Asda

The Association of Business Executives Diploma

1.11EPAB

EPAB1208

Economic Principles and their Application to Business

morning 1 December 2008

1 Time allowed: 3 hours. 2 Section A consists of a compulsory question comprising five TRUE/FALSE elements. 3 Answer THREE questions from a choice of seven in Section B. 4 All questions carry 25 marks. Marks for subdivisions of questions are shown in brackets. 5 No books, dictionaries, notes or any other written materials are allowed in this examination. 6 Calculators, including scientific calculators, are allowed providing they are not programmable and cannot store or recall information. Electronic dictionaries and personal organisers are NOT allowed. All workings should be shown. 7 Candidates who break ABE regulations, or commit any misconduct, will be disqualified from the examinations. 8 Question papers must not be removed from the Examination Hall.

EPAB1208

© ABE 2008

L/500/3695

Section A All candidates must answer Question 1 Q1 State whether each of the following statements (a–e) is TRUE or FALSE. Explain your answer clearly, using diagrams where appropriate. (a) The following is an example of a normative statement, “The government should always seek to achieve full employment”. (5 marks) Country X has a real national income of £100m and a population of 5 million. Country Y has a real national income of £150m and a population of 10 million. Country Y has a higher per capita national income than Country X. (5 marks) In a simple closed economy the public sector borrowing requirement is equal to tax revenue minus government expenditure. (5 marks) “In the model of perfect competition the sum of producer and consumer surplus is maximised at the long-run equilibrium.” Explain your answer using a diagram. Assume for simplicity that average cost is constant and equal to marginal cost. (5 marks) The Quantity Theory of Money states that, if Velocity (V) and Transactions (T) are constant, an increase in the...