubber production facility just outside the semi-rural town of Pettisbury. The majority of workers at the plant are to be sourced from abroad.

Which of the following could potentially be negative externalities of the decision to build the production facility?

Options:

A.

Production processes

B.

Rood congestion

C.

The decision to source workers from abroad

D.

Antisocial behaviour

E.

The high unemployment rate in the local area

F.

The poor infrastructure in the local area

Question 6

MakeHay are struggling to co-ordinate their different departments so that deadlines are hit. Two managers suggest different ideas to solve this issue.

Manager Smith suggests MakeHay open a new office who is responsible for co-ordinating the different departments, and would also have their own production targets.

Manager Jones suggests that opening another office would increase production, and so ensure deadlines are hit.

Why is neither manager correct?

Options:

A.

Opening a new office could lead to delays in messages being communicated between different departments

B.

Opening a new office is not viable for the company at its current size

C.

Opening a new office would be too expensive for the company at present

D.

Opening a new office would guarantee targets are met between departments

Question 7

Betsy's Fish Foods Pic. has issued shares in a prospectus.

Which of the following are benefits of selling shares in this manner?

Select ALL that apply.

Options:

A.

It allows companies to open up its investor base

B.

It allows more investors to receive profits in the form of dividends from the company

C.

It allows the company to sell shares at a discounted price

D.

It allows the company to sell shares to larger private firms who can invest more money into the company

E.

It allows the company to sell second-hand shares

Question 8

Which of the following is a primary objective of a not-for-profit organisation?

Options:

A.

To satisfy the needs of a particular sector of society

B.

To maintain the growth of the organisation.

C.

To make a profit.

D.

To continue to exist.

Question 9

Government X has just increased taxes in order to limit spending and hence demand.

Which of the following is most likely to have been the cause of this fiscal policy?

Options:

A.

An inflationary gap, where demand outstrips output

B.

A drop in prices caused by other fiscal policy instruments, e.g. a reduction in business taxes

C.

The attainment of full employment within the economy

D.

The contraction of the national economy

Question 10

A bottle of brandy costs £25 in Country X, including both unit tax and ad valorem tax. These taxes are applied throughout the production process.

Which of the following applies to this particular scenario? Select ALL that apply.

Options:

A.

The ad valorem tax acts as a sales tax

B.

Both taxes can be classed as multi-stage consumption taxes

C.

The unit tax is otherwise known as stamp duty

D.

The taxes levied on the brandy are charged in a similar way to sales tax in the United States

E.

The taxes levied on the brandy are proportional

Question 11

The managing director of Polly's, a department store, has found that ten of its stores located in the south east of England have seen a significant fall in profit margin.

Which of the following is most likely to be the cause of this?

Options:

A.

An increase in rent for the premises in which the store is located

B.

A decrease in sales at these stores

C.

An increase in footfall at these stores

D.

A decrease in rent for the premises in which the store is located

Question 12

The managing director of Polly's has been given a pie chart showing the current proportion of sales across the chain's five stores.

Which of the below are the most significant reasons why the pie chart is an inappropriate way of expressing this data?

Select ALL that apply.

Options:

A.

It cannot be used to develop sales strategies moving forward

B.

It does not give specific details as to which items sold in store are experiencing poor sales

C.

It does not show the best and worst performing stores

D.

It does not track sales over time

E.

It does not show the store sales as raw figures

Question 13

West Morton Rail has calculated that the number of passengers travelling on their railway increases during school holidays, while the inverse is true for most other railways in the country.

Which of the following is the most likely reason for this unusual correlation?

Options:

A.

West Morton Rail is a heritage railway, meaning it will receive more passengers as rates of tourism increase during the school holidays

B.

West Morton Rail is situated in a town where there are very few schools

C.

West Morton Rail has a special discount for passengers using their service during the school holidays

D.

West Morton Rail receives less revenue than other railway services

Question 14

'The £ has risen against other currencies since August, defying forecasters who thought that the UK's widening trade deficit must cause the £'s exchange rate to fall.'

From the above information, it can be concluded that, since August

Options:

A.

UK exports have become less price competitive

B.

The UK inflation rate has increased

C.

UK interest rates must have increased

D.

