CIMA BA1 Fundamentals of Business Economics: mock exams and practice questions

Sample question 1 · A · Macroeconomic and institutional context of business

In the economy of Veloria, out of each extra $1 of national income households save $0.15, pay $0.20 in taxes and spend $0.15 on imports. The government increases its spending by $40 billion. Assuming no other changes, by how much will equilibrium national income rise?

1. A $80 billion
2. B $266.67 billion
3. C $114.29 billion
4. D $20 billion

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Answer: A. In an open economy with a government, the multiplier = 1 / marginal propensity to withdraw, where withdrawals are savings, taxes and imports.

- MPW = MPS + MPT + MPM = 0.15 + 0.20 + 0.15 = 0.50
- Multiplier = 1 / 0.50 = 2
- Change in national income = $40bn x 2 = $80bn

Each round of spending leaks out of the circular flow through all three withdrawals, so ignoring any of them overstates the multiplier.

Sample question 2 · B · Microeconomic and organisational context of business

Northvale City Council runs a road safety programme whose stated objective is to reduce road accidents near schools by 30% within three years. The council's auditors are assessing the extent to which the programme has achieved this objective. Which aspect of value for money are they assessing?

1. A Efficiency
2. B Economy
3. C Equity
4. D Effectiveness

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Answer: D. Not-for-profit and public sector organisations are usually assessed on value for money, often described by the 3Es:

- Economy: spending less (minimising the cost of inputs).
- Efficiency: spending well (maximising outputs per unit of input).
- Effectiveness: spending wisely (achieving the organisation's objectives).

Measuring progress against the 30% accident-reduction objective is a test of effectiveness.

Sample question 3 · C · Informational context of business

Hartwell Stores collects a large volume of material about its business each day. Which of the following is information rather than data?

1. A A file containing the details of 40,000 individual till transactions recorded today
2. B Temperature readings logged every minute by sensors in the store freezers
3. C A report showing that this month's sales in the North region are 12% below budget, with the main causes identified
4. D A list of the postcodes of every customer who joined the loyalty scheme this week

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Answer: C. Data are raw, unprocessed facts and figures. Information is data that has been processed (organised, summarised, analysed or compared) so that it has meaning and is useful to a particular user for decision making. The same items can be information for one user and data for another, but a variance report with explanations is clearly processed for management use.