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01. What is the statement that is relevant to the theory of micro economics from the followings?
1. Fall in the marginal productivity leads for the rise in marginal cost
2. Increase in the money supply causes to increase the interest rate.
3. Fall in the interest rate causes for rise in the money demand.
4. Fall in the aggregate production causes for the fall in employment levels.
5. Rise in the price of inputs causes for the rise price level. (.......)
02. Identify the positive statement from the followings
1. Some natural resources can depreciate with the usage.
2. Poverty can be eradicated by increasing the returns given to the poors.
3. Economic growth should be uplifted to minimize the disparity of income distribution.
4. The returns of economic growth should equally be distributed among all the citizens.
5. Increasing the pension age is a suitable solution for the increase in the aging population in Sri Lanka
(.......)
03. The following diagram illustrates the various ways of utilizing resources in a certain economy
According to the above diagram the product combination of an economic
recession
1. Shifts from A to B 2. Shifts from B to D
3. Shifts from E to D 4. Shifts from D to C
5. Shifts from A to C (.......)
04. What is from the following that does not affect for the production possibilities frontier to shift to right?
1. Increase in the production due to the increase in demand.
2. Increase in the production due to migration of a group of foreign labourers.
3. Increase in the production due to the increase in factor productivity.
4. Increase in the production due to the increase in the infra – structure facilities .
5. Increase in the production due to a technological development. (.......)
2
05. In an economy with private entrepreneurs the goods market sends price – signals. Accordingly, the
problem that is considered to be solved is,
1. Achieving the sustainable development.
2. Establishing a fair income distribution in the society.
3. Taking decisions on consumption and production patterns in the economy.
4. Solving the problem of employing factors of land, labour, capital.
5. Solving the problem of what to be produce (.......)
06. It is expected to take the Sri Lankan economy to accelerated social market economy after the year 2000.
Such an economy emphasizes,
1. Protection of the human rights paying attention on social justice
2. Involvement of the government in removing the inefficiency existed in the market economy
3. Creating economic growth promoting the personal standard of living.
4. Strengthening of the public mechanism to establish the legal basis of the economy.
5. Fair income distribution among every citizen in the society. (.......)
07. What is the factor from the following that does not cause for the shift of the market demand curve for a
certain good?
1. Increase in the number of buyers 2. Increase in the expected future price of the good
3. Increase in the price of that good. 4. Increase in the consumer's income
5. Increase in the complementary good (.......)
08. Some data relevant to the demand and supply schedules for a good sold in a market has been given below.
Price of good (Rs.) Quantity
demanded (Units)
Quantity
supplied (Units)
6
8
20
10
20
30
If the government charges a tax of Rs. 2/-per unit of that good from the producer the supply function after
the tax is,
1. ��� = 50 + 5 2. ��� = −20 + 5 3. ��� = −10 + 5
4. ��� = 20 + 5 5. ��� = 10 + 5 (.......)
09. The "A" point of the following diagram illustrates the market equilibrium for the good " "
The factor that affects for the market equilibrium for this good to shift
form point "�" to point " B" is,
1. Increase the price of good
2. Increase in the price of complementary good �
3. Increase the production cost of good
4. Increase the supply of good
5. Increase in the price of substitute good �. (.......)
10. In a normal good on which the price elasticity of demand is one,
1. The quantity demanded increases proportionately to the price increase.
2. The consumers' expenditure increases when the price declines.
3. No change takes place in the quantity demanded
4. Producer's revenue increases when the price increases.
5. The answer obtained by multiplying price and quantity of a demand schedule always equals at each
situation. (.......)
3
11. The following diagram illustrates the demand and supply curves for potatoes in a domestic market.
What is the statemment that connot be agreed under a situation where one
kilo of potatoes are imported under P2 price?
1. The domestic quantity supplied decreases from �� to ��
2. The producer's surplus increases
3. The consumer's surplus increases
4. An amount form �� to �� is imported
5. The domestic quantity demanded increases form �� to ��
(.......)
12. Consider that there is an elastic supply for a domestic gas cylinder that is essential for consumers. If this
good is provided with a production subsidy the benefit of the subsidy,
1. Owns greatly by buyers 2. Owns greatly by sellers
3. Totally owns by consumer 4. Totally owns by producers
5. Equaly distributes among both of the buyer and seller. (.......)
13. The market demand function and the market supply function for sugar are respectively as
�� = 500 − 6 and �� = −200 + 4. Under this situation, if the government imposes the guaranteed
price of Rs. 60/- per kilo of sugar, in the market,
1. An excess demand of 140 Kg for sugar is created.
2. A supply of 178 Kg of sugar is created.
3. An excess supply of 100 kg of sugar is created.
4. An excess demand of 100 Kg of sugar is created.
5. Sugar price declines due to the excess supply. (.......)
14. The following diagram illustrates the market for an industrial good.
If a specific tax is imposed on a unit of this good, by which area is the loss of producer's surplus and the
loss of consumer's surplus illustrated?
Loss of
consumer's surplus
Loss of Producer's
surplus
1. B + C + D E + G + F
2. A H
3. A+B+C+D B+C+D+E+F+G
4. A+B+C F+G+H
5. B+C+D D+E
(.......)
15. When the average productivity of labour is less than the marginal productivity of labour,
1. Average productivity of labour increases
2. Marginal cost of product falls
3. Average variable cost of product rises
4. Marginal cost of product takes a minimum value
5. The total productivity of labour falls (.......)
4
16. The law of increasing returns to scale declares,
1. When the size of the factory is increased the marginal productivity of that gradually falls
2. When the factory is enlarged the average cost of that gradually decreases.
3. When the capacity of the factory is expanded its average cost gradually increases.
4. When the firm expands the variable input with the fixed input its marginal product rises fast.
5. When the firm increases the variable input with the fixed input its average cost gradually falls. (.....)
17. What is the characteristic that can be noticed in an oligopoly market?
1. Availability of few firms that own a greater percentage from the total supply of the market.
2. Product becomes specific
3. The demand curve of each firm is perfectly elastic
4. There are no barriers for the new entrants to the market
5. Production firms earns normal profits in the long run. (.......)
18. The following diagram illustrates the cost and demand condition of a certain production firm.
According to the information this firm,
1. Maximizes the profits at the output ��
2. When the output is increased form �� to �� the profit maximizes
3. When the output is decreased from �� to �� the profit maximizes
4. When the output is increased form �� to �� the profit maximizes
5. When the output is increased form �� to �� the profit decreases (.......)
19. What is the wrong statement regarding the transfer earnings from the followings?
1. The opportunity cost of a production factor of its present use is the transfer earning.
2. Transfer earning is the minimum earning required for a production factor not to transfer to another
production task.