The strengthening pound has improved the UK balance of payments on current account

Question 15

Company A uses the trend equation, y = a + bt, to forecast sales, where y are sales and t are time periods measured in units At time period zero, sales were $865,000 In period 5. sales have increased to $1.245.000 Calculate coefficient b (without any decimal points):

Options:

Question 16

Larger companies may benefit from economies of scale due to which THREE of the following?

Options:

A.

Larger companies may gain greater market share through advertising

B.

Larger companies may spread their fixed research and development costs over a larger amount of output

C.

Larger companies may more easily access public subsidies

D.

Larger companies may obtain lower interest rates on their loans.

E.

Larger companies may purchase inputs in bulk at lower unit prices

F.

Larger companies may benefit from greater customer loyalty

Question 17

The following table shows the profits of a business and an index of the general price level for 4 years

How does the level of real (inflation adjusted) profits in 20X4 compare to those of 20X1 ?

Options:

A.

+ $l8m

B.

+ $12.5m

C.

+ S3m

D.

+ $0-6m

Question 18

Which of the following describes the slope of a normal supply curve?

Options:

A.

Upwards from right to left.

B.

Upwards from left to right.

C.

Downwards from left to right.

D.

Downwards from right to left.

Question 19

Conflict between the objectives of shareholders and those of management in a company may anse because

Options:

A.

shareholders are always interested in the short term but those in management are interested in the long term

B.

managers are concerned with the level of profits but shareholders are only interested in the long term share price

C.

raising the pay of management may be incompatible with increasing shareholder value.

D.

managers are more concerned with day to day management than shareholders

Question 20

Which THREE of the following are examples of supply-side policies?

Options:

A.

Increasing investment in vocational training for unemployed youth

B.

Providing tax incentives to firms investing in new technology

C.

Reducing the rate of value added tax applied to consumer goods

D.

Increasing current expenditure on a national medical service

E.

Introducing a funding scheme to support university research

F.

Applying a tariff on the import of foreign technology

Question 21

Company GHI wishes to develop a linear model for forecasting tractor sales based on the number of sales people it employs. In the model, tractor sales will be the dependent variable and the number of sales people the independent variable

The company has collected sales data from each of its branches over the past year which has been reported below:

Options:

Question 22

The following table reports are for five hotels belonging to the same hotel chain, the rank in terms of sales performance (with 1 - best average score obtained in customer reviews, and the rank in terms of average score from customer reviews (with 1 = best average ..

Calculate the Spearman's rank correlation coefficient to one decimal place:

Options:

Question 23

Based on the past twenty months, an event decorating company develops a trend equation for forecasting sales revenue (y) where y = 4.38 + 1.32x.

If month 21 has a seasonal factor of times 1.07, then what is the forecast for the month, using a multiplicative model? Give your answer to two decima places.

Options:

Question 24

Which of the following are the likely consequences, in the domestic of a county, of an increase in interest rates?

1. A rise in demand for capital goods

2. A fall in demand for consumer good.

3. A fall in demand for housing

4. A rise in the exchange rate.

Options:

A.

2,3 and 4

B.

1, 3 and 4

C.

1, 2 and 4

D.

1, 2 and 3

Question 25

Setting a minimum wage above the equilibrium wage

Options:

A.

has no effect on unemployment, and setting a minimum wage below the equilibrium wage results in increased unemployment

B.

results in increased unemployment, and setting a minimum wage below the equilibrium wage has no effect on unemployment.

C.

results in decreased unemployment, and setting a minimum wage below the equilibrium wage results in increased unemployment.

D.

results in increased unemployment, and setting a minimum wage below the equilibrium wage results in decreased unemployment

Question 26

For a typical business, which of the following is NOT a potential benefit of globalisation?

Options:

A.

Lower cost sites for the location of production

B.

Simultaneously improved terms of trade for all countries

C.

Wider sources of supply for inputs.

D.

Larger markets for outputs

Question 27

Which of the following is a feature of nol-for-profit organisations (NFPs)?

Options:

A.

They have restricted flows of income

B.

They sometimes have shareholders

C.

Their objectives can vary greatly

D.

They use resources inefficiently

Question 28

Which of the following is correct regarding data?

Data can be recorded as:

(1) numbers.

