1. Explain exchange rate depreciation.

A fall in the external value of a currency as measured by its exchange rate against other currencies.If $1 falls in value from € 2 to € 1.5, the value of the dollar has depreciated is value.

2. Explain exchange rate appreciation.

A rise in the external value of a currency as measured by its exchange rate against other currencies.If $1 rises from € 1.5 to € 1.8, the value of $ has appreciated.

3. Give a brief account on factors that influence the demand for and the supply of a currency on the foreign exchange market.

Demand for the currency is made by:

a. Foreign buyers of domestic goods and services.

b. Foreign tourists spending money in the country.

c. Foreign investors.

Supply of currency is made by:

a. Domestic businesses buying foreign imports.

b. Domestic population traveling abroad.

c. Domestic investors abroad.

4. "There are some factors, other than product prices,that can determine the international success - or competitiveness of a business" - Which are they?

The factors include:

1. Product design and innovation.

2. Quality of construction and reliability.

3. Effective promotion and extensive distribution.

4. Providing after sales service.

5. Investment in trained staff and modern technology in production.

5. Explain macro-economic policies.

Macro-economic policies are designed to impact on the whole economy - or the macro-economy. They mainly operate by influencing the level of total or aggregate demand in the economy.

6. What is fiscal policy?

Fiscal policy is concerned with decisions about government expenditure,tax rates and government borrowing.They operate largely through the government's annual budget decisions.

7. Give examples for government expenditure and government revenue.

Government expenditure programmes include social security,health service,education defense and law and order.The government raises finance to pay for these schemes through taxation and the main tax revenues come from income tax,value added tax,corporation tax and excise duties.

8. Distinguish between government budget deficit and government budget surplus.

When the value of government spending exceeds revenue from taxation it is known as government budget deficit.And when the taxation revenue exceeds the value of government spending it is known as government budget surplus.

9. Explain monetary policy.

Monetary policy is concerned with decisions about the rate of interest and the supply of money in the economy.

10. "Using higher interest rates during periods of inflation to control money supply will have an impact on businesses". How?

Monetary policy of charging higher interest rates will affect business in three main ways.

1. Increases interest costs and reduces profits for business that have very high debts.

2. Reduces consumer borrowing and their reduces demand for goods bought on credit. Example : Houses, cars, washing machines.

3. It tends to lead to an appreciation of the country's exchange rate.

11. Identify the problems that are faced by an industry on account of frequent appreciation and depreciation of a currency against other currencies.

These problems include:

a. Fluctuating prices of imported raw materials and components making costing of products difficult.

b. Fluctuations in export prices and overseas competitiveness, which lead to unstable levels of demand.

c. Uncertainty over profits to be earned from trading abroad or from investing abroad - the value of overseas assets also varies with currency fluctuations.

12. Mention the government policies that cum to increase industrial competitiveness (supply-side policies).

Three examples of policies that could have this effect are:

1. Low rates of income tax.

2. Low rate of corporation tax.

3. Increasing labour market flexibility and labour productivity.

13. Define market failure.

Market failure is a situation when markets fail to achieve the most efficient allocation of resources and there is under or over production of certain goods or services.

14. What is income elasticity of demand?

Income elasticity of demand measures the responsiveness of demand for a product after a change in consumer incomes.

15. Why us the income elasticity for normal goods is positive and between 0 and 1?

Income elasticity of normal goods is positive and between 0 and 1 because as consumer incomes rise, the demand for these goods may also increase,but by a smaller proportion.Normal goods tend to be essential or necessity goods.

16. Give example for inferior goods.

Examples include second-hand goods,such as furniture,'economy' own-brand food products,poorer cuts of meat etc.