3. Transfer earning is the minimum payment that should be paid for a production factor to be employed
in service.
4. The price of a production factor illustrates the transfer earning of a production factor
5. The minimum payment required for a production firm to be existed in the production is the transfer
earning. (.......)
20. This is considered as the potential output of the economy,
1. The sustainable output level that an economy can produce without a pressure of inflation.
2. It is the real output level existed in each of the time period in the economy.
3. It is the output level that exists within a short period of time.
4. It is the output level that depicts the rise and falls in the economy
5. It is the maximum output level that exists in the economy (.......)
5
21. What can be taken when the components of dividends, undivided profits, tax on profits and capital
consumption are added together is,
1. Tax income 2. Net profit
3. Profit of entrepreneurship 4. Gross profit
5. Government expenditure (.......)
22. Identify the accurate method of calculating the gross national product to the market price.
1. Gross domestic product + foreign factor earnings.
2. Gross domestic expenditure + current account balance in the Balance of Payment – balance of the
secondary income
3. Gross domestic expenditure + exports – imports
4. Gross domestic expenditure + primary income balance
5. Wages + interest + Profits + tax + primary income balance. (.......)
23. If the consumption function is C = 180 + 0.8 Y autonomous investment expenditure is Rs. 400 billions in
a simple economy where the government affairs and foreign trade are absent, What is the equilibrium
national income?
1. Rs. 3900 billions 2. Rs. 2900 billions 3. Rs. 580 billions
4. Rs. 390 billions 5. Rs. 400 billions (.......)
24. Due to the increase of what from the followings there will be a decrease in the aggregate expenditure?
1. Investment expenditure 2. Consumption expenditure
3. Government purchases 4. Import Expenditure
5. Inflow of foreign remittances (.......)
25. Increase in the marginal propensity to save,
1. Causes for the decrease in the value of multiplier
2. Causes for the increase in the value of the multiplier.
3. Causes for stabilization of the value of the multiplier
4. Does not affect for the value of the multiplier
5. Causes for the increase or decrease in the value of the multiplier. (.......)
26. In an economy where the marginal propensity to save is 0.2 and there are fixed taxes if the government
purchases is increased by Rs. 126 billions the output maximumly increases.
1. By Rs. 60 billions 2. By Rs. 600 billions
3. By Rs. 120 billions 4. By Rs. 240 billions
5. By Rs. 260 billions (.......)
27. If the real interest rate of a certain country was stated as -6 it depicts,
1. The inflation rate within the country is zero
2. Increase in the real burden of credit.
3. that the real interest rate has taken a greater value than the inflation
4. that the nominal interest has decreased than the inflation.
5. that the interest rate of private savings has declined (.......)
28. In a banking system where the reserve rate is 40% assume that there is an excess reserve of Rs. 2400
millions. The maximum amount of credit creation of that banking system is,
1. Rs. 3000 millions 2. Rs. 2400 millions
3. Rs. 6000 millions 4. Rs. 9600 millions
5. Rs. 3600 millions (.......)
6
29. In a Commercial Bank there are 2400 demand deposits and Rs. 800 million capital shares. Existing
reserves are of 1200 and the excess reserve 240. What is the value of the credit multiplier of this bank?
1. K = 20 2. K = 2.5 3. K = 4 4. K = 10 5. K = 5 (.......)
30. When commercial banks operate to reduce the available excess reserves with the them, what type of effect
is there on the money supply?
1. There is no effect on the money supply
2. Money supply becomes slow
3. Money supply is zero
4. Money supply increases
5. Money supply decreases (.......)
31. The velocity of money circulation of a ceertain country is 2.5. The stock of money in that country is
Rs. 200 millions. According to this data, the nominal gross domestic product of the country is,
1. 500 Millions 2. 250 Millions 3. 700 Millions
4. 200 Millions 5. 350 Millions (.......)
32. Financial policies are,
1. The policies that are related to the government income, government expenditure and government debt.
2. The policies relevant to the control of base money
3. The policies relating to prices and revenue management.
4. The policies relating to the control of money supply and the interest rate.
5. Policies related to the budget. (.......)
33. Identify the national level licensed specialized bank from the major financial intermediary institutes
operating in Sri Lanka.
1. Co-operative rural banks 2. SANASA (Samupakara Naya Dena Samithiya )
3. Samurdhi bank associations 4. Sanasa Development Bank
5. People's Bank (.......)
34. Due to the sale of securities by a Central Bank in the market what kind of effect is made on the money
supply and rate of interest?
Interest Rate Money Supply
1. Does not change Increases
2. Decreases Decreases
3. Constant Increases
4. Increases Increases
5. Increases Decreases (.......)
35. What is not a characteristic of a pure public good from the followings?
1. Non – rival in consumption
2. Beneficiaries cannot be excludable
3. Collective consumption can be done
4. Those who do not pay cannot be excluded from the consumption
5. Existence of a marginal cost when supplying to an additional person. (.......)
36. The measurement that is used to measure the relationship between the increase in government revenue
relatively to the increase in the gross domestic product annually.
1. Average tax rate 2. Sensitivity co-efficient of the tax income
3. Risk co-efficient of the tax 4. Marginal propensity to tax
5. Tax compliance co-efficient (.......)
7
37. According to the Central Bank report – 2016, select the answer that includes the tax income and the non
– tax income as a percentage of gross domestic product respectively,
1. 12.4 and 1.8 2. 12.4 and 0.4 3. 14.3 and 2.1
4. 14.3 and 1.8 5. 13.3 and 0.1 (.......)
