Economics 2017 JAMB Past Questions
1. A firm owned and managed by a family is an example of ______?
- A. joint stock exchange
- B. cooperative society
- C. sole proprietorship
- D. partnership
2. Which modal of the factor is inelastic?
- A. Wages
- B. capital
- C. labour
- D. land
Correct Answer: Option D
Explanation
Land is defined in economics as a free gift of nature. Land does not only include land surface ofthe earth but all other free gift of nature or natural resources like forest, mineral resources, rivers,
oceans, atmosphere, etc. unlike other factors of production, the supply of land is limited. In other
words, land is a fixed factor of production, it is inelastic
3.Which of the following budgets will increase government expenditure?
- A. zero base budget
- B. surplus budget
- C. deficit budget
- D. balanced policy
Explanation
A budget deficit is the annual shortfall between government spending and tax revenue. The deficit is the annual amount the government need to borrow to balance up the budget. When the government borrows, it offers to pay interest payment to those who the money was borrowed. The deficit is also funded by selling government bonds to private sector to do this, the government offers to pay an interest payment to those who buy the bonds. The interest rate attracts investors to lend the government money.4.The economic questions about what and how to produce in an economy is solely answered by the _______?
- A. government
- B. labour union
- C. private and public enterpriser
- D. system of economy practised
Correct Answer: Option D
Explanation
Every society answers the three basic economic questions differently, in doing so, each confrontsthe same fundamental problems: resources allocation and scarcity. For every society, the answer
to the three basic questions depend on what kind of economic system it uses. The term economic
system refers to the way in which a society organize the production and distribution of goods and
services.
5.The following are Methods of measuring National Income of a country EXCEPT; ?
- A. Expenditure method
- B. Consumption method
- C. Input Method
- D. Output method
6.Petro-chemical industries are located in the Rivers State of Nigeria because of ________?
- A. favourable soil
- B. coal deposit
- C. crude oil deposit
- D. favourable climate
Explanation
Many Nigerians perceive the Niger Delta as synonymous with the oil producing areas of Nigeria.In other words, the Niger Delta includes the states of Abia, Akwa Ibom, Bayelsa, Cross River,
Delta, Edo, Imo, Ondo and Rivers.
The region is blessed with abundance of human and physical resources, including the majority of
Nigeria's oil and gas deposits, good agricultural lands, extensive forests, excellent fisheries, as well
as with a well-developed industrial base.
The Niger Delta region of Nigeria is richly endowed with natural resources with oil and gas accounting for over 85% of the Nation's gross domestic product (GDP); over 95% of the National budget; and over 80% of the national wealth.
7. The bowed shape of the Production possibilities curve illustrates _________
- A. that production is inefficient
- B. that demand is relatively inelastic
- C. that production is unattainable
- D. the law of increasing marginal cost
Explanation
Production possibility curve (PPC) shows the possible combination of different commodities that can be produced in a given economy given the prevailing level of technology, if all the available productive resources are efficiently utilised.The reason for the shape of the PPC is something called the law of increasing opportunity costs. Basically, what this means is that as an economy devotes more of its resources to one kind of product, it becomes less efficient because, not all resources are equally suitable for all the industries. If resources are transferred from good A to B, initially the resources to be transferred will be those which could be the least efficient for A. Later, as more of good B needs to be produced, the resources that may be very efficient for good B and not so efficient for good B may also be transferred. In this situation, the economy loses on both sides. That means, the economy is usually inefficient on both ends of the PPC curve while it is the most efficient when resources are appropriately allocated for both goods according to their suitability which make the PPC to be curved. This is why the PPC is flatter at its end point and more curved in the middle.
8.Which of the following is an indicator of economic growth?
- A. High tax rate
- B. Technology development
- C. High gross domestic product
- D. High interest rate
Correct Answer: Option C
Explanation
Economic growth is the process by which the productive capacity of an economy increase over a given period, leading to a rise in the level of the national income.Gross domestic product is the total market value of all goods and services produced by a country in a specific time period typically a year. This includes earnings from foreign investments.
GDP = Consumption +Government +investment +Export − Imports
GDP is considered the broadest indicator of economic growth because GDP represent the market value of all goods and services produced by the economy during the given period including personal consumption, government purchase, private inventories, paid in construction cost and the foreign trade balance (export added, import are subtracted).
There are other indicators of economic growth such as; Consumer Price Index (CPI), Producer Price Index (PPI), Consumer Confidence Index (CCI), Money supply, Employment and others. However, High tax rate, Technology Development and High interest rate are not a part of the list.
