WHATSAP/SMS 09061831432 OR 08127522942 
2019 NABTEB ADVANCE ECONOMICS VERIFIED ANSWERS
2019 NABTEB ADVANCED ECONOMICS
NUMBER ONE
Definition of an industry An industry is a group of firms producing similar products. It is also a term used to refer to any branch of economic activity, such as, the agricultural industry, the manufacturing industry, the mining industry, etc. (b) Distinction between location and localization of industry Location of industry refers to the establishment of an industry in a particular place for reasons associated with social, political and economic considerations. Localization of industry on the other hand, refers to the concentration of firms producing different or similar products in a particular locality. (c) The disadvantages of localization of industry (i) Potential unemployment: Where industries are concentrated, there would be mass exodus of working population to the area. This influx increases the supply of labour which may overtime result in excess supply of labour to the area. Besides, a continuous fall in the demand for the products of the localized industries may lead to retrenchment of workers, thus compounding the unemployment problem in the area. (ii) High cost of living: The influx of people to industrial areas increases the population…
NUMBER one 1b
Types of Economies of Scale
1. Internal Economies of Scale
This refers to economies that are unique to a firm. For instance, a firm may hold a patent over a mass production machine, which allows it to lower its average cost of production more than other firms in the industry.
2. External Economies of Scale
These refer to economies of scale enjoyed by an entire industry. For instance, suppose the government wants to increase steel production. In order to do so, the government announces that all steel producers who employ more than 10,000 workers will be given a 20% tax break. Thus, firms employing less than 10,000 workers can potentially lower their average cost of production by employing more workers. This is an example of an external economy of scale – one that affects an entire industry or sector of the economy.
NUMBER TWO 2A
A balanced budget is a situation in financial planning or the budgeting process where total revenues are equal to or greater than total expenses. A budget can be considered balanced in hindsight after a full year’s worth of revenues and expenses have been incurred and recorded. A company’s operating budget for an upcoming year can also be called balanced based on predictions or estimates.
NUMBER TWO 2B
OBJECTIVES OF A GOVERNMENT BUDGET:
• Economic growth: to promote rapid and balanced economic growth so as to improve living standard of the people.
• Reduction of poverty and unemployment: to eradicate mass poverty and unemployment by creating employment opportunities and providing maximum social benefits to the poor.
• Reduction of inequalities: inequalities of income and wealth are reduced through levying taxes and granting subsidies. Government levies high rate of tax on rich people and lower rate in the lower income group and also provides the latter with subsidies and amenities. Economic progress in itself is not a sufficient goal but the goal must be equitable progress.
• Reallocation of resources: the reallocation of resources is necessary in order to achieve social and economic objectives. The government allocate resources into areas where private initiative is absent such as public sanitation, education, health etc.
• Price stability: to maintain price stability and correct business cycles involving depression characterized by falling output, prices and increasing unemployment.
• Management of public enterprises: to manage public enterprises which are of nature of national monopolies like railways, electricity etc.
NUMBER THREE
• Monopoly Power: ADVERTISEMENTS: …
• Interdependence of Firms: Under perfect competition there are so many small firms and no single firm is strong enough to influence price or output. …
• Conflicting Attitude of Firms: …
• Few firms. …
• Nature of product: …
• Interdependence among firms: …
• Large number of consumers: …
• Indeterminate demand:
NUMBER FOUR 4A
Money income refers to money received in the form of money, rather than in other forms.
NUMBER 4B
The key difference between cost of living and standard of living is that cost of living is the cost of maintaining a certain level of living in a specific geographical region whereas standard of living is the level of wealth, comfort, material goods and necessities available in a geographical region, typically a country.
NUMBER 5A
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments.[a] Financial regulators like Securities and Exchange Board of India (SEBI), Bank of England (BoE) and the U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect investors against fraud, among other duties.
NUMBER 5Bpick any 2
• (i) Insurance Companies. …
• (ii) Pension Funds. …
• (iii) Building Societies. …
• (iv) Investment Trusts. …
• (v) Unit Trust. …
• (vii) Specialized Finance Corporation.
NUMBER SIX 6a
(i) Reproductive Debt:
When a debt has assets to balance it, it is called reproductive debt. For instance, if a state barrows money for spending it on the construction of canals, railways, factories, etc., it is then able to repay the loan from these self liquidating projects.
