12 marks
Define ‘business cycle’.
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Economic Issues (Cambridge (CIE) IGCSE Business)
Exam Questions
2 hours20 questions
22 marks
Identify two government economic objectives.
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32 marks
Define ‘economic growth’.
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44 marks
Case Study
CTF is a public limited company. It manufactures beds using batch production. The Operations Director is using break-even analysis to calculate the margin of safety for children’s beds. An extract from CTF’s output data is shown in the below table. The Operations Director wants to know how an increase in inflation might affect CTF. She knows there are many environmental pressures that a manufacturing business could respond to.
Extract from CTF’s output data (children’s beds per month) | |
Break-even output | 14 000 |
Current level of output | 18 000 |
Maximum factory output | 25 000 |
Outline two ways an increase in inflation might affect CTF.
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54 marks
Case Study
CPK operates 5 sports clubs. Each club offers a range of activities including gym and yoga classes. CPK uses job enrichment to keep its 60 employees well-motivated. Having the right marketing mix is important to CPK’s success. The Finance Director is analysing CPK’s financial statements. An extract is shown in Table 3.1. He wants to know how an increase in taxation might affect CPK’s business.
Extract from CPK’s financial statements | ||
2020 | 2021 | |
Current ratio | 1.6 | 1.3 |
Profit margin | 12% | 10% |
Non-current assets | $2m | $2m |
Outline two ways CPK might be affected by an increase in taxation.
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62 marks
Define ‘recession’.
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74 marks
State the four stages of the business cycle.
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84 marks
Case Study
UDig is a large mining company based in country B. UDig is in the private sector. It supplies businesses in country B with 30% of the coal they need and the rest is imported.
UDig now has eight mines but plans to close two of them. This will threaten 1800 employees with redundancy. The Managing Director said: ‘I blame the appreciation of country B’s exchange rate and new legal controls, including those to protect the environment. The Government should help private sector businesses.’
Outline two ways that the appreciation of country B’s exchange rate might affect UDig.
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94 marks
Case Study
Gino owns a fast-food restaurant selling fried chicken and potato fries. He employs 5 full-time chefs and 12 part-time workers to serve the food. Communication is important and Gino has regular meetings with his part-time employees to keep them informed about any changes in the menu. It took 3 years before Gino’s business was able to break-even. He aims to achieve a Return on Capital Employed (ROCE) of 10%. Gino is always looking for ways to increase the number of customers. Inflation may be a problem for Gino’s business.
Outline two problems inflation might cause Gino’s business.
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16 marks
Do you think businesses will be more affected by new legal controls to protect the environment than an increase in interest rates? Justify your answer.
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28 marks
Explain the effect of the following changes on GJ.
Depreciation in the exchange rate of country Z
Increase in income tax in country Z
Refer to the following insert when answering the question
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36 marks
Case Study
NSN is a multinational company. It makes cars. Over the years, technology has changed production methods. NSN uses just-in-time inventory control in all its factories. NSN plans to open a new factory in country Z creating 7,000 jobs. Country Z’s Government has offered an $80m grant to NSN. A spokesperson for NSN said: ‘Governments should support business activity. There were also other factors that influenced our decision to build the new factory there including the possible effects of economic growth.’
Explain two ways in which an increase in economic growth might affect NSN’s decision to build a new factory in country Z.
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46 marks
Case Study
Aurelie is a sole trader. She started her small hotel a year ago using government support.
Aurelie knew it would be important to build good customer relationships. Aurelie wants to analyse her financial statements using ratio analysis. An extract is shown in the below table.
She is worried about how the Government’s plan to introduce a new tourist tax of $1 per tourist per night might affect her business.
Extract of Aurelie’s Income statement for 2020 ($) | |
Revenue | 5 600 |
Cost of sales | 1 800 |
Gross profit | X |
Expenses | 2 400 |
Profit | Y |
Explain two ways that the introduction of a new tourist tax might affect Aurelie’s business.
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56 marks
Do you think a reduction in the level of unemployment always benefits businesses? Justify your answer.
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66 marks
Do you think all businesses benefit from an increase in government spending? Justify your answer.
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78 marks
Explain two possible effects on SA of the increase in the rate of inflation in country X.
Refer to the following insert when answering the question
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112 marks
Consider how the following three changes might affect GJ.
All jewellery packaging must state in which country the product has been made
Country Z has entered a boom phase of the business cycle
A higher percentage of people in country Z use mobile (cell) phones
Which change is likely to have the most effect on GJ’s profit? Justify your answer.
Refer to the following insert when answering the question
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212 marks
Consider the effects on SSM of the following changes in country Y:
Increase in employment
Increase in inflation
Which effect is likely to have the greatest impact on SSM’s profit? Justify your answer.
Refer to the following insert when answering the question
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312 marks
Using Appendix 3 and other information, consider how the following three changes in country Z may affect VP.
Increase in interest rates.
Depreciation of country Z’s exchange rate.
New legal controls which require all restaurants to list the ingredients in their meals.
Which change is likely to have the greatest effect on VP's profits? Justify your answer.
Refer to the following insert when answering the question
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412 marks
Explain how the following two changes are likely to affect The BB Health Spa:
lower income tax in country X
increase in interest rates in country X.
Which change is likely to have the most effect on profit? Justify your answer.
Refer to the following insert when answering the question
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