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![](https://myschool.ng/storage/classroom/22688521365_17_15.jpg)
The graph above represents _______
- A. a decrease in quantity supplied
- B. an increase in supply
- C. a decrease in supply
- D. an increase in quantity supplied
Correct Answer: Option D
increase in price of the commodity.
From the graph, an increase in the price of the commodity from p1 to p2 brought about a
corresponding increase in quantity supplied from q1 to q2.
Explanation
There is an increase in the quantity supplied if the quantity supplied increases as a result of anincrease in price of the commodity.
From the graph, an increase in the price of the commodity from p1 to p2 brought about a
corresponding increase in quantity supplied from q1 to q2.
10. The law of diminishing marginal utility states:
- A. The supply curve slopes downward
- B. Your utility grows at a slower and slower rate as you consume more and more unit of a good.
- C. The elasticity of demand is infinite
- D. None of the above
Explanation
The law of diminishing marginal utility states that the Satisfaction derived from consuming successive units of a commodity will diminish as the total consumption of the commodity increases. In other words, the total utility increases as more of a commodity is consumed but increases at a diminishing rate.11. Which of the following is not a function of the money market?
- A. Provision of finance
- B. enhance loan savings
- C. creation of long term
- D. Provision of finance
Explanation
Money market can be defined as a market for short term loan. The market consists of institution or individuals who either have money to lend or wish to borrow on a short term basis. The central bank is the sole authority in the banking industry and act as banker to the government and the commercial banks
12. The population theory that is concerned with the cases of over population and shortage of food production is ______
- A. population density
- B. Malthusian population theory
- C. national population theory
- D. demographical transition theory
Explanation
There are quite a number of aims of ECOWAS however, one of the major aim of ECOWAS treaty was for the establishment of a common market with the aim of liberalising trade within the region13.The basic aim of Economic Community of West African States is the
- A. discouragement of trade among member states
- B. encouragement of revolts against former colonial masters
- C. establishment of its headquarters in each members state
- D. liberalization of trade among member states
Explanation
There are quite a number of aims of ECOWAS however, one of the major aim of ECOWAS treaty was for the establishment of a common market with the aim of liberalising trade within the region14. The production within domestic territory of a country is called the _____
- A. net national product
- B. gross domestic product
- C. net income
- D. disposable income
Correct Answer: Option B
Explanation
Gross domestic product (GDP) refers to the total money value of all the goods and servicesproduced in a country within a given time period but excluding net income from abroad. In
calculating GDP, emphasis is on earnings from citizens and foreign investment within the country.
Earnings of citizens and their investment abroad are excluded from GDP
15.Excess supply over demand will place a price advantage on _____
- A. government
- B. foreign investors
- C. suppliers
- D. consumers
Correct Answer: Option D
Explanation
This is because, according to the concept of equilibrium, if supply increases while demand remains constant, there will be an excess of supply over demand. This will bring about a decrease in the equilibrium price of the commodity and an increase in the equilibrium quantity. This gave rise to the fifth law of demand and supply which states that: “an increase in the supply of a commodity will cause the equilibrium price to fall and the quantity demanded to increase, while a decrease in supply will cause the equilibrium price to rise but the quantity demanded will fall”.16. Given that ∑fx = 340 and N = 20, find the arithmetic mean.
- A. 20
- B. 17
- C. 32
- D. 9
Explanation
Arithmetic mean, x̄= ∑fxn
where:
x̄= Arithmetic mean
∑ = sum of
X = series of figures in a given data
f = nunmber of times a particular number occurs (frequency)
n = number of figures or element
From the question:
Since, x̄= ∑fx
N
Then, x̄= ∑fx
N
=
= 17
17. One of the reasons why Nigeria is a mono-economy is because of her _______
- A. huge volume of petroleum activities in the country
- B. diversification system of economic activities
- C. high demand for foreign commodities
-
D.
high rate of unemployment
Correct Answer: Option A
Explanation
A mono-economy is an economy relying on one major export or natural resources to bring mostof the currency into the country.
Nigeria is dependent on crude oil. Before now, agriculture and mining were the primary drivers ofNigeria’s economy but these has been abandoned since the 70’s as a result of the discovery of oil.Nigeria is now a mono-economic country that is, now relies solely on crude oil as her major sourceof revenue.
18. Given that the total production of Bandako farmers with one worker is 10kg. When the workers increased to 2, 3, and 4, the total production increases to 20, 36 and 60kg respectively.
