National Economics And Financial Management Quiz

1. Specialisation and trade will increase total output available. Therefore, it is best for a person to specialise in the production of the good in which he has ___________.

More resources

Absolute advantage

Comparative advantage

Higher opportunity cost

Specialization and trade allow individuals or countries to produce more efficiently and trade for other goods. It is best for a person to specialize in the production of the good in which they have a comparative advantage. This means they can produce the good at a lower opportunity cost compared to other goods. Unlike absolute advantage, which focuses on the ability to produce more of a good using the same amount of resources, comparative advantage considers the trade-offs and benefits of focusing on specific goods where they are relatively more efficient. This principle forms the basis of international trade and economic theory on the benefits of specialization.

Explanation

Specialization and trade allow individuals or countries to produce more efficiently and trade for other goods. It is best for a person to specialize in the production of the good in which they have a comparative advantage. This means they can produce the good at a lower opportunity cost compared to other goods. Unlike absolute advantage, which focuses on the ability to produce more of a good using the same amount of resources, comparative advantage considers the trade-offs and benefits of focusing on specific goods where they are relatively more efficient. This principle forms the basis of international trade and economic theory on the benefits of specialization.

2. Which of the followings is not one of the top 3 largest stock exchange markets in the world (by 2009)?

New York Stock Exchanges

NASDAQ

The London Stock Exchange

Toronto Stock Exchange

As of 2009, the top three largest stock exchanges in the world by market capitalization were the New York Stock Exchange (NYSE), NASDAQ, and the Tokyo Stock Exchange. The Toronto Stock Exchange, while significant, did not rank among the top three largest stock exchanges during that time. The London Stock Exchange is another major global financial marketplace but was not consistently in the top three when considering market capitalization in comparison to the NYSE, NASDAQ, and Tokyo Stock Exchange around 2009.

Explanation

As of 2009, the top three largest stock exchanges in the world by market capitalization were the New York Stock Exchange (NYSE), NASDAQ, and the Tokyo Stock Exchange. The Toronto Stock Exchange, while significant, did not rank among the top three largest stock exchanges during that time. The London Stock Exchange is another major global financial marketplace but was not consistently in the top three when considering market capitalization in comparison to the NYSE, NASDAQ, and Tokyo Stock Exchange around 2009.

3. Other things being equal, the slope of the aggregate expenditures curve will increase as a result of:

A decline in the size of the inflationary gap.

A decline in the general price level.

An increase in the MPC.

An increase in the MPS.

The slope of the aggregate expenditures curve in an economy is directly influenced by the marginal propensity to consume (MPC). The MPC measures the proportion of additional income that is spent on consumption rather than being saved. Thus, an increase in the MPC implies that consumers are likely to spend a higher fraction of any increase in their income, which leads to a steeper slope of the aggregate expenditures curve. This is because the curve, which represents the total spending in the economy at various levels of national income, will rise more rapidly with increases in income if consumers are spending more intensively. In contrast, the marginal propensity to save (MPS) has the opposite effect; an increase in the MPS would flatten the slope since more income is saved rather than spent. The other options listed do not directly affect the slope of the aggregate expenditures curve in this manner.

Explanation

The slope of the aggregate expenditures curve in an economy is directly influenced by the marginal propensity to consume (MPC). The MPC measures the proportion of additional income that is spent on consumption rather than being saved. Thus, an increase in the MPC implies that consumers are likely to spend a higher fraction of any increase in their income, which leads to a steeper slope of the aggregate expenditures curve. This is because the curve, which represents the total spending in the economy at various levels of national income, will rise more rapidly with increases in income if consumers are spending more intensively. In contrast, the marginal propensity to save (MPS) has the opposite effect; an increase in the MPS would flatten the slope since more income is saved rather than spent. The other options listed do not directly affect the slope of the aggregate expenditures curve in this manner.

4. The table below shows the changing Certificate of Entitlement (COE) premium for cars smaller than 1600cc in 2009.

Month	Price
March	$3864
June	$11690
October	$16231
December	$17615

Which reason is false about the cause of the changing price pattern?

Fall in supply of COE

Fall in income of consumers

Rising cost of public transport

None of the above

The false reason about the cause of the changing price pattern for the Certificate of Entitlement (COE) premium for cars is the "Rising cost of public transport." The COE price is primarily determined by the demand for cars and the limited supply of COEs available, which are issued to control vehicle numbers in Singapore. A rise in the cost of public transport would typically lead to an increase in demand for private vehicles as an alternative, potentially pushing COE prices higher, not explaining a fall in prices. However, the table shows prices consistently rising, not falling, indicating that factors like a fall in the supply of COE or possibly an increase in consumer demand for cars, not public transport costs, are more likely impacting COE prices.