38. In a business cycle during the period of expansion, due to increase in income if the personal tax payments,
transfer payments and other social security payments are automatically adjusted, such a fiscal policy is
introduced as,
1. Medium fiscal policy 2. Automatic stabilization of fiscal policy.
3. Normative fiscal policy 4. Expansionary fiscal policy
5. Contractionary fiscal policy (.......)
39. If the major components of the current expenditure of the Sri Lankan government (2016) are arranged
serially according to their relative importance, the serial order of them is,
1. Household transfers transfers, wages and salaries, interest payments.
2. Household transfers, transfers to government corporations and firms, interest payments.
3. Interest payments, wages and salaries, transfers to household.
4. Wages and salaries, household transfers, interest payments
5. Wages and salaries, interest payments, transfers to government firms and corporations. (.......)
40. If America has the absolute advantage of producing clothes than India,
1. There will be a high price for cloths in India.
2. There will be a high price for clothes in America
3. America will be able to produce cloths than India
4. The opportunity cost of producing cloths is lower in America than in India.
5. America will be able to produce a unit of cloths with less factor cost than India. (.......)
41. A factor that does not affect for the terms of trade of a country to be unfavorable is that,
1. Export price declines and import price increases
2. Export price falls down greater than the import price.
3. Export price rises greater than the import price.
4. When the export price is constant import price rises up.
5. When the import price is constant export price declines (.......)
42. The highest export buyer of Sri Lanka in 2016 was,
1. United states of America 2. Asia 3. Middle-East countries
4. Germany 5. United Kingdom (.......)
43. The import price of "X" good is Rs. 5000/- . The tariff on it is 20% . The price of imported inputs of that
good is Rs. 4000/-. The domestic price is Rs. 5000/-. What is the effective precautionary rate?
1. 100% 2. 20 % 3. 80% 4. 50 % 5. 200% (.......)
44. At present, what is the basket of currency that determines the value of a unit of special drawing rights
(SDR) which is the reserve asset of the International Monetary Fund?
1. Sterling Pound, Japan Yen, Euro, American Dollar
2. Sterling Pound, Japan Yen, French Frank, American Dollar.
3. Euro, Japan Yen, Singapore Dollar, Indian Rupee.
4. Sterling Pound, Euro, Singapore Dollar, Japan Yen
5. American Dollar, Japan Yen, French Frank, German Doish Mark (.......)
8
45. The economic growth rate of a certain country measures,
1. The speed of increasing resources
2. Increase in the nominal national income
3. Change in the per capita income
4. Change in the productivity
5. The speed of change in output (.......)
46. Labour force participation ratio is,
1. Illustrating the labour force as a percentage of workable age population.
2. Illustrating the number of unemployed as a percentage of the labour force.
3. Illustrating the unemployment rate as a percentage of the labour force
4. Illustrating the workable age population as a rate of the labour force.
5. Illustrating the labour force as a percentage of the total population. (.......)
47. In a given year, the nominal gross domestic product of a country grew by 8% and the inflation grew by
4.2%. If the population of that country grew by 1.8% by approximately how much does the real per capita
income grow?
1. 0% 2. 2 % 3. 2.5% 4. 5.0% 5. 14% (.......)
48. As the income distribution occurs form 20% of poors to 20% of rich in the society the Lorance curve,
1. is close to the 45� curve and the Gini – co-officient rises up
2. is close to the 45� curve and the Gini – co-officient falls down
3. is far from the 45� curve and the Gini – co-officient rises up
4. is far from 45� curve and the Gini-co-officient declines
5. moves on the 45� curve and the Gini –co-officeint becomes zero (.......)
49. According to the Human Development Index the value of Sri Lanka relevant to the year 2015 and the
place that has been received out of the 188 countries are, HDI Vale The place of Sri Lanka
1. 0.550 71
2. 0.751 73
3. 0.731 71
4. 0.766 73
5. 0.678 93 (.......)
50. It is considered as the dependence ratio
1. The rate of the population less than 15 years of age and more than 59 years of age to the population
aged between 15 – 59 years.
2. The rate of the population less than 15 years to the population over 15 years of age.
3. The rate of population more than 65 years of age to the 100 persons out of the workable age
population.
4. The rate of unemployed population to the employed population in the labour force.
5. The rate of children's population to the adult population. (.......)
1
Part A
01) i. How do the following economic scenarios are illustrated through the production possibility curve?
(a) Under – utilization of resources owned by the economy
(b) New invention for the production of agricultural goods.
(c) Under – employment of services due to the reduction of market demand for Y good.
(d) A factory achieves a 50% of growth in the production ability (4 marks)
ii. Mention the criteria of classifying economic systems and classify the alternative economic systems
under those criteria (4 marks)
iii. "A centrally planned economy always operates for the social welfare". Discuss this statement.
(4 marks)
iv. How the allocation of resources is done for future is a modern basic economic question that is
discussed. What is meant by this? How should be worked towards that? (4 marks)
v. What are the methods that can be used to develop the human resource in a country? (4 marks)
02) i. Explain how the positive income and substitution effects influence the change in the quantity
demanded of a normal good when all other determinants of demand are held constant (4 marks)
ii. What will happen to the total revenue of the producer in the following situations.
(a) Increase in price of an essential good
(b) Increase in price of a luxury good
(c) Decrease in price of an essential good
(d) Decrease in price of a luxury good (4 marks)
iii. "Even though the market supply for rice increased, price of rice also increased" Explain through a
diagram the reason for this condition (4 marks)
2
iv. Followings are the market demand and supply schedules for a certain good.
Price of a unit
(Rs.)
Quantity demanded
(Units)
Quantity supplied
(units)
40
60
80
100
120
160
120
80
40
0
40
60
80
100
120
(a) Illustrate the demand and supply curves through a diagram (2 marks)
(b) Calculate the price elasticity of demand and supply at the equilibrium (2 marks)
(c) Calculate the amount of the producers' surplus at the equilibrium (2 marks)
(d) Consider that the government imposes the minimum price legislation of Rs. 100 per unit of this
good and certified the guarantied price by purchasing the excess as the price supporting policy.