(2) symbols.

(3) raw facts.

Options:

A.

(1)only

B.

(3) only

C.

(1)and

D.

(1),(2)and(3)

Question 29

Which of the following are not classed as a non-bank financial intermediary?

Options:

A.

Life insurance companies

B.

Building societies

C.

Finance houses

D.

Investment exchanges

Question 30

The incentive for two countries to trade with each other would be reduced or removed by

(i). people in both countries having similar tastes and preferences

(ii). per capita income being much higher in one country than in the other

(iii). transport costs between the two countries exceeding the output gain from trade

(iv). the industries in both countries suffering from significant decreasing returns to scale

Options:

A.

(i) and (ii) only

B.

(ii) and (iv) only

C.

(iii) and (iv) only

D.

(i), (iii) and (iv) only

Question 31

In the foreign exchange market all of the following are sources of demand for a country's currency except one. Which ONE is the exception?

Options:

A.

That country's exports

B.

Inflow of capital into that country

C.

That country's invisible earnings

D.

Purchases of the currency by the central bank

Question 32

Following a 10% reduction in the value of its currency, the volume of imports into the country falls by 10%, whilst the volume of exports rises by 15%.

Which of the following effects will occur?

Options:

A.

Balance of payments will improve

B.

Balance of payments will deteriorate

C.

Terms of trade will improve

D.

The central bank will be forced to borrow more foreign exchange to cover the shortfall

Question 33

Which theory of the firm is described by the following statement?

'The decisions of management are the result of a political maneuvering of the various stakeholders connected to the organization.'

Options:

A.

Profit maximizing

B.

Satisfying

C.

Behavioral

D.

Managerial

Question 34

Which one of the following methods of government borrowing is most likely to be inflationary?

The sale of:

Options:

A.

Treasury bills to the banking sector

B.

Long-term securities to insurance companies and pension funds

C.

National savings securities to the general public

D.

Long-term securities to the banking sector

Question 35

The Global Banking Crisis showed that banks had failed in all of the following ways except which ONE?

Options:

A.

Maintain adequate liquidity

B.

Generate adequate profitability

C.

Maintain adequate security of lending

D.

Exercise adequate risk management

Question 36

The euro currency market is

Options:

A.

Markets within the European Union where foreign currencies are bought and sold.

B.

The market for the single European currency, the euro.

C.

The market for bank deposits denominated in a currency other than that of the country where the bank is located.

D.

The market for bank deposits which can be switched into any other currency at 24 hours notice.

Question 37

A business could meet a short term financial need by all of the following except one. Which ONE is the exception?

Options:

A.

Using its cash reserves

B.

A bank overdraft

C.

Issuing shares

D.

Factoring

Question 38

The International Monetary Fund uses the funds at its disposal to

Options:

A.

Assist national governments with a budget deficit

B.

Assist national governments to repay their National Debts

C.

Finance specific development projects in Third World countries

D.

Help member countries with temporary balance of payments deficits

Question 39

The real rate of interest is

Options:

A.

The rate of interest charged by banks on loans.

B.

The nominal rate of interest adjusted for inflation.

C.

The compound rate of interest.

D.

The rate of interest charged on loans plus administrative charges.

Question 40

Central banks fulfill all of the following functions except which?

Options:

A.

Holder of bank accounts on behalf of the commercial banks

B.

Lender of liquidity to the commercial banks

C.

Provider of capital and liquidity to the government

D.

Chief advisor to government on taxation policy

Question 41

Select the best definition of the corporate governance of a company from the list below.

Options:

A.

The structure and functions of the Board of a firm

B.

The systems by which companies are directed and controlled

C.

The composition and duties of the management of a company

D.

The financial and non-financial performance of a company

Question 42

Calculate the yield to an investor available from the following commercial bill:

Face value$100,000

Market price$98,500

Maturity90 days time

Options:

A.

1.5%

B.

4.5%

C.

6.1%

D.

$1,500

Question 43

Country Y and country Z both impose tariffs on goods imported from each other. Which of the following would likely to be a long-term effect of the imposition of such tariffs?

Options:

A.

None. Tariffs affect exports and imports rather than real income

B.

Real income would be lower in Z but higher in Y

C.

