AL 2014 Economics_ Predictions for Exam

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Economics

The Final Session

22nd July 2013

P.SUTHAHARAN BBA (Marketing Special) (Col), DipM ACIM

EDUTION INSTITUTE No 6, 3/1, 37th Lane, Colombo - 06 T.P 0773461479

A/L

ECONOMICS PREDICTIONS & FINAL CHECK LIST FOR A/L 2014 EXAMS By Haran

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Tutors Profile

Haran holds a bachelors degree in Business Administration (Marketing Special) from the University of Colombo, with a Post Graduate Diploma in Marketing awarded by the Chartered institute of Marketing (UK). Currently he is reading for his Masters in Economics from Faculty of Arts, University of Colombo. He has 5+ years of experience in teaching economics for advanced level students, and has served as a teacher at Stafford International Colombo. Now working as Senior Business Analysis at a consultancy firm.

A/L Result - Economics - A / Business Statistics- A / Accounting - B, Z score 2.0138 E-mail [email protected] , T.P 0773461479

This material was prepared based on gut feel referring to the following sources

Past exam papers

Withdrawal papers of leading schools (Royal/LC/HFC/Methodist/Visaka)

Prediction by the leading tutors in the industry (Tamil/Sinhala medium)

Questions and suggestions in this tutorial are subjective and directional expectations of the tutor regarding

the 2014 exam Economics paper.

Assumption in preparing this document

Examination department already under critique since there are errors in previous exam (O/L and

A/L exam papers )

Since new examiner to prepare A/L 2014 exam paper, he would probably avoid taking risk by testing

new areas and doing experiment in his first exam paper

So he would prepare his paper, based on previous past papers

Higher likelihood of some of the previous past paper question being repeated (2012/2009)

Black highlighted questions in each sections are of higher importance

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Analysis of Previous Past Papers SECTION A (allocation of marks for each section, highlighted ones are of higher importance

Unit Section 2013 2012 2011 2010 2009 2008

1 Introduction to Economics (Total) 20 20 20 30 30 15

Economic Resources 4 4 4 4 3

Factors of Production |Efficiency |DOL 8 8 9 5 4

Production Possibility curve / Opp.Cost 4 4 6 11 10 8

Economic Systems 4 4 10 6 15 15

2 Demand, Supply, Elasticity & Equilibrium 20 20 20 15 15 15

Demand related Questions 4 4 9 6

Supply Related Questions 4 10

Elasticity (PED/PES/XED) 3

Equilibrium Sum 12 12 8 9 15 15

(Tax(T), Subsidy(S), Mx.Con, Mn.Con Tax Mn Sb Tax Mn Mn

3 Products, Cost curves and Market structure 20 20 10 15 15 00

Production /Return to scale /Diminishing 4 4 6 2 6

Cost Curves 8 4 2

Short Run / Long run/exit 4 8 4

Market Structures 4 8 6 11 9

(PC,Mo,Mc,Op) PC All All PC PC/M

4 National Accounts 20 20 20 15 15 15

Theories related to National accounts 14 6 10 4 4 5

Avoided / Included in National Accounts 9 5 7 5

Production Approach

Expenditure approach 6 5 11

Income Approach 5 4 5

5 Macroeconomic equilibrium 20 20 20 15 00 15

Conditions for equilibrium 6 6 6 5

Simple Economy 4 12 5

Closed economy 8 12 4 5

Multiplier 3 5

Other Theory Questions 4 2 2

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Unit 1: Introduction to Economics This unit is simple and straight forward, could be the unit we have practised most number of

questions.