What is the change created in the producers' surplus as a result of this? (2 marks)
03) i. What is meant if the economic cost is greater than the accounting cost of a certain production firm?
Explain. (4 marks)
ii. Explain through illustrations the difference between the producers' surplus and the economic rent.
(4 marks)
iii. Mention the dissimilarities between the perfect competition and monopolistic competition (4 marks)
iv. A perfect competitive market sells 180 Kg of red rice to Rs' 60/- per kilogram within a week. The cost
of the firm on this is as follows.
Total Variable cost – Rs. 9600 Total fixed cost - Rs. 1200
Marginal cost - Rs. 60
(a) Calculate the economic profit and the unit cost that are received by the firm within a week.
(4 marks)
(b) Will the existing firms exit from the market under this type of profit condition or will new firms
enter into the market? Explain the reason for your answer. (4 marks)
04) i. What are the uses of national accounting data? ( 2 marks)
ii. What is meant by the economic growth rate of a country? What are methods of computing them?
(4 marks)
iii. Explain, how the current account balance of the Balance of Payment is connected to the national
accounts when national accounts are computed? (Associating the expenditure approach) (4 marks)
iv. What do you concern as the non-productive transactions that are excluded when computing the gross
domestic product? (2 marks)
v. Following is some data of national accounts.
Net interests 60
Rental income 80
Net foreign factor income -20
Corporate profits taxes 150
Employment service income 50
Profits paid (dividends) 30
Net foreign current transfers 300
3
Non-paid profits 40
Self- employment income 120
Net indirect taxes 10
Capital consumption expenditure 25
Calculate,
(a) Gross domestic income
(b) Gross national product to the market price
(c) Disposable net national income
(d) Gross profit (4 marks)
05) i. Using a relevant diagram, explain how the equilibrium is determined through the aggregate demand
and aggregate supply curves of an economy. (4 marks)
ii. Explain what is meant by the injections and withdrawals included in a circular flow of income in an
open economy. (4 marks)
iii. What are the factors that affect for the macroeconomic equilibrium of a country (4 marks)
iv. Followings are some macro-economic data of a hypothetical economy.
Consumption C = 150 + 0.75 Yd
Investment I = 200
Government Purchases G = 100
Taxation T = 60 (a) Determine the equilibrium national income level of this economy. (2 marks)
(b) If the investment expenditure is increased up to Rs. 400 billion what is the new macroeconomic
income level? (2 marks)
(c) Calculate the value of the multiplier of the government expenditure (2 marks)
(d) What are the types of autonomous incomes of this economy? (2 marks)
Part B
06&' i. Distinguish between the demand deposits and money substitutes. (4 marks)
ii. What is meant by the policy interest rate of the Central Bank? (3 marks)
iii. Explain the process of how the changes in the policy interest rates affect for the price level and the
output? (4 marks)
iv. Suppose that Rs. 20,000 million which was earned by selling bonds to the Central Bank by a broker
company in share market deposited in a Commercial Bank.
^a& What would be the effect of this transaction towards the money supply? (3 marks)
^b& If the reserve rate is 25% what is the amount of additional credit that can be issued to the total
banking system. (3 marks)
^c& What are the basic conditions relevant for not to create such a credit expansion? (3 marks)
07) i. Mention two reasons for non-provision of the public goods in the market (2 marks)
ii. What are the common weaknesses that can be identified in the public entrepreneurs in Sri Lanka.
(4 marks)
iii. Distinguish between average tax rate and marginal tax rate (4 marks)
iv. What is meant by the vote on account in a government budget? In which occasions such a vote on
account is presented.? (4 marks)
v. Show the economic impacts of government debt. (4 marks)
vi. Forward two examples for the projects on Public Private Partnership in Sri Lanka.
(2 marks)
4
08) i. Distinguish between the absolute advantage theory and the comparative advantage theory which is
based on the international trade with examples? (4 marks)
ii. Define the overall balance according to the new balance of payment and show how it is computed?
(4 marks)
iii. Show how the following transactions are recorded as credit and debit in the Balance of Payment
according to the double entry principle
(a) Exporting garments valued USD 400 to America
(b) Starting a garment factory by a local company using 1000 dollars in a foreign county
(c) Receiving an income of investment valued 15 million dollars.
(d) Purchasing shares valued 10 million dollars by a Japanese investor from the Colombo stock
exchange
(4 marks)
iv. Mention four non – tariff trade barriers that restrict the free trade (4 marks)
v. What is meant by the reserve assets? What are the asset included in it? (4 marks)
09) i. What is meant by the "Economic Growth" ? How is it measured? (4 marks)
ii. What are the major factors that determine the productivity level of a country? (4 marks)
iii. Many inefficiencies of public entrepreneurs can be seen in Sri Lanka at present. What are the factors
that affect for that. (4 marks)
iv. Explain the differences in the Sri Lankan economic structure at present as a percentage of the gross
domestic product. (4 marks)
v. What is meant by underemployment of services? What are the characteristics of that? (4 marks)
10) i. Name the components of the Human Development Index. (3 marks)
ii. Show the classification of countries according to the Human Development Index. (4 marks)
iii. Name four steps that should be taken to develop the competition in Sri Lanka. (4 marks)
iv. Name four sustainable Development goals that are expected to be achieved after 2015. (4 marks)
v. What are the steps that have been taken by the Sri Lankan government to achieve the sustainable
development goals? (5 marks)
1
Third Term Test- 2018
Economics – Third Term Test
Answr Sheet
Part I
1& 5 11& 2 21& 4 31& 1 41& 3 2& 1 12& 1 22& 2 32& 4 42& 1 3& 2 13& 4 23& 2 33& 4 43& 1 4& 1 14& 1 24& 4 34& 5 44& 1 5& 5 15& 3 25& 1 35& 5 45& 5 6& 1 16& 2 26& 2 36& 2 46& 1 7& 3 17& 1 27& 4 37& 1 47& 2 8& 2 18& 2 28& 3 38& 2 48& 3 9& 5 19& 4 29& 2 39& 3 49& 4 10& 5 20& 1 30& 4 40& 5 50& 1
Part II
01) i. How do the following economic scenarios are illustrated through the production possibility curve?