NUMBER 6B PICK ANY 2
Municipal Bonds
Municipal bonds are a type of debt security instrument issued by agencies of the U.S. government for the purpose of funding infrastructure projects. Municipal bond security investors are primarily institutional investors such as mutual funds.
Corporate Bonds
Corporate bonds are a type of debt security an entity can structure to raise capital from the entire investing public. Institutional mutual fund investors are usually some of the most prominent corporate bond investors but individuals with brokerage access may also have the opportunity to invest in corporate bond issuance as well. Corporate bonds also have an active secondary market which is utilized by both individual and institutional investors.
Companies structure corporate bonds with different maturities. The maturity structuring of a corporate bond is an influencing factor in the interest rate offered by the bond.
Alternative Structured Debt Security Products
There are also a variety of alternative structured debt security products in the market, primarily used as debt security instruments by financial institutions. These offerings include a bundle of assets issued as a debt security. Financial institutions or financial agencies may choose to bundle products from their balance sheet into a single debt security instrument offering. As a security instrument, the offering raises capital for the institution while also segregating the bundled assets.
NUMBER SEVEN
• Limitation # 1. Lack of Securities: Banks cannot expand deposits by granting loans and advances unless proper securities are available. …
• Limitation # 2. The Business Environment: …
• Limitation # 3. Lack of Cash: …
• Limitation # 4. The Habits of the People: …
• Limitation # 5. Leakages: …
• Limitation # 6. The Central Bank’s Policy:
NUMBER EIGHT 8a
An economic development plan is a carefully built framework that’s long-term in scope. It’s used to help communities across diverse situations.
These situations could include:
• a boom economy and a rapidly growing population,
• job creation and retention challenges,
• remaining economically competitive and sustainable in a volatile and dynamic global market,
• shifting from an over-dependence on resource industries, and;
• addressing a stagnating economy and declining population.
This plan is often led by an economic development professional (such as an Economic Development Officer) and it’s typically reviewed on a yearly basis. Every 3-5 years the plan is usually completely updated, to better align with the needs and circumstance of the community.
An economic development plan is usually based on a determined model, and made up of five components: Vision, Mission, Goals, Strategies, and Actions.
NUMBER EIGHT 8B pick any 2
types of economic planning: (1) absolute socialist; (2) partial state socialist; (3) voluntary business; (4) social progressive
number nine 9a pick any 2
1. International Monetary Co-operation:
The foremost objective of the Fund was to establish monetary co-operation amongst the various member countries. IMF provides the machinery for consultation and collaboration on international monetary problems. During the Second World War, IMF had played a vital role to promote monetary co-operation amongst the different countries of the World.
2. To Promote Exchange Stability:
Before the Second World War, great instability was prevailing in the foreign exchange rates of different countries which had adversely affected the international trade. Thus, IMF has the objective to promote exchange stability and to avoid the bad effects of depreciation on exchange rates.
3. To Eliminate Exchange Control:
Another significant objective of IMF is to eliminate the control over foreign exchange. During war period, almost every country has fixed the exchange rate at a particular level. This has adversely affected the international trade. Hence, it becomes inevitable to remove the control over exchange rate by boosting international trade.
4. Establishment of Multilateral Trade and Payment:
IMF aimed at establishing and multilateral trade and payment system in place of old bilateral trade by the elimination of exchange restrictions which hampers the growth of smooth trade relations in the world trade.
NUMBER NINE 9B PICK ANY 2
• Access to information on economic policies of all member countries.
• Opportunity to influence members’ economic policies.
• Access to technical assistance in banking, fiscal affairs, and exchange matters.
• Financial support in times of payment difficulties.
• Increased opportunity for trade and investment.
NUMBER TEN 10 PICK ANY 4
• Simple random sampling. In this case each individual is chosen entirely by chance and each member of the population has an equal chance, or probability, of being selected. …
• Systematic sampling. …
• Stratified sampling. …
• Clustered sampling. …
• Convenience sampling. …
• Quota sampling. …
• Judgement (or Purposive) Sampling. …
• Snowball sampling.
NUMBER 15
objectives of monetary policy are the following:
1. Stabilising the Business Cycle:
Monetary policy has an important effect on both actual GDP and potential GDP. Industrially advanced countries rely on monetary policy to stabilise the economy by controlling business. But it becomes impotent in deep recessions.