Real income would be lower in Y but higher in Z

D.

Real income would grow at a slower rate in both countries compared to a situation in which there are no tariffs

Question 44

Which of the following statements about macroeconomic policy objectives is correct?

Options:

A.

Governments always regard control of inflation as the most important policy objective

B.

Conflicts between objectives mean that macroeconomic policy can never be regarded as successful

C.

Expanding demand to reduce unemployment may mean that the balance of payments worsens

D.

The pursuit of economic growth inevitably increases unemployment

Question 45

All of the following items would appear as a credit on the current account of a country's balance of payments accounts except which one?

Options:

A.

Interest payments on financial assets held overseas.

B.

Exports of manufactured goods.

C.

Outflows of capital.

D.

Expenditure by visiting foreign tourists.

Question 46

When the economy is in recession, which of the following is least likely to reduce unemployment?

Options:

A.

An expansionary fiscal policy

B.

The central bank cutting interest rates

C.

Retraining schemes for redundant workers

D.

A regulation extending employment rights for newly-hired workers

Question 47

The level of national income in the circular flow will remain constant if

Options:

A.

injections are greater than withdrawals

B.

injections are equal to withdrawals

C.

injections are equal to savings

D.

injections plus withdrawals are equal to savings plus investment

Question 48

Which ONE of the following is NOT required in calculating the EPS of ABC plc?

Options:

A.

The market price of ABC's share

B.

The number of shares ABC has in issue

C.

The most recent earnings after interest and tax of ABC

D.

The dividend payment made to holders of preference shares

Question 49

Which of the following would result from a depreciation in the exchange rate for a country's currency?

i. A fall in the foreign exchange price of that country's exports.

ii. A rise in the foreign exchange price of that country's imports.

iii. A rise in production costs for businesses using imported inputs.

iv. A worsening in that country's terms of trade.

v. A fall in the domestic prices of that country's imports.

vi. A rise in the domestic price of that country's exports.

Options:

A.

(i), (ii) and (iv) only

B.

(i), (iii) and (iv) only

C.

(ii), (v) and (vi) only

D.

(iv), (v) and (vi) only

Question 50

Which global financial institution is responsible for making long term loans to assist developing countries to invest and develop?

Options:

A.

The IMF

B.

The World Bank

C.

The World Trade Organization

D.

The G20

Question 51

A country's gross national product (GNP) will be higher than gross domestic product (GDP) if:

Options:

A.

indirect taxes are greater than government subsidies

B.

there is a net inflow of factor payments on the balance of payments

C.

the country's imports are greater than its exports

D.

government tax income is greater than government expenditure

Question 52

Which of the following statements best describes a private firm?

Options:

A.

An organization that does not seek profit

B.

An organization that is owned by shareholders

C.

An organization that is outside the state's influence

D.

An organization that is not directly owned by the state

Question 53

Which of the following statements about the difference between profit and shareholder wealth is false?

Options:

A.

Shareholder wealth considers financial returns over a longer period than profit

B.

Shareholder wealth takes risk into account

C.

Shareholder wealth is a discounted present value of anticipated future earnings but profit is just a short term measure of past earnings

D.

Shareholder wealth influences share prices but profit does not

Question 54

Which of the following is not taken into account by the discount factor applied to future earnings when calculating shareholder value?

Options:

A.

Shareholders rate of time preference for money

B.

The amount of earnings that will be lost as taxation

C.

The amount of risk the investment is subject to

D.

The rate of inflation

Question 55

Which of the following economic conditions is likely to lead to demand-pull inflation?

Options:

A.

An increase in interest rates and a rise in the world price of oil

B.

An increase in government spending and firms operating at full capacity

C.

Increased monopoly power in goods and labor markets

D.

A worsening balance of payments deficit and a rising exchange rate

Question 56

Which of the following will be characteristics of the stakeholders most able to influence the management of an organization?

Options:

A.

High power, low interest

B.

High power, high interest

C.

Low power, high interest

D.

Low power, low interest

Question 57

Which of the following is likely to cause the demand curve of margarine to shift to the left?

Options:

A.

A fall in the price of margarine

B.

A fall in the cost of vegetable oils

C.

A successful advertising campaign by butter producers

D.