There will be around 5-7 MCQ from this section (6 Marks)

A definite question for part 2 (10 Marks)

So, altogether a section with 15-17 Marks

Pay more attention for Production possibility curve and Market systems

Key areas to Focus for MCQ Scarcity

Positive and Normative economics

Type of goods Economic goods, free goods

Renewable and Non Renewable

Factors of production (Entrepreneurship/Labour)

PPC, Opportunity cost, showing various situ/shift in PPC

Solving the basic economic problem

Type of economies and their characteristics/features

Productivity, optimum and actual output

Charectistics and differences of market system

Key areas to Focus for Part 2

Key Check List

Economic Resources Differentiate accounting profit and economic profit

Differentiate type of goods (free/economic/public/private/merit)

Factors of production Differentiate full employment and full production? How human capital can be enhanced? Explain the type of capital, and their importance? Explain how factor returns can be optimized?

What you understand by the term optimum product mix? Characteristics and roles of the entrepreneurship? Productivity and how to enhance it? Efficiency and effectiveness, differentiate what can be done to improve?

Production Possibility curve

Explain different type of opportunity cost with the assistance of a diagram Reason for the shape of the PPC curve Factors influence the inward and outward shift of the PPC

Showing different scenarios in the production possibility curve? (Exploitation of resources/mismanagement/recession/decline etc.) Allocation of resources through the PPC

Different economic system

Explain what is meant by allocation problem, production problem and distribution problem Price mechanism and its important functions?

How every economic system solves the basic economic problem? Diffenciate types of economic system Explain what is meant by traditional economic system, transitional economic system and emerging economies

Try to attempt the question if you are familiar with all questions, since the risk of losing marks here is comparatively lower

Use diagram and chart wherever possible, briefly explain if you use such

Better question to start with, since you have attempted this kind of question more number of time in last 2 years

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Unit 2 Analyses the rational behaviour of Households and firm in the market

Roughly there will be around 8-9 MCQ from this section (8-9 Marks)



Pay more attention to Elasticity calculation and Market equilibrium sum with Subsidy or manimum control price

Key areas to Focus for MCQ Reasons for rightwards and leftward shift (D/S)

Identifying consumer / producer surplus

Elasticity (different types)

Calculation based on demand and supply equation

Consumer expenditure and producer income with Elasticity

Excess demand/Supply Excess demand/supply price

Types of goods (griffin goods/inferior/ normal/luxury good)

Changes in the price with tax/subsidy etc.

Consumer tax burden/producer tax burden/deadweight loss

Control prices


Key Check List

Demand & Supply Questions

What are determinants of demand? Explain income effect and substitution effect? What is meant by market equilibrium Define substitution effect and income effect Explain what is meant by derived demand Explain the term Market cleaning price and Stable equilibrium?

Differentiate Economic surplus, consumer surplus and producer surplus Movement along the curve and the movement of the curve differentiate individual demand function and market demand function Discuss the difference between producer surplus and economic profit

Elasticity

Calculation of elasticity for different type of product Elaborate the type of product based on the elasticity

Why elasticity is important, discuss the economic importance of calculating elasticity ( For each elastic model)

Market Equilibrium

Highly likely to check the subsidy or Minimum control price for 10 Marks Equilibrium price and quantity before tax/subsidy Equilibrium price and quantity after tax/subsidy Consumer surplus before T/S Producer surplus before T/S Consumer surplus after T/S Producer surplus after T/S Government subsidy expenses Subsidy benefit bourn by customer and producer Excess demand and Excess supply at the price

Maximum control price Minimum control price Why control price is imposed What should government do to ensure the control price Black market price Social cost Imports with exchange rate local supply, imported supply

This unit is has certain amount of risk , but the return also higher if you do it correctly

All the calculation question might look like simple when you try to attempt, but 100% attention required when working out

If nothing new and complicated, just attempt

Pay attention, You can easily ensure 18-20 marks if you can do this correctly

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Unit 3 Production / Cost curves and Market Structures

There will be 4-6 MCQ from this section (3-4 Marks)



Pay more attention to Returns to scales, diminishing utility and cost curves specially AC and MC

Key areas to Focus for MCQ Nature and function of curves

Interaction point of AC & MC

Conditions for the profit maximization point

Characteristics of the market structures

Short run and long run costs

Explicit and implicit cost

Production and cost curves for different market structures


Key Check List

Production /Return to scale /Diminishing

What is meant by Law of diminishing return? Explain your understanding of the shutdown point? When this will happen? Explain what is meant by sunk cost?

