1995 - JAMB Economics Past Questions and Answers - page 3

OPEC's primary objective is to coordinate and unify the petroleum policies of its member countries and to ensure the stabilization of oil markets to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry. A key way they achieve this is by presenting a united front to influence global oil prices, often with the aim of increasing them.

The sharp increase in prices of goods and services during the last quarter of 1994 in Nigeria was most likely due to the introduction of the Value Added Tax (VAT). VAT is a consumption tax added to the value of goods and services at each stage of production or distribution, which often leads to price increases for consumers.

Here's why the answer is C:

• Inflation and Money Supply: Inflation is often caused by too much money chasing too few goods and services. Reducing the money supply decreases the amount of money available in the economy, which can help to cool down demand-pull inflation.
• Why other options are less effective:
  • A: Reducing imports might help a little, but it doesn't directly address the root cause of inflation.
  • B: Increasing production is a good long-term strategy but takes time and may not immediately curb inflation.
  • D: Price control boards can distort the market and are often ineffective in controlling inflation in the long run.

A bank is said to be distressed when it experiences a serious liquidity crisis. This means the bank is unable to meet its financial obligations as they become due, such as withdrawals by depositors. This can lead to the bank's failure.

The Central Bank restricts commercial banks' credit expansion through several mechanisms.

• Demand for increased special deposit: Requiring commercial banks to hold a larger portion of their deposits as special deposits with the Central Bank reduces the funds available for lending, thereby limiting credit expansion.

• Decrease the cash ratio: This action would increase the amount of money available for lending and would not restrict credit expansion.

• Buy securities in the open market: This injects money into the banking system, allowing for more lending and thus expanding credit.

• Reduce the rate of interest at which banks borrow from it: This is also known as the discount rate. Reducing the discount rate lowers the cost of borrowing for commercial banks, which can encourage them to lend more, expanding credit.

Subsidies are generally the most cost-effective way for a government to improve citizen welfare among the options provided. Here's why:

• Subsidy: Subsidies reduce the cost of goods and services, making them more affordable for a larger portion of the population. This can lead to an immediate improvement in welfare, especially for essential items.
• Income Supplement: Income supplements directly provide money to individuals, which can be helpful but are more expensive because they involve direct cash transfers, and it can be difficult to target effectively to those who need it most.
• Donation to Specific Projects: Donations are focused on specific projects, but they don't have the broad impact of subsidies. While helpful, they are not as wide reaching.
• Wages Increase: Government-mand

Here's the breakdown:

• Initial Situation: Ajanka received an allowance of N6,000 annually. This allowance represents income being channeled into the economy.
• New Situation: Ajanka now earns N7,000 annually from a job.
• Impact on National Income: The allowance is replaced by earned income. The total amount contributed to the national income increased by N1,000 (N7,000 - N6,000). This is because the new income is a net gain over the allowance he was receiving.