(a) Under – utilization of resources owned by the economy
(b) New invention for the production of agricultural goods.
(c) Under – employment of services due to the reduction of market demand for Y good.
(d) A factory achieves a 50% of growth in the production ability (4 marks)
ii. Mention the criteria of classifying economic systems and classify the alternative economic systems under those
criteria (4 marks)
iii. "A centrally planned economy always operates for the social welfare". Discuss this statement.
(4 marks)
iv. How the allocation of resources is done for future is a modern basic economic question that is discussed. What
is meant by this? How should be worked towards that? (4 marks)
v. What are the methods that can be used to develop the human resource in a country? (4 marks)
01&' i. ^a& ^b& ^c& ^d&
(1 mark each = 4 marks)
ii. - According to the resource ownership
- Classifying according to the mechanism of resource allocation (decision — coordinating mechanism)
- According to the nature of incentives
- According to the income redistribution and social security networks
- According to the religious philosophy and views
According to the resource ownership
- Capitalistic economic systems
- Socialist economic systems
According to the mechanism of resource allocation
- Traditional economic system
- Market economic system
- Planned economic system
According to the nature of incentives
- Materialistic incentives (market economic systems)
- Moral saution — traditional economic systems
- Coercive incentives - panned economic systems
2
According to the income re-distribution and social security network
- Social market economy (Market economy + social equity) Germany, sweeden
- Social market economy (Market economy + social equity) Germany, swden According to the religious
philosophy and views New traditional economic system
Eg — Islamic principles - Iran, Pakisthan) (Total 4 marks — one mark for one factor)
iii. - A planned economy is a system that solves the basic economic problems through the commands given
by a certain authority.
- As the decision marking and the decisions taken to solve the basic economic problems are centralized in
a planned economy a centralized planning authority operates to handle it.
- When producing goods and services only the social welfare is taken into consideration
- Operating the factors of production including the production stages according to a plan on the
involvement of the government
- Equity in income and wealth distribution
- Presence of coercive incentives
- Sufficient resource allocation on the production of public goods
- Leading the production on the social returns
- Minimum characteristics of exploitation
(Certification of the answer with four appropriate factors — 4 marks)
iv. - This means how the scarce resources are distributed between present and future (1 mark)
- When the available resources are greatly utilized for an accelerated economic grouth problemms are
created in future. For example rapid clearing of forests causes for the weather changes in the coming years.
(1 mark)
- Sustainable development refers to the decision making on the amount of resources allocated on the
present use and future use.
- That means present use of resources should not create a damage to the future generation.
- Resource allocation for future should be done through the economical use of available limited and
specific natural resources, physical resources.and human resources and increasing the available resources.
(1 mark)
v. - attitude development - educating giving trainings
- health and nutrition providing incentives - introduction of new technology
- developing good employer employee relationship — uplifting the physical capital
02) i. Explain how the positive income and substitution effects influence the change in the quantity demanded of a
normal good when all other determinants of demand are held constant (4 marks)
ii. What will happen to the total revenue of the producer in the following situations.
(a) Increase in price of an essential good
(b) Increase in price of a luxury good
(c) Decrease in price of an essential good
(d) Decrease in price of a luxury good (4 marks)
iii. "Even though the market supply for rice increased, price of rice also increased" Explain through a diagram
the reason for this condition (4 marks)
iv. Followings are the market demand and supply schedules for a certain good.
Price of a unit
(Rs.)
Quantity demanded
(Units)
Quantity supplied
(units)
40
60
80
100
120
160
120
80
40
0
40
60
80
100
120
(a) Illustrate the demand and supply curves through a diagram (2 marks)
(b) Calculate the price elasticity of demand and supply at the equilibrium (2 marks)
(c) Calculate the amount of the producers' surplus at the equilibrium (2 marks)
Consider that the government imposes the minimum price legislation of Rs. 100 per unit of this good and
certified the guarantied price by purchasing the excess as the price supporting policy. What is the change
created in the producers' surplus as a result of this? (2 marks)
3
i. - When all the other factors are held constant if the price of a normal good declines the quantity demanded
of that good increases as the real income of the consumer increases. This is the positive income effect of
a price decrease. (2 marks)
- When all the other factors are held constant when the price of the relevant good decreases the quantity
demanded for goods relatively high in price are decreased and relatively low - priced goods are more
demanded This is the positive substitution effect of a price decrease. (2 marks)
ii. a. Total revenue increases b. total revenue decreases c. total revenue decreases d. total revenue increases
(1 mark each - total marks 4)
iii. Even though the market supply rises for rice the cause for increase in the price of rice is that the quantity
demanded for rice is greater than the increase in the supply of rice (2 marks)
This type of a situation can be illustrated through the following diagram
03) i. What is meant if the economic cost is greater than the accounting cost of a certain production firm? Explain.
(4 marks)
ii. Explain through illustrations the difference between the producers' surplus and the economic rent.
(4 marks)
iii. Mention the dissimilarities between the perfect competition and monopolistic competition (4 marks)
iv. A perfect competitive market sells 180 Kg of red rice to Rs' 60/- per kilogram within a week. The cost of the
firm on this is as follows.
Total Variable cost – Rs. 9600 Total fixed cost - Rs. 1200
Marginal cost - Rs. 60
4
(a) Calculate the economic profit and the unit cost that are received by the firm within a week.
(4 marks)
(b) Will the existing firms exit from the market under this type of profit condition or will new firms enter
into the market? Explain the reason for your answer. (4 marks)
03). i. the expenses made on the outside purchases or only the direct cost is included in the accounting cost (only
the opportunity cost of the outside purchases)
The total economic cost or the opportunity cost of all the factors of production that are used by the firm
are included in the Both direct cost and indirect cost are included in the economic cost.
Indirect cost is the opportunity cost of the production factors owned by the firm which are used in the
production process.
Thus if the factors of production owned by the firm are used in the production process indirect cost
becomes larger, Then the economic cost is greater them the accounting cost.
(1 mark for one factor total marks 4)
ii. The value that is received by deducting the marginal cost (minimum
supply price) out of the market price is the producer's surplus. ( The
value that is received by deducting the total variable cost out of the
total revenue at a certain quantity received by the producer is the
producers surplus.