What is meant by economic rent and transfer earning? Distinguish between normal profit and economic profit? Differentiate between return to scale and economies of scale

Cost Curves

Why MC curve travel through the minimum point of the average cost curve?

Explain the relationship between the AFC and AVC Explain how the total product and marginal product curves function?

Market Structures

Discuss the factors based on which the market structure is classified into? Draw the abnormal profit earning situation of the perfect competitive market? Discuss the minimum price at which the perfect competitive firm like to retain at the market? Why? Explain why perfectly competitive firm in the short run sets P=MC and in the long run set P=MC=AC Do you think the concept of perfect competition is important to understand the market behaviour of the real world?

Discuss the features of the perfect competition? How the monopolistic competition differs from the perfect competitive market? Explain the demand curve of oligopoly market? Explain what is meant by revival action? why perfect competitive firm is a price taker Explain what is meant by price differentiation and product differentiation? Explain the concepts of price war and collusion in relation to Oligopoly market?

Use diagrams wherever possible and needed

There might be lot indirect questions from this section, just try to related it with the content you have studied

Answers should be comprehensive and should stick to the point. bluffing would not bring marks in this section

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Unit 4 National Accounts with Macroeconomic framework

There will be around 3-4 MCQ from this section (3-4 Marks)



Pay more attention to Income approach and theories related to National accounting (Specially Underground economics, Importance of NA, dos and donts in NA, graphical methods)

Key areas to Focus for MCQ Things to be avoided in National accounting calculation

Definition for GDP, GNP,NDP

Value added and final output

Few calculation using price index

Nominal and real income

Difference between pricing method (constant current)

Example for the transfer payment /one sided payment

Calculation of growth or inflation percentage


Expected Questions

Theory in National Accounting

What is mean by double counting? How to avoid double counting in National accounting calculation? How to measure the economic growth?

Discuss the importance of national accounting calculation Discuss the limitations of the national accounts calculation Explain what is meant by green accounting?

Other National Accounting Question

What are the components of aggregate national income? Define each of the components? Distinguish between gross domestic fixed capital formation and gross domestic capital formation Differentiate employment income and rental income

Define Investment, and what factors determine the level of investment in a country? Discuss the components of the consumption? Distinguish autonomous consumption and induced consumption what factors will influence the individual demand

Question on National Accounting Calculation

Be familiar with the followings on expenditure approach

Total consumption

Total investment

GDE

Exp.on GDP / Exp.on GNP

NNP

Total resources/ resource utilization

Likely chance of Income approach to be tested this time , Be familiar with the followings,

Net domestic income

Gross domestic income (Factor cost/Market price)

Gross national income

Private income

Disposable income

Household income

This question should be carefully planned & approached before start writing

High risk but return also high

See whether you can answer the entire question

If any new question given for more than 4 marks and you are not sure about answer dont attempt

Do a draft calculation of the sum, before attempting it

Logically structure the answer and write in brief depending on the mark allocated

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Unit 5 Investigate determinants of Macroeconomic equilibrium

Roughly there will be around 4-5 MCQ from this section (4-5 Marks)



Do few question with disposable income, draw C/I/E/Y/S Graphs, revise expenditure multiplier

Key areas to Focus for MCQ Different sectors involved

Role of the each sector and their involvement

AD / AS and its components

Different types of economies ( Simple/closed/open)

Calculation of equilibrium national income (Short one)

Consumption and saving function

Multiplier effect

Income, Saving and Consumption graphical presentation


Basic Questions What are the components of aggregate income and expenditure in the Simple/open economy? Injections and withdrawals/leakages in relation to circular flow of income

What is meant by autonomous consumption and induced consumption? Explain the equilibrium national income in a closed economy?