Calculate the average product (AP) of the 4th unit of labour.
- A. 20
- B. 13
- C. 15
- D. 10
Correct Answer: Option C
Explanation
In this case, 4 workers produce 60kg of output therefore, the Average product of labour for the 3rd unit is 15kg. Given by:Average product =
=
= 15kg
19. Which of the following is NOT an instrument in the money market?
- A. Treasury bill
- B. Bill of exchange
- C. Stocks and shares
- D. Call money fund
Explanation
Stocks and shares are securities purchase by individuals, which is evidence of contributing part of the total capital used in running an existing industry. Stocks and shares are instruments used in capital market.20. Given that Qd = 10 - 2p while Qs = 5 x 3P, if P = N 1 determine the equilibrium quantity
- A. 7
- B. 6
- C. 5
- D. 8
Explanation
To get equilibrium price and quantity:i) Get function solved for Qs and Qd (quantity supplied) and Qd (quantity demanded)
ii) Set Qs equal to Qd
iii) Solve for P (equilibrium price)
iv) Plug your P back into your Qs and Qd function to get the quantity.
when, Qd = 10 − 2p and Qs = 5 + 3p
if Qd = Qs then,
10 − 2p = 5 + 3p
solving for p: 10 − 5 = 3p + 2p
5 = 5p
p = 1 (given in the equation)
Equilibrium Quantity will be gotten by plugging P into Qd and Qs respectively;
Qd = 10 − 2p Qs = 5 + 2p
= 10 − 2(1) = 5 + 3(1)
= 10 − 2 = 5 + 3
= 8
21. A country's terms of trade can be improved by ____?
- A. collective bargaining
- B. imposing lower export duties
- C. revelation of currency
- D. reducing demand for imported goods
Explanation
Tariffs are taxes or duties imposed on imports and exports by the government of a country. The idea behind tariffs is to restrict the volume of trade or improve the international terms of trade.
22. Changing the structure of a commodity in order to increase its utility is called?
- A. Time utility
- B. form utility
- C. marginal utility
- D. place utility
Correct Answer: Option B
23. Which of the following is not an indicator of economic growth?
Explanation
Form utility refers to the change in the form or structure of a commodity during its manufacturing process in other to increase its utility. For example, a change in the form of raw cotton to clothing material. Cotton in its raw form does not give satisfaction until it is changed to a clothing23. Which of the following is not an indicator of economic growth?
- A. CPI
- B. PPI
- C. GDP
- D. High Level of Unemployment
Explanation
The following are some indicators of economic growth:-
GDP. Gross Domestic Product, or GDP, is the total market value of
all goods and services produced by a country in a specific time period,
typically a year. This includes earnings from foreign investments.
-
Money Supply. Money supply is a representation of the total amount
of money a country has in circulation. M2 is slightly more specific.
-
CPI. Consumer Price Index, or CPI, measures changes in consumer
prices, or the retail prices paid for about 80,000 specific goods and
services (called the market basket) by urban consumers for a specific
month.
-
PPI. Called the Wholesale Price Index until 1978, the Producer Price
Index, or PPI, measures and tracks the changes over time of the average
selling price of domestically-produced goods and services.
-
CCI Consumer Confidence Index (CCI), or what is sometimes referred
to as the Consumer Confidence Survey, measures how consumers feel about
the current and future economic conditions.
-
Employment Current Employment Statistics, or CES, provide data on
national employment, unemployment, and wages and earnings across all
non-agricultural industries, including civilian government workers.
24. One of the unique features that distinguishes the perfect and imperfect market condition is _________
- A. profit motive principles
- B. absence of price control board
- C. price determines production and distribution
- D. number of sellers and buyers
Explanation
A perfect market may be defined as one in which buyers or sellers cannot influence the price of goods and services. An imperfect market however is the market in which price of goods or services can easily be influenced by the seller or buyers
25. In economics, the “how” or input question refers to:
- A. The problem of allocating scarce resources among competing uses
- B. The way in which factors of production may be combined to produce output
- C. The way in which a firm decides on its profit maximising rate of output
- D. The problem of how output is distributed among individuals and groups in society.
Explanation
The economic question of "how to produce" refers to, which techniques are to be adopted? This question is important because the choice of technique depends on the prices of the factors of production.That is, if labour is cheap and capital is expensive, a labor-intensive technique would be considered and vice-versa. The prices of labour and capital are determined by the demand for and supply of labour and capital respectively.