Economic rent is the excess money that is received than the
minimum amount of money that the producer expects to have for
a certain factor of production to be used in the production process.
(The amount of money earned greater than the transfer earning of
a certain factor of production. (1 marks)
(1 mark)
Perfect competitive market Monopolistic competitive market
- homogeneous products - diffentiated products
- price taker - price maker
- perfectly elastic demanded curve - the demand curve slopes downward
- absences of advertisement - cost of advertising is created
(2 marks for accurate comparison - total 4 marks)
iv. a. Total revenue = 180 x Rs.60 = Rs.10800
Total cost = TVC + TFC
= Rs. 9600 + Rs. 1200 = Rs. 10800
The profit of the firm = Total revenue - Total cost
= Rs. 10800 - 10800
= 0 economic profit is zero (1 marks)
Production cost of a unit = Total production cost
Output
= Rs. 10800
180 = Rs. 60 (1 marks)
5
b) - The firm operation under zero economic profit such a condition is not disadvantage able for the producer.
- Here, the normal profit that is sufficient to settle the opportunity cost of all the factors used by the firm for
the production is earned.
- As the normal profit is sufficient for preventing the producer from out - taking of his investment from
shutting down the industry the producer further exists in the production.
- Even though the normal profit is sufficient to cover up the opportunity cost of capital and the risk taking
new investors don't inspire to enter the industry as the economic profit is zero.
(1 mark for one factor total marks 4)
04) i. What are the uses of national accounting data? ( 2 marks)
ii. What is meant by the economic growth rate of a country? What are methods of computing them?
(4 marks)
iii. Explain, how the current account balance of the Balance of Payment is connected to the national accounts
when national accounts are computed? (Associating the expenditure approach) (4 marks)
iv. What do you concern as the non-productive transactions that are excluded when computing the gross domestic
product? (2 marks)
v. Following is some data of national accounts.
Net interests 60
Rental income 80
Net foreign factor income -20
Corporate profits taxes 150
Employment service income 50
Profits paid (dividends) 30
Net foreign current transfers 300
Non-paid profits 40
Self- employment income 120
Net indirect taxes 10
Capital consumption expenditure 25
Calculate,
(a) Gross domestic income
(b) Gross national product to the market price
(c) Disposable net national income Gross profit (4 marks)
04). i - evaluating the progress of the economy.
- measuring the economic growth
- estimating per capita national product
- identifying the features of economic structure
- Using for international comparison
- to identify the relationship among the economic agents.
- can identify the resource combination and utilization (for 4 factors - 2 marks)
ii. - Economic growth rate is the percentage change in the real gross domestic product or in the real gross
national product between the two period of time.
Economic = real gross domestic product of the - real gross domestic product of the x 100
growth rate present year previous year F
real gross damestic product of the previous year (2 marks)
iii. Gross domestic expenditure + the balance of the trade and service accounts = Gross domestic product
Gross domestic expenditure + balance of the trade and service account + balance of the income account =
Gross national product Gross domestic expenditure + the balance of the current account = Disposable
gross national income Gross national product + balance of the transfer account = disposable gross national
product
Gross investment + net exports = domestic saving
( 1 marks for one factor = total - 4 marks)
iv. - Non - Productive market transactions - transfers - transactions relating to financial papers
- Second market transaction ( 2 marks for any 4 factors)
6
v. a. employers incomes 50
self-employers incomes 120
net profit 60
rent 80
tax on co-operate profits 150
Paid profits 30
Undivided profits 40
Capital consumption expenditure 25
Gross domestic income 555 (2 marks)
b. Gross domestic income 555
net indirect taxes 10
net foreing factor income -20
Gross national product to the market price 545 (2 marks)
c. Gross domestic imcome 555
Capital consumption expenditure (25)
net foreign factor income (-20)
Net foreign current transfer 300
Disposable factor imcome 810 (2 marks)
d. paid profits 30
undivided profits 40
tax on profits 150
capital consumption expenditure 25
Gross profit 245 (2 marks)
05) i. Using a relevant diagram, explain how the equilibrium is determined through the aggregate demand and
aggregate supply curves of an economy. (4 marks)
ii. Explain what is meant by the injections and withdrawals included in a circular flow of income in an open
economy. (4 marks)
iii. What are the factors that affect for the macroeconomic equilibrium of a country (4 marks)
iv. Followings are some macro-economic data of a hypothetical economy.
Consumption C = 150 + 0.75 Yd
Investment I = 200
Government Purchases G = 100
Taxation T = 60
(a) Determine the equilibrium national income level of this economy. (2 marks)
(b) If the investment expenditure is increased up to Rs. 400 billion what is the new macroeconomic income
level? (2 marks)
(c) Calculate the value of the multiplier of the government expenditure (2 marks)
(d) What are the types of autonomous incomes of this economy? (2 marks)
05). i. - At the situation where aggregate demand equals to aggregate supply in an economy macro economic
equilibrium is determined
When AD equals to AS macro economic equilibrium is determined.
( 2 marks for the diagram 2 marks for the explanation)
ii. - Within the income - expenditure circular flow injections are considered as the expenses that strengthen the
aggregate demand ( expenditure) (1 marks)
7
- Injections in and open economy are Investment expenditure (I) government expenditure on purchasing
goods and services (G) and exports (X) (1 marks)
- Withdrawals in an income - expenditure circular flow are outflows from the flow that weaken the aggregate
demand (expenditure) for domestic goods and services) (1 marks)
Withdrawals in an open economy are savings (S), net taxes (T) imports (M) (1 marks)
(illustration only through symbols is not sufficient)
iii. - Change in the consumption function
- Change in the autonomous investment
- Change in the government purchases
- Change is the autonomous taxes
- Change in the transfer expenditure ( 4 marks for 4 factors)
iv. Equilibrium National Income Level a.
