| Subject Code | 0525 |
| Subject Title | O Level Economics |
| Session | June 2018 Paper 1 |
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Cameroon GCE O Level Economics Paper 1 Solution - June 2018
1. A deliberate reduction in the value of a country’s currency in relation to others is called:
Explanation: Devaluation refers to a deliberate reduction in the value of a country's currency relative to others, often to boost exports by making goods cheaper internationally.
2. One factor that will cause the demand curve to shift to the right is:
Explanation: Successful advertisements increase consumer awareness and preference, shifting the demand curve to the right as more people desire the product.
3. In a given year, a country had a population of 10,000 people in January and during the year 300 people came in and 200 people went out. What is the net migration?
Explanation: Net migration is calculated as the difference between people coming in (300) and going out (200), giving 100 people.
4. A household allocates the following amount for its liquidity preference:
Transactions motive = 120,000FCFA
Speculative motive = 30,000FCFA
Precautionary motive = 50,000FCFA
What is the active balance of this household?
Explanation: Active balance is the sum of all liquidity preference components: 120,000 + 30,000 + 50,000 = 170,000 FCFA.
5. Study the tables below and answer this question:
Output (Kg): 0, 1, 2, 3, 4
Total Cost (FCFA): 300, 500, 900, 1200, 1600
The average fixed cost when output is 3 units is:
Explanation: Average Fixed Cost (AFC) = Total Fixed Cost ÷ Output. Fixed Cost is 300 (Total Cost at 0 output). At output 3: AFC = 300 ÷ 3 = 200 FCFA.
6. In order to raise more revenue, government should impose high taxes on goods with:
Explanation: Goods with inelastic demand are less sensitive to price changes, so high taxes on such goods result in higher revenue without significant reduction in sales.
7. The price paid for labor service is known as:
Explanation: The wage rate is the standard amount paid for labor services, typically on an hourly, daily, or monthly basis.
8. Which of the following factors will increase the size of the national income of a country?
Explanation: An increase in national output indicates higher production levels, directly contributing to the growth of national income.
9. To reduce the amount of money in circulation, the government should:
Explanation: Selling securities absorbs excess liquidity as buyers exchange money for securities, reducing money in circulation.
10. A debenture holder is one who has:
Explanation: Debenture holders are creditors who lend money to a company in return for fixed interest payments, irrespective of the company's profit.
11. When the government desires to control inflation in an economy, what type of budget would she adopt?
Explanation: A surplus budget involves reducing government expenditure or increasing taxes, helping to reduce aggregate demand and control inflation.
12. Production is considered complete only when:
Explanation: Production is complete only when the goods or services reach the final consumers, as this signifies the fulfillment of demand.
13. Which of the following is an objective of the government?
Explanation: Governments aim to achieve macroeconomic objectives such as maintaining price stability and ensuring full employment for economic welfare.
14. A disequilibrium in the balance of payments means:
Explanation: A balance of payments disequilibrium occurs when there is either an overall deficit or surplus, disrupting the economic stability of international transactions.
15. As the price of a commodity rises from 100FCFA to 150FCFA per unit, quantity supplied will increase by 25%. What will be the elasticity of supply?
Explanation: Elasticity of supply = (Percentage change in quantity supplied) / (Percentage change in price). Here, the calculation is 25% / 16.67% ≈ 1.5.
16. Which of the following is an example of a direct tax?
Explanation: A direct tax is paid directly to the government by the entity on whom it is imposed, such as income tax or corporate tax.
17. In public corporations, the business losses are borne by:
Explanation: Losses in public corporations are typically covered by the government, meaning the taxpayers ultimately bear the financial burden.
18. Study the table and answer the question that follows.
| Assets | Monetary value (FCFA) |
|---|---|
| Coins and notes in till | 4,000,000 |
| Advances | 10,000,000 |
| Investments | 8,000,000 |
| Balances with the Central Bank | 3,000,000 |
What is the sum of the two most liquid assets?
Explanation: The two most liquid assets are Coins and notes in till (4,000,000 FCFA) and Balances with the Central Bank (3,000,000 FCFA). Their sum is 4,000,000 + 3,000,000 = 11,000,000 FCFA.
19. Which of the following is a characteristic of a perfect market?
Explanation: A perfect market assumes that all products are identical (homogeneous), which ensures fair competition and eliminates product differentiation.
20. Which of the following groups of activities fall under tertiary production?
Explanation: Tertiary production includes services like banking, education, and transportation, which facilitate the movement of goods and services.
21. This question is based on the table showing the outputs of Cameroon and China in the production of shoes and tea.
| Country | Shoes (packages) | Tea (tons) |
|---|---|---|
| Cameroon | 8 | 12 |
| China | 30 | 10 |
Determine the total output of each product after specialization.
Explanation: After specialization, China focuses on shoes (30 + 30 = 60 packages), and Cameroon specializes in tea (12 + 12 = 24 tons).
22. Payments made to people for which there is no work done in the current period is known as:
Explanation: Transfer payments refer to payments made by the government or organizations to individuals without any exchange of goods or services in return, such as pensions and unemployment benefits.
23. Price and quantity demanded are inversely related. This statement means that:
Explanation: This is a reflection of the law of demand, which states that there is an inverse relationship between the price of a good and the quantity demanded, holding other factors constant.
24. Fiscal policy is a government measure to control the economy by using:
Explanation: Fiscal policy involves the government's use of taxation and spending to influence the economy, including managing inflation, unemployment, and economic growth.