Multiplier What the difference between investment multiplier and tax multiplier? Explain the term MPC and APC? What is the relationship prevailing among both of them?

Discuss the difference between investment multiplier and transfer multiplier?

Calculation Question This question might include a Disposable income part (Yd) Rework A/L 2009, past paper question. Distinguish between inflationary gap and recessionary gap

Calculate the equilibrium level of income of this economy? If the saving changes, what will happen to the equilibrium national income? Show the changes through the diagram Calculate the investment multiplier and tax multiplier?

This question should be carefully studied before start writing

See whether you can answer the entire question

High risk but return also high

Do a draft calculation of the sum, before attempting it

Use graphs and diagrams to explain concepts

Try to attempt this question if you can secure over 16 marks out of 20

Students should try to attempt at least one of the 2 sums questions from unit 4 and 5; this will help to save time for the rest of the questions

that you are attempting. Try to complete these questions within 20-25 minutes.

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Unit 6 Analysis the Change of the price levels that affects macroeconomic process

Maximum of 2-3 marks MCQ from this section.

Since, Inflation is not tested in last few year examinations, higher possibility to be test with money and banking, unlikely to test as a spate question

There will be 5marks question incorporating monetary policy and fiscal policy with inflation

Sometime, effect of exchange rate also can be tested with this section

There is possible chance for a 7-8 Marks from this unit

Key areas to Focus for MCQ Inflation Rate

Comparing countries on inflation rate

Nominal and real rate of inflation

Different price index and their purpose

Identify the Type of inflation for the given scenario


Basic Questions What is meant by price indices? How to measure the price level changes?

What you understand by the term inflation and what are the consequences of it?

Concepts of inflation Differentiate core inflation and headline inflation , Galloping inflation and creeping inflation

What is meant by the term spiral effect of inflation or spiral inflation?

Different Approaches to the inflation

Explain and differentiate cost push inflation and demand pull inflation? What are reasons for that inflation?

Explain how the inflation could be controlled? (both the cost push inflation and demand pull inflation)

Country specific question Discuss the impact of the exchange rate devaluation on the inflation?

Discuss the measures; the government has taken to control the inflation in Sri Lanka? Discuss the trend of inflation in Sri Lanka in the recent years?

This question is easy to answer

Questions will be very straight forward and will be tested on the theory

But structured and logical answer required

Answers must be in detail depending on the marks offered

Have to think about all the dimensional influence when answering the question

Clearly differentiate the answers into sections when answering a question

Higher possibility of testing current situation of the inflation

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Unit 7 Analyses the contribution of monetary and banking system to the economic process

Around 3-4 marks MCQ from this section.

Part 2 will have certain question from 10 marks


High powered money, repo rates, type of money demand

Key areas to Focus for MCQ Determinant of demand for money

Type of Money

% of some of the type of the money in the market

Money multiplier

Functions of commercial banks and central banks

Bank rate / repo rate/ reserve rate at present

Capital markets in Sri Lanka

Calculations based on reserve ration


Expected Questions

Basic Questions What is meant by high geared money?

What factors influence the demand for money

What are the tool that central bank has in order to control the money supply?

What you understand by the term crowding out effect?

What is meant by moral suasion? What are the conditions required for the banking system to create money?

Discuss the roles and functions of the commercial bank in a countries economy

Discuss the role of central bank in the countries development

Explain the details of the open market operation carried out by central bank

Explain the credit creation process Explain the difference between type of money M2, M2b , M4 etc.

Calculation Question There will be a calculation question for 6 - 8 marks Assets and liabilities of banking system

Calculation of the excess reserve

Value of the loans the bank can provide

Value of the money creation multiplier of the banking system

Showing the balance sheet after the change

This question is easy to answer and straight forward

Detail writing is not required unless its a essay type question for or 6 marks

Make sure that you know the calculation question 100% if you are going to attempt the question.