a) Y =E
E = C+I+G
Y = C+I+G
Y=150 +0.75 Yd+ 200 + 100
Y= 150 + 0.75 (Y —T) + 300
Y = 450 + 0.75 (Y — 60)
Y = 450 + 0.75 Y — 45
Y = 405 + 0.75Y
Y — 0.75 Y = 405
0.25Y = 405
Y = ���
�.�� Y = 1620 (2 marks)
b) ∆� = 200
∆� = ∆�
K = �
�� =
�
���.��=
�
�.��= 4
∆� = 4 x 200 = 800 Y = 800
Y = 1620 + 800 , Y = 2420 (2 marks)
(for the sub question 'a' the calculations made with 400 for 200 are taken as accurate)
c) Govt. expenditure multiplier
(2 marks)
d) consumption expenditure investment expenditure gov. consumption expenditure
(2 marks)
e) consumption expenditure investment expenditure govt. consumption expenditure
(2 marks)
Part B
06&'06&'06&'06&' i. Distinguish between the demand deposits and money substitutes. (4 marks)
ii. What is meant by the policy interest rate of the Central Bank? (3 marks)
iii. Explain the process of how the changes in the policy interest rates affect for the price level and the output?
(4 marks)
iv. Suppose that Rs. 20,000 million which was earned by selling bonds to the Central Bank by a broker company
in share market deposited in a Commercial Bank.
^̂̂̂a&&&& What would be the effect of this transaction towards the money supply? (3 marks)
^̂̂̂b&&&& If the reserve rate is 25% what is the amount of additional credit that can be issued to the total banking
system. (3 marks)
^̂̂̂c&&&& What are the basic conditions relevant for not to create such a credit expansion? (3 marks)
06). i. The deposits made on current accounts in commercial banks by the public are known as demand deposits.
These deposit owners can transact through cheques and these are added to the money supply
a high liquidity asset.
8
Money substitutes are the instruments such as credit cards that can be used as money. This money does
not include in the money supply.
These are temporary medium of exchange (4 marks)
ii. Policy interest rate is the interest rates that are used by the central bank in handling financial policies.
eg:- standard deposit facility rate. Standard lending facility rate bank interest rate (3 marks)
iii. When the central bank changes the interest rate the interest rate structures in the whole economy changes.
When the policy interest is increased rate in the money market also increases and when the interest rate is
declined the interest rate in the money market also declines.
The changes in the interest rate affects for the changes in the aggregate demand also.
eg:- Private investment Purchases of durable consumers' goods purchases on the basis of mortgage
When the interest rate changes the price of assets changes inversely. (4 marks)
iv. a. Because of this deposit an, expansion of the money supply occurs by Rs. 20,000/=
The reason is that the central bank issues new currency to purchase bonds.
b. reserve rate 25%
amount of deposits 20,000
the reserve amount that should be kept 20000 x ��
��� = 5000
Excess reserves 20000 - 5000 = 15000
the deposits that can be created by the system (3 marks)
= 15000 x �
� = 15000 x
�
��
���
= 15000 x 1 x ���
�� = 15000 x 4 = 60000
c. maintaining excess reserves by the commercial banks.
Reduction of demand for credits
out flow of money from the banking system (3 marks)
07) i. Mention two reasons for non-provision of the public goods in the market (2 marks)
ii. What are the common weaknesses that can be identified in the public entrepreneurs in Sri Lanka.
(4 marks)
iii. Distinguish between average tax rate and marginal tax rate (4 marks)
iv. What is meant by the vote on account in a government budget? In which occasions such a vote on account is
presented.? (4 marks)
v. Show the economic impacts of government debt. (4 marks)
vi. Forward two examples for the projects on Public Private Partnership in Sri Lanka. (2 marks)
07). i. - As it is a collective consumption
- those who do not pay cannot be excluded
- Profits cannot be earned ( 2 marks for 2 reasons)
ii. Govt. revenue takes a less value 2010 - 12.7 % 2015 - 13.3% 2016 - 14.2%
- rigidity in government expenditure
- a greater amount of govt. expenditure is on interest payments, wages and salary and transfer payment
(60%)
- insufficiency of govt. revenue on the field of human development such as education, health and social
security.
- inefficiency of the govt. sector earning greater amount of losses by the govt. entrepreneur.
(4 marks for 4 factors)
iii. - Average tax rate is showing the tax money paid as a value of the tax base It is calculated as,
tax rate = total tax money paid x 100
Value of the tax base (2 marks)
- Marginal tax rate is the rate between the change in total tax money (∆T) and the change in the value of the
tax base (∆TB) It is calculated as,
Marginal tax rate = change in the tax money paid x 100
change in the tax base (2 marks)
9
iv. Vote on account is a document that is forwarded to the parliament to get it granted including only the
suggestions on expenses, This is forwarded to the parliament when the appropriation bill relevant to the
coming year cannot be forwarded. If a budget cannot be forwarded this is forwarded to get the permission
for spending
- Occasions where a vote on account is forwarded.
- When there is a war - torn situation in the country
- When there is an unexpected situation such as an election in the country (2 marks)
v. Increasing the govt. debt service expenditure
- Crowding - out effect
- broadening of budgetary deficit as the increases in interest on loan
- Due to the external debt servicing a greater pressure is created on the balance of payment and devaluation
of the foreign exchange
- As more and more loans are taken to pay debt the economy is trapped in debts.
change in priorities of the govt. expenditure.
Weakening of foreign investment falling the credit rating down
(4 marks for any 4 factors)
vi. South Asian terminal entrance project
Colombo South harbour terminal development project
Colombo East harbour terminal development project (2 marks for 2 factors)
08) i. Distinguish between the absolute advantage theory and the comparative advantage theory which is based on
the international trade with examples? (4 marks)
ii. Define the overall balance according to the new balance of payment and show how it is computed?
(4 marks)
iii. Show how the following transactions are recorded as credit and debit in the Balance of Payment according to
the double entry principle
(a) Exporting garments valued USD 400 to America
(b) Starting a garment factory by a local company using 1000 dollars in a foreign county
(c) Receiving an income of investment valued 15 million dollars.
