BA1 by CIMA Valid Free Exam Practice Test

Question 1

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

A. The IMF B. The G20 C. The World Trade Organization D. The World Bank

Correct Answer: D

Question 2

Total economic welfare derived from an activity will be maximized if the activity is undertaken up to the point at which

A. Marginal social benefit equals marginal private benefit B. Marginal social benefit equals marginal social cost C. Marginal private benefit equals marginal private cost D. Marginal private benefit exceeds marginal private cost

Correct Answer: B

Question 3

i-Songs is about to launch a service that sells downloaded music and video files. Downloads have MC = 0 .
Which ONE of the following would maximize i-Songs' profits?

A. Do not produce in order to avoid losses B. Produce add- ons that have a marginal cost in order to charge a price C. Increase download sales to the point where price elasticity of demand = 1 D. Sell as many downloads as possible

Correct Answer: C

Question 4

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

A. It will create a surplus of unsold produce and reduce farm incomes B. It will create a shortage of the product and incentives for producers and consumers to evade the policy 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

Correct Answer: D

Question 5

The demand for salt is generally regarded as price inelastic. Which ONE of the following factors would not contribute to making demand for salt price inelastic?

A. Supply rises quickly if demand rises because salt is easy to make B. There are few close substitutes for salt C. Salt is a small proportion of household expenditure D. Salt is a necessity

Correct Answer: A

Question 6

The following figures relate to a particular economy.

From the above information, it can be correctly concluded that each pound was spent an average of

A. 25 times B. 50 times C. 5 times D. 2 times

Correct Answer: C

Question 7

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?

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

Correct Answer: A

Question 8

A manufacturing company is considering a new investment project.
Which TWO of the following would reduce the net present value of the investment to the business"?

A. A rise in interest rates. B. A reduction in the expected level of future sales. C. An expected fall in the future price of components used by the business D. A rise in the scrap value of the project at the end of its life. E. A fall in the initial capital cost of the project

Correct Answer: D,E

Question 9

The economy of Country V is initially in equilibrium at a level of national income and employment denoted by Y, at price level denoted by P If there is an increase in aggregate demand, indicate on the graph below the new equilibrium point in the economy.

Correct Answer:

P2, Y2

Question 10

Which of the following functions is not performed by investment exchanges such as NASDAQ, the London Stock Exchange or the New York Stock Exchange?

A. A primary market for newly issued private securities B. A lender of last resort to the banking system C. A provider of regulation over assets and trading methods D. A secondary market to make existing shares liquid

Correct Answer: B

Question 11

A country is a net oil exporter and the demand for oil overseas is price inelastic. A substantial increase in the world price of oil would tend to

A. Improve the country's balance of payments on current account B. Cause the country's terms of trade to deteriorate C. Increase GDP but not GNP in the country D. Improve the price competitiveness of manufacturing firms in the country

Correct Answer: A

Question 12

£100 of new cash is issued, which is then deposited in a bank which is part of a banking system operating a cash ratio of 10%. The maximum possible increase in the money supply which can follow from this transaction, additional to the initial deposit, is

A. £90 B. £900 C. £1000 D. £190

Correct Answer: B

Question 13

All of the following are functions of central banks except which one?

A. Determination and conduct of fiscal policy B. Holder of the foreign exchange reserves C. Banker to the government D. Banker to the commercial banks

Correct Answer: A

Question 14

A binding financial contract that can be used to hedge exchange rate risks by fixing the rate of exchange at a fixed date, and can be traded in financial markets, is known as:

A. a future B. a managed floating system C. an option D. a forward exchange contract

Correct Answer: D

Question 15

Which of the following is an invisible import for a country?

A. Expenditure in its shops by foreign diplomats based in the country B. Repayment of an IMF loan by the country's government C. The country's contribution to foreign aid D. A foreign company signing a contract guaranteeing to invest in a new factory in the country

Correct Answer: C

CIMA Fundamentals of Business Economics - BA1 Exam Practice Test