A fall in the price of bread

Question 58

Why do monopoly market structures charge higher prices than would be charged by more competitive market structures?

Options:

A.

They are more likely to suffer from diseconomies of scale

B.

They must recover their higher research and development expenditures

C.

They can increase profits by reducing output to force prices higher

D.

They have barriers to entry that stop customers going to new markets

Question 59

A market is in equilibrium. If the government imposes a minimum price above the equilibrium price, there will be:

Options:

A.

an extension in demand, a contraction in supply and a market shortage

B.

a decrease in demand, an extension in supply and a market surplus

C.

a contraction in demand, an increase in supply and a market surplus

D.

a contraction in demand, an extension in supply and market surplus

Question 60

Which of the following sets of conditions will lead to greater stability (or convergence) of prices in the Cobweb model (or Cobweb theorem)?

Options:

A.

Price elastic demand, price inelastic supply

B.

Price inelastic demand, price elastic supply

C.

Price elastic demand, price elastic supply

D.

Price inelastic demand, price inelastic supply

Question 61

Merit goods are typically characterized by

Options:

A.

non-excludability in consumption

B.

external social costs in production

C.

external social benefits in consumption

D.

non-rivalry in consumption

Question 62

Firms in competitive markets can earn only normal profit in the long run because:

Options:

A.

they produce homogeneous products

B.

there are no barriers to entry into these markets

C.

production costs are the same for all producers

D.

of the absence of economies of scale

Question 63

A market for a normal good is in equilibrium. What will happen in this market if there was an increase in consumer incomes?

Options:

A.

The demand curve would shift to the right, the equilibrium price would rise and there would be an increase in supply

B.

The demand curve would shift to the left, the equilibrium price would fall and there would be a contraction in supply

C.

The demand curve would shift to the right, the equilibrium price would rise and there would be an extension in supply

D.

The demand curve would shift to the left, the price would fall and there would be a decrease in supply

Question 64

Which ONE of the following conditions would lead to instability over time in the incomes of producers of primary products?

Options:

A.

Both demand and supply tend to be price inelastic

B.

Large shifts in demand combined with supply that is price inelastic

C.

Large supply shifts under the impact of unstable weather conditions

D.

Both demand and supply tend to be price elastic

Question 65

Which of the following statements about public goods is correct?

Options:

A.

Public goods are defined as those goods provided by the state

B.

Public goods are examples of free goods

C.

Public goods are characterized by the free-rider problem

D.

The problem of scarcity does not affect the provision of public goods

Question 66

All of the following are examples of externalities except which one?

Options:

A.

Pollution resulting from a production process

B.

Firms training workers who then move to other employers

C.

Some consumers being unable to afford goods because prices have been driven up by the demand from other consumers

D.

Road congestion caused by rush hour traffic on the roads

Question 67

If the production of a good is characterized by significant external social costs, resource allocation can be improved by the government:

Options:

A.

imposing an indirect tax on the good

B.

paying a subsidy to the producers of the good

C.

paying a subsidy to the consumers of the good

D.

increasing the tax on the profits of the producing firms

Question 68

When the government intervenes in the market economy to correct a market failure

Options:

A.

Economic welfare always increases

B.

The problem of government failure may result

C.

In all cases the market mechanism ceases to function

D.

The intervention always creates a surplus

Question 69

Which of the following are examples of long run internal economies of scale?

i. Mass production using robot machine tool technology

ii. Obtaining lower prices when buying raw materials in bulk

iii. Long run technical change in the industry

iv. The emergence of specialized training institutions for the industry

v. Lower borrowing costs for large firms

vi. The spreading of fixed costs over a larger output

Options:

A.

(i), (ii) and (iii) only

B.

(ii), (iii) and (v) only

C.

(i), (ii) and (v) only

D.

(i), (iv) and (vi) only

Question 70

Which ONE of the following statements best describes the impact of a government minimum price established above free market price?

Options:

A.

It will create a shortage of the product and incentives for producers and consumers to evade the policy

B.

It will create a surplus of unsold produce and reduce farm incomes

C.

It will not affect market price or producer incomes at the present time

D.

It will increase farm incomes but may eventually force the government to introduce maximum quotas on production

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Total 468 questions