Must attempt this question, if you can answer more than 80% of the questions

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Unit 8 Investigate the type of intervention of the government to achieve macro-economic objective




Likely chance of Supply side policies and Externality to be tested

Key areas to Focus for MCQ Type of good

Reasons for government intervention

Positive and negative externalities

Reasons for the market failure and government failure

Fiscal policy measures

Taxation

Current contribution of taxation direct/indirect %

% of budget deficit

% of current & capital accounts

Causes for the budget deficit


Expected Questions

Government failure Understand the reasons why government intervene into the economic system

What is the role of government and why its important in market economy?

Differentiate market failure and government failure

What is meant by imperfect information

Externalities Show the positive and negative externalities with the help of graph

List examples for positive and negative externalities

Government budget and taxation

Explain the impact of following budgetary situation (Excess budget, Shortfall budged, balance budget) Differentiate equity and neutrality Calculation of budget deficit/ primary account balance

What measures taken by government to reduce budget deficit? What is meant by universal public good List the purpose of taxation Discuss the principals of taxation

Supply side policies List all supply side policies and its impact? How supply side policies helps to achieve economic growth in a country

Differentiate fiscal policy and monetary policy measures,

This question is easy to answer and straight forward

Detail writing is not required unless its a essay type question for or 6 marks

Maintain the logical sequence of answers if it is a long answer.

Must attempt this question, if you can answer more than 80% of the questions

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Unit 9 Analysis of the effects of International trade and finance




Likely chance of Comparative advantage, different exchange rates and their pros and cons

Key areas to Focus for MCQ Advantage of International trade

Absolute advantage and comparative advantage

Terms of Trade

Static gains and dynamic gains

Export and import structure - % high imports /exports

Protectionism policies

Balance of payment and its composition

Exchange rate system ( real and nominal)

Effects of globalization

Appreciation and depreciation effects


Expected Questions

Theories of International Trade

Why countries involve in international trade

What are the determining factors of comparative advantage

Explain nominal and real exchange rates

Exchange Rate Discuss advantages and disadvantages of fixed and floating exchange rate system Explain what is meant by J-Curve effect

What factors influence the exchange rate of Sri Lanka? Discuss whether depreciation of the currency will bring the positive effect to the economy always

Balance of Payment Status of the current account balance of Sri Lanka List the component of BOP

What are consequence of increase in imports in Sri Lanka? What are consequences of decrease in exports in Sri Lanka?

BOP calculation Calculation question on BOP

Protectionism Discuss the arguments for and against protectionnism

Detail and logical writing is required

Should attempt only if you are familiar with the question

Avoid taking risk if this is a new type of question.

Relate current statistics when you are answering balance of payment questions

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Unit 10 & 11 Economic growth & development, SL Performance since independence




Likely chance of Multi-dimensional poverty, Poverty reduction in Sri Lanka Mihanda Chinthanaya unstoppable Sri Lanka

Key areas to Focus for MCQ Poverty Rates

Un employment rates

Labour participation rate

Government development policies

Current trends in economic development

Comparison between countries

In equality /gini coefficient

Measures of economic development

Key social indicators HDI /MDPI

Sectorial contribution to GDP


Expected Questions

Multi dimensional poverty index

What are the components of poverty index

Discuss the measures taken to reduce poverty in Sri Lanka

Discuss why Sri Lanka is ahead of all south Asian countries in terms of health care indicators

Population Discuss the consequences to the economy due to aging population

What factors determine the population change

Development Importance of investment Importance of spending on investment

Mahindra Chinthanya Unstoppable Sri Lanka

Detail and logical writing is required

Should attempt only if you are familiar with the question

Avoid taking risk if this is a new type of question.

Relate current statistics when you are answering balance of payment questions

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AL 2014 Economics_ Predictions for Exam