Explanation

The false reason about the cause of the changing price pattern for the Certificate of Entitlement (COE) premium for cars is the "Rising cost of public transport." The COE price is primarily determined by the demand for cars and the limited supply of COEs available, which are issued to control vehicle numbers in Singapore. A rise in the cost of public transport would typically lead to an increase in demand for private vehicles as an alternative, potentially pushing COE prices higher, not explaining a fall in prices. However, the table shows prices consistently rising, not falling, indicating that factors like a fall in the supply of COE or possibly an increase in consumer demand for cars, not public transport costs, are more likely impacting COE prices.

5. Which of the followings is not a protection against credit card fraud?

Never do online shopping by using credit card

Signing on the credit card

Check the bills regularly

Reporting to the issuer if the card lost or stolen

The suggestion to "Never do online shopping by using a credit card" is not considered a practical protection against credit card fraud. This advice recommends avoiding the use of credit cards online altogether, which undermines one of the primary conveniences of having a credit card and is not feasible for many consumers who rely on online shopping. More effective and realistic protections include signing on the credit card, which can help verify the cardholder's identity; regularly checking credit card bills to promptly spot and address any unauthorized transactions; and immediately reporting to the card issuer if the card is lost or stolen, thus preventing potential fraudulent use. These measures offer significant protection while allowing consumers to enjoy the benefits of credit cards.

Explanation

The suggestion to "Never do online shopping by using a credit card" is not considered a practical protection against credit card fraud. This advice recommends avoiding the use of credit cards online altogether, which undermines one of the primary conveniences of having a credit card and is not feasible for many consumers who rely on online shopping. More effective and realistic protections include signing on the credit card, which can help verify the cardholder's identity; regularly checking credit card bills to promptly spot and address any unauthorized transactions; and immediately reporting to the card issuer if the card is lost or stolen, thus preventing potential fraudulent use. These measures offer significant protection while allowing consumers to enjoy the benefits of credit cards.

6. Which of following is true about CPF?

It provides housing grant for Singaporean and Singapore PR.

The ordinary and special accounts can be used for investment.

It has two accounts: ordinary and special.

It can be used to repay the outstanding education loans.

The Central Provident Fund (CPF) in Singapore is a comprehensive social security savings plan that provides working Singaporeans and Permanent Residents with security in retirement, healthcare, home ownership, and more. It is accurate that CPF consists of more than just two accounts; it includes the Ordinary Account, Special Account, and Medisave Account. Therefore, the statement that "It has two accounts: ordinary and special" is false. CPF does indeed allow for the use of funds in both the Ordinary and Special accounts for various investments under specific conditions, making the statement about investment usage correct. While CPF funds can indeed be used for education and housing, the provided options about a housing grant and repaying education loans are not accurately phrased. CPF provides loans and grants for housing but doesn’t specifically mention grants for both Singaporeans and PRs under a general context, and while it supports education costs, the specific mention of repaying outstanding education loans requires more precise context.

Explanation

The Central Provident Fund (CPF) in Singapore is a comprehensive social security savings plan that provides working Singaporeans and Permanent Residents with security in retirement, healthcare, home ownership, and more. It is accurate that CPF consists of more than just two accounts; it includes the Ordinary Account, Special Account, and Medisave Account. Therefore, the statement that "It has two accounts: ordinary and special" is false. CPF does indeed allow for the use of funds in both the Ordinary and Special accounts for various investments under specific conditions, making the statement about investment usage correct. While CPF funds can indeed be used for education and housing, the provided options about a housing grant and repaying education loans are not accurately phrased. CPF provides loans and grants for housing but doesn’t specifically mention grants for both Singaporeans and PRs under a general context, and while it supports education costs, the specific mention of repaying outstanding education loans requires more precise context.

7. An agent is trying to gather information about his prospect, Mr Ong. Which of the following information should the agent determine?

(i) Whether Mr Ong needs life insurance
(ii) Whether he has any health conditions that could make him uninsurable
(iii) Whether Mr Ong can afford to buy life insurance

(i) and (ii) only

(i) and (iii) only

(ii) and (iii) only

(i), (ii) and (iii)

An insurance agent evaluating Mr. Ong's suitability for life insurance should comprehensively assess several crucial aspects to ensure any recommendation is appropriate and feasible. First, the agent needs to determine if there is a genuine need for life insurance, which involves understanding Mr. Ong's financial and family circumstances to evaluate the potential financial risks to his dependents. Secondly, the agent should investigate any health conditions Mr. Ong might have that could impact his insurability, as this affects both the availability and cost of the insurance policy. Finally, it's important to establish whether Mr. Ong is financially capable of affording life insurance premiums without undue strain, ensuring the policy is sustainable over time. Collectively, these evaluations are essential for tailoring insurance advice that genuinely fits Mr. Ong's needs and means.

