Introduction to Economics and Finance

General:

The paper was quiet simple and most of the questions were easy.

Time management and selective study was noticed as the main cause of failure in such an easy paper. In most of the cases, start was found good but at the end, due to misallocation of time or selective study, questions were left unattended or were attended poorly.

There were problems with English response and writing. In many cases the responses were not legible/readable and the examiners had to put extra efforts to make sense out of the response.

Q.1

The students instead of giving the merits and demerits of capitalism wrote the features of capitalism, gaining no marks.

Q.2

Majority of the students did not comprehend this question. They simply showed positive relationship between time and quantity supplied. The difference between the  behaviour of quantity supplied in different periods, such as very short term, short term and long term was mostly ignored.

Q.3

Some of the students did not get it right and gave explanations on giffen goods, inferior and superior goods. Some just mentioned brand name and packaging. Product differentiation due to quality, service of supplier and location of market was largely missing.

Q.4

Most of the students discussed the short term equilibrium correctly but could not explain it in case of  long run. It was expected that the diagram would be discussed but a large number of candidates cared very little about explaining it. Many students showed the diagram relating to long run as short run and vice versa.

Q.5

A lot of students confused the law of diminishing return with the Law of Diminishing Marginal Utility. Some gave a mixture of both laws. In most cases, diagram was not explained. Very few had clear concept of reasons behind the operation of this law.

Q.6

Majority of the candidates correctly explained the concept of division of labour that is splitting up of a production process into number of tasks with each task performed by different labour. However  forms of division such as occupational, complex and geographical etc. were mentioned by a very limited number of candidates.

Q.7

Some students explained consumption and saving separately ignoring the fact that consumption and savings are related to each other and there was no need to discuss them separately. Majority of the students ignored the primary factors such as level of income, available liquidity, interest rate etc. While describing the factors the students were required to explain as to why and how a certain factor affects the saving/consumptions. Instead, most students just repeated by saying, “It affects the saving and consumption”.

Q.8

The overall response of the candidates was satisfactory. Four phases of business cycle that is recession, depression, recovery and boom were correctly identified by them. However, some of the candidates got mixed up while describing them. Many students were of the opinion that the price level varies inversely i.e. it rises in times of depression and falls in times of recovery and boom which is wrong.

Q.9

(a)

Some of the replies completely ignored the main factors which were responsible for the low economic growth for example backwardness of the agricultural sector, lack of  technical know how, poor infrastructure and unprogressive economic policies. A large number mainly emphasized on the political and social factors for example corruption, the relations with the neighboring countries and other cultural factors.

(b)

This part was mostly answered well by the students.

Q.10

(a)

Most candidates correctly identified open market operations, bank rates changes and variation in the reserve requirement as the main tools that are employed by central bank to control the money supply.

(b)

Some of the candidates mentioned such factors like consumption, relations with neighbours, war on terror etc as the determinants of the exchange rates. The main determinants of the exchange rates such as speculation activities, government intervention, balance of payment, interest rates etc. were identified by a limited number of students only.

Q.11

(a)

Most of the candidates wrote the definition of credit rather than credit money. Only few  replies incorporated the examples of credit money such as cheques, bill of exchange, credit cards and bank drafts etc.

(b)

Generally it was handled well with the exception of few candidates who described the functions of money rather than the merits and demerits of paper money.

Q.12

(a)

The candidates were good in explaining meaning of capital market. However, some had an incorrect concept that capital market only means stock exchange.

(b)

Most of the candidates missed out the vital roles of capital market like maturity transformation that is, it converts short term savings in to long term lending and investments.

(c)

Majority of the candidates explained atleast the important instruments of the capital market for example stocks, corporate bonds, mutual fund securities and federal bonds and gained good marks. Many students however wrote about constituents of capital market instead of instruments.