Fundamentals of Business Economics (BA1) Free Practice Test

Question 1

Company X's government has a fiscal surplus. However, this has led to less investment in Company X's economy and an increased rate of unemployment.
Which of the following best describes how a fiscal surplus might be achieved, and why it may be necessary for a government to achieve one?

A. When taxation exceeds public expenditure, and in order to limit inflation

B. When taxation and public expenditure are equal, and personal debt decreases

C. When taxation and public expenditure are equal, and personal debt increases

D. When public expenditure exceeds taxation, and in order to increase inflation

Correct Answer: A

Question 2

A regressive tax is defined as one where:

A. The proportion of income paid in tax rises as income falls

B. The amount of tax paid by a taxpayer falls as income rises

C. The rate of tax is different for different income levels

D. The tax is levied on expenditure not income

Correct Answer: A

Question 3

If an economy went into a recession, which industry would experience the largest proportionate fall in sales, output and employment?

A. Petrol retailing

B. Retail supermarkets

C. Luxury good manufacturers

D. Food processing industry

Correct Answer: C

Question 4

All of the following were features of the financial crisis of 2008 except one. Which ONE is the exception?

A. A rise in the volume of mortgage defaults

B. A sharp fall in rate of interest on inter-bank lending

C. A severe contraction in inter-bank lending

D. A chronic shortage of liquidity in the banking system

Correct Answer: B

Question 5

Which of the following would tend to make the market supply of a good price inelastic?

A. Many firms in the industry have unused production capacity.

B. There are few barriers to entry into the industry.

C. Most firms in the industry have high stock levels of finished goods.

D. Newly employed workers in the industry require high levels of initial training.

Correct Answer: B

Question 6

One of the features of an oligopoly market is that the pricing strategy of producers

A. tends to ignore expectations about consumer reactions

B. is constrained by the absence of barriers to entry into the industry

C. is conditioned by the expected reaction of rival producers

D. is largely determined by government competition rules

Correct Answer: C

Question 7

A business has a short-term problem with its payments exceeding its receipts. Which TWO of the following would be appropriate for meeting this financial shortfall?

A. A leasing arrangement

B. Issuing shares

C. A bank overdraft

D. A bill of exchange

E. A mortgage

Correct Answer: B,C

Question 8

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:

Correct Answer:

0.80

Question 9

The Lingford Miracle Association is a registered charity. It is closely associated with Lingford General Hospital. The charity has a number of goals.
Which of the following could potentially be goals set out by the Lingford Miracle Association given the information about the organisation that has been outlined?

A. To provide care for those who are terminally ill

B. To encourage members of the public to invest in the organisation through buying shares

C. To maintain a reasonable profit which can then be given as dividends to shareholders

D. To use the funding provided by government to further the primary cause of the organisation

E. To offer bonuses to the managing director of the organisation when a certain number of sales is reached in a year

Correct Answer: A

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CIMA Fundamentals of Business Economics (BA1) Free Practice Test