25. The factor of production which is most subjected to the law of diminishing returns is:
Explanation: The law of diminishing returns often applies when additional units of labor are added to a fixed amount of other factors, such as land or capital, leading to a decrease in marginal productivity.
26. Study this table showing exports and imports of a country in a given year:
| Items | Amount (million FCFA) |
|---|---|
| Visible exports | 100 |
| Visible imports | 75 |
| Invisible exports | 150 |
| Invisible imports | 200 |
Calculate the balance of trade.
Explanation: The balance of trade is calculated as Visible Exports - Visible Imports = 100 - 75 = 25 Million FCFA.
27. Study the table and answer the question that follows:
| Quantity demanded (TV sets) | Total revenue (FCFA) |
|---|---|
| 1 | 150,000 |
| 2 | 300,000 |
| 3 | 450,000 |
| 4 | 600,000 |
What will be the revenue per unit of a TV set sold in the market?
Explanation: Revenue per unit is calculated as Total Revenue / Quantity. For any quantity, revenue per unit is constant at 150,000 FCFA (e.g., 150,000/1 = 150,000).
28. Describe the policy in which the government uses customs duties to control imports:
Explanation: Customs duties are a form of taxation on imports and exports, which are part of fiscal policy tools used to regulate trade and raise government revenue.
29. Capital as a factor of production will earn:
Explanation: Capital, such as machinery or funds, generates income in the form of interest when invested or loaned out.
30. The following items relate to the balance of payments of country X:
- I) Visible exports
- II) Visible imports
- III) Tourism
- IV) Interest and profits
- V) Investment abroad
Which of the above items relate to the capital account?
Explanation: Investments abroad are included in the capital account as they involve transactions of financial assets across borders.
31. Which function of money has solved the problem of double coincidence of wants?
Explanation: Money as a medium of exchange eliminates the need for the double coincidence of wants required in a barter system, allowing transactions to be conducted smoothly.
32. Which of the following trade restrictions can be used to raise government revenue?
Explanation: Tariffs are taxes imposed on imported goods, generating revenue for the government while also controlling the volume of imports.
33. The location of the plywood industry in Cameroon is mainly influenced by:
Explanation: Plywood industries are typically located near forests to reduce transportation costs for timber, which is the primary raw material.
34. If an increase in income leads to a reduction in the demand for a good, then it can be referred to as:
Explanation: Inferior goods are those whose demand decreases as income increases, as consumers shift to higher-quality alternatives.
35. One positive check to population growth as proposed by Malthus is:
Explanation: Malthusian theory identifies famine as a natural check that limits population growth when resources are insufficient to support the population.
36. One reason for privatizing state-owned assets is to:
Explanation: Privatization can help governments reduce the financial burden of maintaining and operating state-owned enterprises.
37. Study the following table and answer the question that follows:
| Outputs in units | Total cost in FCFA |
|---|---|
| 0 | 10,000 |
| 1 | 14,000 |
| 2 | 18,000 |
| 3 | 24,000 |
| 4 | 36,000 |
What is the average cost when 3 units of output are produced?
Explanation: Average cost is calculated as total cost divided by output. For 3 units, average cost = 24,000 / 3 = 6,000 FCFA.
38. Study the demand and supply diagram and answer the question that follows:
Explanation: A shortage occurs when demand exceeds supply at a given price level.
39. In internal economies of scale, the use of large machines in production is an example of:
Explanation: Technical economies arise from the efficient use of technology and machinery, which reduces the average cost of production.
40. One characteristic of a developed economy is:
Explanation: Developed economies are characterized by a lower dependency ratio due to a larger proportion of the population being in the workforce.
41. This question is based on the diagram below:
Explanation: Total fixed costs remain constant regardless of the level of output, as represented in the diagram.
42. Which of the following is a disadvantage of a direct tax?
Explanation: High direct taxes can discourage individuals from working harder as more income leads to higher tax payments.
43. A document which shows the relationship between the company and the general public is called:
Explanation: The Memorandum of Association outlines the company's purpose and relationship with the public.
44. Which of the following factors will cause the supply of a good to be inelastic?
Explanation: High production costs make it difficult to quickly increase supply, leading to inelastic supply.
45. A furniture manufacturing company merges with a cosmetic producing company. This type of merger is described as:
Explanation: This merger involves companies in unrelated industries, which is known as diversification.
46. A rise in the price of raw materials causes a rise in the general price level. This is a description of:
Explanation: Cost push inflation occurs when higher production costs increase the prices of goods and services.
47. Which of the following is a reason for conducting a population census?
Explanation: A census provides data on population size and distribution, which is essential for effective planning and resource allocation.
48. This table shows the national income figures and population statistics for 4 countries. W, X, Y, and Z:
| Country | Population (million) | National Income (million US Dollars) |
|---|---|---|
| W | 400 | 200 |
| X | 110 | 550 |
| Y | 600 | 900 |
| Z | 140 | 350 |
Which country has the highest per capita income?
Explanation: Per capita income is calculated as national income divided by population. Country X has the highest per capita income.
49. One main characteristic of wealth is:
Explanation: Wealth is scarce and limited in supply, which makes it valuable.
50. This demand schedule is for the question below:
| Price in FCFA | Quantity demanded in tons |
|---|---|
| 500 | 1500 |
| 400 | 2000 |
| 300 | 3000 |
| 200 | 4000 |
If the price of the commodity falls from 400FCFA to 300FCFA, the elasticity of demand will be:
Explanation: Elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.
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