(d) Purchasing shares valued 10 million dollars by a Japanese investor from the Colombo stock exchange
(4 marks)
iv. Mention four non – tariff trade barriers that restrict the free trade (4 marks)
v. What is meant by the reserve assets? What are the asset included in it? (4 marks)
08). i. Absolute advantage theory is the situation of producing a certain good by a country than another country
with a less cost or more amount of output than another country when an equal amount of resources are
used. (1 marks)
Good India Sri Lanka
X 8 4
Y 4 3
According to the above example the absolute advantage of producing X good is received by India. The
absolute damage of producing Y goodp- is received by India. (1 marks)
Comparative advantage theory is, exporting the goods which have comparatively a less opportunity cost
by specializing them, As well the goods which have higher opportunity cost should be imported.
Good India Sri Lanka
X 8 4
Y 4 3
According to the above example the opportunity
Opportunity cost of X good in India = �
�=
�
� Y goods.
In Sri Lanka �
� The opportunity cost of Y good in India
�
� = 2 in Sri Lanka
�
� = 1
�
� .
Accordingly the least opportunity cost of producing X good is owned by India. India earns comparative
advantage of producing X good
10
The Least opportunity cost relating Y good is earned by Sri Lanka. There fore the comparative advantage
of producing Y good is earned by Sri Lanka (1 marks)
ii. According to the new Balance of payment overall balance of the BOP is the change in the net foreign
reserves. here, the net reserve assets at the beginning of the time period and the end of the time period is
taken into consideration.
That is deducting the net reserve assets of the previous year from the net reserve assets of the relevant year
that is considered. (2 marks)
Calculation
net assets at the end of the time period in the year considered = xx
net assets at the beginning of the time period in the previous year = - xx
Change in the net foreign assets / overall balance = xx (2 marks)
iii. a. financial account debit 400 trade account credit 400
b. financial account (direct investment) debit - 1000 financial account credit 1000
c. financial account debit 15 - Primary income account credit - 15
d. financial deposit account debit 10 — Financial account portfolio investment credit 10
(4 marks - 1 marks each)
iv. non rariff trade barriers
import quota system
limitation of export voluntarily
Dumping
Providing production subsidies
govt. policies
trade embargoes
exchange control
standadization of products (4 marks - 1 marks each of the factor)
v. Reserve assets are the net changes in liabitiles relating to the foreign reserve assets and reserves controlled
by the central bank. (2 marks)
Includings
- foreign exchange balances
- reserve facilities of the monetary fund
- Special Drawing rights
- gold financial
- Securities (2 marks for any 2 factors)
09) i. What is meant by the "Economic Growth" ? How is it measured? (4 marks)
ii. What are the major factors that determine the productivity level of a country? (4 marks)
iii. Many inefficiencies of public entrepreneurs can be seen in Sri Lanka at present. What are the factors that
affect for that. (4 marks)
iv. Explain the differences in the Sri Lankan economic structure at present as a percentage of the gross domestic
product. (4 marks)
v. What is meant by underemployment of services? What are the characteristics of that? (4 marks)
09). i. Economic growth is the constant growth in the real gross national product or the real gross domestic
product of the country within a long time period (ten years) By that, a long term expansion of the potential
output in the country is created. (2 marks)
- There are two methods of measuring economic growth. annual percentage change in the real gross
domestic product. annual percentage change in the per capita real gross domestic product or per capital
real gross national product (2 marks)
ii. quality of the labour
technology and techniques
infra - structure facilities
attitudes
innovatives
efficiency in the financial market
11
natural resources in the country
management condition (total 4 marks - 1 marks)
iii. Operating against to the granted methods of the process of purchasing.
misuse of money, wastage, corruption, bribary
weakening of the employer employee relationship
not answering for the audit inquiries
in management
politicalization
not considering the certifications of the govt. trade committees ( total 4 marks 1 mark each)
iv. Economis Structure Contribution to the GDP
agriculture sector 7.1
industrial setor 26.8
service sector 56.5 (2 marks)
Relative contribution of the agricultural sector to the GDP is very low
Relative contribution of the industrial sector to the GDP is greater than the agricultural sector
the relative contribution of the service sector in the Sri Lanka economic structure is greater than both of
the agricultural and the industrial sectors ( 2 marks)
v. - under utilization of services means that under utilization of the labour of the productivity of labour is at a
low level. (2 marks)
Following features can be seen in an under utilization of services.
even though full timely worked there is a less marginal productivity
abence of full - time work
not having employments matching to the qualifications
working less than 35 or 40 hours per week
low level of labour productivity (total 2 marks - 1 mark for each)
10) i. Name the components of the Human Development Index. (3 marks)
ii. Show the classification of countries according to the Human Development Index. (4 marks)
iii. Name four steps that should be taken to develop the competition in Sri Lanka. (4 marks)
iv. Name four sustainable Development goals that are expected to be achieved after 2015. (4 marks)
v. What are the steps that have been taken by the Sri Lankan government to achieve the sustainable development
goals? (5 marks)
10). i. long life ⟶ life - expectancy at birth
medium value of the number of years of school education
knowledeg
Expected number of years in which a child educates
good living condition Purchasing power parity (PPP) per capita gross national income ( USD) (3 marks)
ii. countries with low human development - 0- less than 550
countries with medium human development - 0.551-0.699
countries with high level of human development - 0.700-0.799
countries with very high human development 0.800 or more than that
iii. a need of having a constant national development policy
developing the quality of the infra - structure facilities
limitation of bureaucracy
Research and development and innovative
developing the macro economic stability
iv. limitation of all type of poverty
putting end to the hunger, achieving food security
emphasizing the healthy life and emphasizing the good health to every age group
12
emphasizing the life - long learning with fair and qualitative education relevant to all
women empowerment, achieving the male - female gender equity
existence of within the countries and among the countries
preservation of towns and human settlements. (4 marks)
emphasizing the sustainable use of geographical bio - system
Development of sustainable growth through equal participation and the development of full and productive
employment of services to all (total 4 marks 1 marks for each)
v. Grama shakthi V 20 — 25
National food production programme.
Constructing the first kidney hospital
The closest school is the best school programme.
emphasizing the 25 % of women's participation
Constructing the Moragahakanda reservoir
Green budget and development era
Constructing the mega police harbor city
'wana Ropa' Programme
Paris agreement
( total 5 marks - 1 marks for each)
