2003 - JAMB Economics Past Questions and Answers - page 3

The most effective monetary control instrument used by the Central Bank of Nigeria is open market operations. Open market operations involve the buying and selling of government securities in the open market to influence the money supply and interest rates. This is a flexible and frequently used tool.

The correct answer is C. Here's why:

• Sole Proprietorship vs. Partnership: A sole proprietorship is owned and run by one person, while a partnership involves two or more people.
• Advantages of Sole Proprietorship: The key advantage listed in the options is the lack of potential conflict.
• Elimination of other options:
  • A: This describes a disadvantage, not an advantage.
  • B: Sole proprietorships do not rely on the decision of friends.
  • D: Sole proprietors usually have unlimited liability, meaning they are personally responsible for business debts.

The distinction between capital and recurrent expenditure lies primarily in the time frame or the longevity of the benefits derived from the expenditure.

• Recurrent expenditure: This type of spending is for day-to-day operational expenses. These are usually short-term expenditures that are consumed or used up within a year. Examples include salaries, rent, and the purchase of consumable goods.
• Capital expenditure: This type of spending is for assets that have a long-term benefit, usually lasting for more than a year. They are investments in long-term assets like buildings, machinery, and infrastructure.

Under a floating exchange rate regime, the exchange rate is determined by the forces of supply and demand in the foreign exchange market.

The primary goal of a revenue allocation formula is to distribute collected funds among different levels of government (e.g., federal, state, and local) based on a predetermined set of criteria. This ensures that each tier has sufficient resources to carry out its responsibilities.

The burden of taxes on essential goods disproportionately affects the lower income group.

• Essential goods such as food and basic necessities constitute a larger portion of the income of the lower income group.
• When taxes increase the price of these goods, it takes a larger chunk of their already limited income.
• The higher income group spends a smaller percentage of their income on essentials, so the tax increase has a lesser impact on their overall financial well-being.

The effectiveness of devaluation in addressing a balance of payments problem hinges primarily on the price elasticities of demand and supply for imports and exports.

• Elasticities: If demand for exports is elastic (meaning a price decrease leads to a proportionally larger increase in quantity demanded), and demand for imports is inelastic (meaning a price increase leads to a proportionally smaller decrease in quantity demanded), devaluation can improve the balance of payments.
• Marshall-Lerner Condition: This condition states that devaluation will improve the balance of payments if the sum of the price elasticities of demand for exports and imports is greater than one.

Other options are incorrect because:

• A & B: While the value of visible and invisible goods and items of trade are relevant to balance of payments, they do not determine whether devaluation will be effective.