:
Keynes pointed out that monetary policy loses its effectiveness during economic downturn for two reasons:
(i) The existence of liquidity trap situation (i.e., infinite elasticity of demand for money) and
(ii) Low interest elasticity of (autonomous) investment.
2. Reasonable Price Stability:
Price stability is perhaps the most important goal which can be pursued most effectively by using monetary policy. In a developing country like India the acceleration of investment activity in the face of a fall in agricultural output creates excessive pressure on prices. The food inflation in India is a proof of this. In such a situation, monetary policy has much to contribute to short-run price stability.
Due to various changes in the structure of the economy in a developing country like India some degree of inflation is inevitable. And mild inflation or a functional rise in prices is desirable to give necessary incentive to producers and investors. As P. A. Samuelson put it, mild inflation at the rate of 3% to 4% per annum lubricates the wheels of trade and industry and promotes faster economic growth.
Price stability is also important for improving a country’s balance of payments. In the opinion of C. Rangarajan, “The increasing openness of the economy, the need to service external debt and the necessity to improve the share of our exports in a highly competitive external environment require that the domestic price level is not allowed to rise unduly”. This is more so in view of the fact that India’s major trading partners have achieved notable success in recent years in achieving price stability.
3. Faster Economic Growth:
Monetary policy can promote faster economic growth by making credit cheaper and more readily available. Industry and agriculture require two types of credit—short-term credit to meet working capital needs and long-term credit to meet fixed capital needs.
The need for these two types of credit can be met through commercial banks and development banks. Easy availability of credit at low rates of interest stimulates investment or expansion of society’s production capacity. This in its turn, enables the economy to grow faster than before.
4. Exchange Rate Stability:
In an ‘open economy’—that is, one whose borders are open to goods, services, and financial flows— the exchange-rate system is also a central part of monetary policy. In order to prevent large depreciation or appreciation of the rupee in terms of the US dollar and other foreign currencies under the present system of floating exchange rate the central bank has to adopt suitable monetary measures. India by the Reserve
:
NUMBER 17
1. Promote economic growth through innovation. Just as we saw at the 2013 International CES®️, innovation and start-ups fuel our economic growth. They are the ultimate job creators who start with ingenious ideas, take risks and create value for the American consumer. Our nation has been built by encouraging entrepreneurship and innovation. Especially in our current economic downturn, it is crucial that we pursue national policies that promote innovation to ensure that there will be enough prosperity to carry on into the next generation.
2. Strategic immigration reform. As other countries aggressively reach out to skilled immigrants, we have made it more difficult for foreign entrepreneurs to come to and stay in America. Our refusal to let more highly skilled immigrants into America is costing jobs, delaying economic recovery and harming our international leadership in innovation and entrepreneurship. We should grant automatic green cards to STEM graduate students from U.S. universities and pass the Dream Act to allow law-abiding people brought to the U.S. as children to become citizens. The Startup Act is another common sense measure that would create green cards for immigrants who register through a business and meet employment and investment benchmarks in the U.S. We should work to expand and remove the country caps on H1-B visas and fix the EB-5 program, which would give visas to immigrants who invest at least $500,000 and create at least 10 jobs.
3. End the war on drugs. We have spent billions, incarcerated millions and made the situation worse. Why not follow Spain’s lead and treat the addicted and decriminalize and tax marijuana? Evidence shows that legalization does not add to drug use and can generate large revenues. Economists have estimated that legalizing marijuana would save the government $7.7 billion per year on enforcement. Of this savings, $5.3 billion would go to state and local governments, while $2.4 billion would be accrued to the federal government. Two states who voted recently to legalize marijuana, Colorado and Washington, are expected to bring in $550 million in revenue combined.
4. Require unemployed workers to volunteer. We encourage unemployment by rewarding the unemployed. All research shows the longer the unemployment payments the longer the jobless stay jobless. By shortening the duration of unemployment insurance and requiring those receiving checks to volunteer at a non-profit, both parties can benefit. By contributing to society, they can gain skills, contacts and references that will help them be successful in the next job they attain and in turn, we would see fewer people claiming unemployment.
NUMBER 19
The following points highlight the three types of contribution that agriculture has made towards economic development. The types are: 1. Factor Contribution 2. Product Contribution 3. Market Contribution.
1. Factor Contribution:
Development of agriculture releases some resources for being transferred to the other sectors. As these resources are productive in nature, we call the transfer of these resources to the non-agricultural sectors as ‘factor contribution’ of agriculture.