Explanation

An insurance agent evaluating Mr. Ong's suitability for life insurance should comprehensively assess several crucial aspects to ensure any recommendation is appropriate and feasible. First, the agent needs to determine if there is a genuine need for life insurance, which involves understanding Mr. Ong's financial and family circumstances to evaluate the potential financial risks to his dependents. Secondly, the agent should investigate any health conditions Mr. Ong might have that could impact his insurability, as this affects both the availability and cost of the insurance policy. Finally, it's important to establish whether Mr. Ong is financially capable of affording life insurance premiums without undue strain, ensuring the policy is sustainable over time. Collectively, these evaluations are essential for tailoring insurance advice that genuinely fits Mr. Ong's needs and means.

8. Which of the following should you not consider before investing?

My investment objective

My desired rate of return

Historical performance of investment I am considering

My risk appetite

While all the listed factors are generally important in the context of investing, the option "My desired rate of return" is something that should be approached with caution and not considered in isolation before investing. The desired rate of return might lead an investor to have unrealistic expectations that are not aligned with market realities or their risk tolerance. Investment objectives, the historical performance of the investment, and one's risk appetite are crucial and more grounded factors that should definitely influence investment decisions. These elements help shape a realistic and strategic approach to investing based on personal financial goals, past market trends, and the level of risk one is comfortable handling, thereby guiding more balanced and informed investment choices.

Explanation

While all the listed factors are generally important in the context of investing, the option "My desired rate of return" is something that should be approached with caution and not considered in isolation before investing. The desired rate of return might lead an investor to have unrealistic expectations that are not aligned with market realities or their risk tolerance. Investment objectives, the historical performance of the investment, and one's risk appetite are crucial and more grounded factors that should definitely influence investment decisions. These elements help shape a realistic and strategic approach to investing based on personal financial goals, past market trends, and the level of risk one is comfortable handling, thereby guiding more balanced and informed investment choices.

9. In price discrimination, who should be charged the lowest price?

The poorest

The group with a positive price elastic demand

The group with a negative inelastic demand

The group with a perfectly elastic demand

In price discrimination, the group that should be charged the lowest price is the one with a perfectly elastic demand. This means their demand for a product is highly sensitive to changes in price; even a small increase in price can lead to a significant drop in the quantity demanded. For such consumers, any higher price would lead them to stop purchasing the product entirely, hence charging a lower price maximizes the seller's revenue from this group by ensuring they continue to buy the product. This strategy allows sellers to capture the maximum possible market share and revenue from different segments based on their price sensitivity.

Explanation

In price discrimination, the group that should be charged the lowest price is the one with a perfectly elastic demand. This means their demand for a product is highly sensitive to changes in price; even a small increase in price can lead to a significant drop in the quantity demanded. For such consumers, any higher price would lead them to stop purchasing the product entirely, hence charging a lower price maximizes the seller's revenue from this group by ensuring they continue to buy the product. This strategy allows sellers to capture the maximum possible market share and revenue from different segments based on their price sensitivity.

10. The current account surplus(CA=Y-X>0) is equal to the sum of (Y=income, X=net import, T= tax, G= government expenditure, S=savings, I=investment) :

The government deficit (T-G<0) and the private surplus (S-I>0).

The government surplus (T-G>0) and the private surplus (S-I>0).

The government deficit (T-G<0) and the private deficit (S-I<0).

The government surplus (T-G>0) and the private deficit (S-I<0).

A current account surplus (CA = Y - X > 0, where Y is income and X is net imports) indicates that a country is exporting more than it is importing, leading to a net inflow of funds from abroad. This surplus corresponds to the situation where both the government and the private sector are saving more than they are spending or investing. Specifically, a government surplus (T-G > 0) occurs when the taxes collected exceed government expenditures, showing government savings. Simultaneously, a private surplus (S-I > 0) occurs when private savings surpass private investments, indicating that the private sector is also saving more than it is investing. These combined surpluses mean that the nation as a whole is accumulating savings, contributing to the current account surplus, which reflects the country's net lending to the rest of the world.

Explanation

A current account surplus (CA = Y - X > 0, where Y is income and X is net imports) indicates that a country is exporting more than it is importing, leading to a net inflow of funds from abroad. This surplus corresponds to the situation where both the government and the private sector are saving more than they are spending or investing. Specifically, a government surplus (T-G > 0) occurs when the taxes collected exceed government expenditures, showing government savings. Simultaneously, a private surplus (S-I > 0) occurs when private savings surpass private investments, indicating that the private sector is also saving more than it is investing. These combined surpluses mean that the nation as a whole is accumulating savings, contributing to the current account surplus, which reflects the country's net lending to the rest of the world.