Factor contribution can be in the following forms:
(a) Provision of Capital:
The non-agricultural sectors require funds for acquiring material capital. In the initial stages of their development, these funds will be generated in the agricultural sector and then transferred to the other sectors. In a closed economy in the initial stages, it is the agricultural sector which commands most of the income, capital and also labour.
Even when an underdeveloped economy is an open economy, the outside source of capital like foreign aid or foreign commercial investment can make only a limited contribution to the economic development. Further, foreign political influence is likely to accompany such capital and this may not be acceptable to the present day underdeveloped economies.
The transfer of capital to non-agricultural sectors can be voluntary or compulsory. It is voluntary when the agriculturists themselves invest their savings in the industrial projects. The agriculturist industrialist of England and the land owners of Japan present an important example of this type of voluntary flow of capital to the non-agricultural sectors.
The compulsory from of flow of funds is generally brought about by the government of the day through taxation on the agricultural sector its net proceeds being spent for the development of the non-agricultural sectors.
(b) Provision of Labour:
Another factor contribution of agriculture towards economic development is through the release of labour by the agricultural sector for the non-agricultural sectors.
2. Product Contribution:
The product contribution of agriculture towards an overall economic development takes two forms.
ADVERTISEMENTS:
These are described below:
(a) Provision of Wage Goods:
When the non-agricultural sectors are to be developed, people will have to shift from agriculture to various occupations in these sectors. But they will require food for their sustenance even after shifting to new sectors. In fact their demand for food grains is likely to increase as a result of increase in their income after their transfer to the non-agricultural sectors.
The demand for food grains can also increase because of another reason. The farming population still left in agriculture might find its income increased due to higher prices of agricultural products as a result of increased demand. This may spur it to increase its own consumption also.
As the non-agricultural sectors develop, their dependence on agriculture for other contributions like that of capital, labour, raw material etc., is reduced. However, dependence of the non-agricultural sectors on agriculture for provision of wage goods will be as strong as ever unless, of course, new scientific innovations also result in the production of perfect synthetic substitutes for food grains.
(b) Provision of Industrial Raw Materials:
ADVERTISEMENTS:
The other product contribution made by agriculture for the development of the non-agricultural sectors of the economy, especially the secondary sector, is in the form of provision of raw materials.
A study of the history of industrial development of advanced nations will show that the agro-based industries were the first to develop in such countries. There are many reasons for priority being given to agro- based industries in the initial stages of economic development.
Firstly, it is easier to produce raw materials in the agricultural sector. Minerals which form, the other source of industrial raw materials involve extensive use of capital which may be available in the beginning. Secondly, agro-based industries, generally, have flexible techniques of production.
These techniques range from the extremely labour intensive ones to the highly capital intensive ones. This is the case, for example, with agro-based industries like textiles, sugar, grain milling, hide processing etc. In case of such industries, it is open for a firm to produce the commodities with a technique, as determined by the availability of capital etc.
3. Market Contribution:
The contribution focuses attention on the flow of goods generated by the development of the agricultural sector-flow which helps the development of the other sectors.
This contribution can take various forms:
(a) Expanded Market for the Products of Other Sectors:
So far, we have been emphasizing that agricultural development is necessary for providing inputs necessary for the development of other sectors of an economy. However, any sector, for its development, does not only require the necessary inputs for production but also a wide market for its growing production.
Agriculture provides an expanding market for the products of the other sectors in the initial stages of development of the economy. Agricultural sector, while helping the development of the other sectors, also finds the income of its people increasing. This increased income, in turn, leads to an additional demand for the products of other sectors, not only for consumption purposes but also for production.
It may be noted here that, no doubt, the other sectors can sell their products in foreign markets, rather than depend on the domestic market provided by the agriculture sector. However, in practice, it is not wise to rely upon a foreign market in the initial stages of development.
Lack of sufficient knowledge about the foreign countries, excessive competition, unfavourable commercial policies of the foreign countries etc., will make the entry as operation of the domestic firms in foreign markets rather risky and unprofitable.
(b) Flow of Agricultural Products to Other Sectors of the Economy:
Development of agriculture makes another type of market contribution also to the economy. As agriculture develops and its production becomes more market oriented, many other institutions, generally non-agricultural in character, come into existence. These institutions include those providing processing, packing and distribution services.
Categories: Nabteb