26. The modal value of 3, 8, 4, 6, 3, 5, 2, 7, 3 and 5 is
- A. 6
- B. 3
- C. 4
- D. 5
Explanation
The Mode refers to the most occurring number in a set of numbers or data. It is the most occurring value in a distribution.
27. One of the major causes of farmers' unstable income in Nigeria is _________
- A. the effect of diseases and pests
- B. industrial pollution
- C. mining and extraction activities
- D. population growth
Correct Answer: Option A
efficiency of agricultural production weather of reduced productivity on crops or animals can be
long lasting. Although the loss of output from a trans-boundary pest or diseases may appear easy
to identify, it can nevertheless be difficult to measure in precise economic terms.
28. Which of the following source of income is spectacular only to Government ?
Explanation
The most direct economic impact of a trans-boundary pest or disease is the loss or reducedefficiency of agricultural production weather of reduced productivity on crops or animals can be
long lasting. Although the loss of output from a trans-boundary pest or diseases may appear easy
to identify, it can nevertheless be difficult to measure in precise economic terms.
28. Which of the following source of income is spectacular only to Government ?
- A. Payment from business transfer
- B. Bonuses
- C. Tax
- D. Wages
Explanation
Tax, government generate income or revenues by taxing individual and corporate bodies. This process is referred to as taxation. Taxation is the act or method of imposing a compulsory levy by the government or it's agency on individuals and firms or on goods and services. Tax is the compulsory levy imposed by the government or it's agency on individuals and firm or on goods and services29. When the government fix the price of essential commodities, this is referred to as:
- A. Price equilibrium
- B. Price control
- C. Demanded price
- D. Asking price
Correct Answer: Option B
Explanation
Price control policy refers to how the government or its agency fixes the price of essential commodities. Price control is carried out in Nigeria by the price control board.
30. One of the functions of the price system is that it
- A. encourages high volume of production
- B. dictates what the citizens will consume
- C. discourages the consumption of harmful goods
- D. regulates production and consumption
Correct Answer: Option D
Explanation
The price system function such a manner that the adjustments in the System take place almost automatically without and direction or dictation from a central authority, Price is the coordinator both of production and Consumption. The consumer’s are able to convey their preferences through the prices they are willing to offer. Similarly, the producers are able to indicate the accuracy or abundance of a commodity by mean of the price they are willing to accept, If price rise it changes demand and stimulates supply and vice versa. If there is a greater demand for a commodity than the supply thereof, then the adjustment between the two will be brought about. Conversely, if the supply is greater than the demand, the price will fall and bring about an equilibrium between the two
31. Which of the following is NOT illustrated by the production possibility curve
- A. Risk
- B. Scarcity
- C. Opportunity cost
- D. Allocative efficiency
Explanation
Production possibilities curve demonstrates that:• There is a limit to what the society/individual can achieve, given the existing institutions, technology and resources.
• Every choice the society/individual makes has an opportunity cost – to get more of one good, we need to give up some of another good – every choice has a tradeoff.
PPF also illustrates the concept of efficiency. The combination of goods depicted on the curve are attainable only if all the resources are fully employed, with the most efficient means of production possible. All of the points on the frontier are said to be productively efficient, because they are fully utilizing the economic resources that they have
32. Which of the following statement is TRUE about ECOWAS?
- A. The aim of ECOWAS is to ensure economic stability
- B. Bigger state in the community dominate the small state
- C. Members of the ECOWAS community can form cartel and create monopolies
- D. English is the only official language of ECOWAS
Explanation
The Economic Community of West African States (ECOWAS) is a regional organization of 15 West African countries established on 28 May 1975. Its main goal is the promotion of the economic integration among its members. Indeed, ECOWAS is one the five regional pillars of the African Economic Community (AEC). ECOWAS has three official languages: English, French, and Portuguese. Members producing the same or identical goods can form cartel or monopolies and obtain better bargaining or deals from other countries outside its membership33. The equilibrium price clears the market; it is the price at which___________
- A. Everything is sold
- B. Buyers spend all their money
- C. Excess demand is zero
- D. None of the above
Explanation
Equilibrium price is the price where the demand for a product or a service is equal to the supply of the product or service. At equilibrium, both consumers and producers are satisfied, thereby keeping the price of the product or the service stable.34
![](https://myschool.ng/storage/classroom/19663420439_111.jpg)
The graph above shows;
- A. a decrease in quantity supplied
- B. an increase in supply
- C. a decrease in supply
- D. an increase in quantity
Correct Answer: Option C
Explanation
There is a decrease in the quantity supplied if the quantity of the commodity supplied decrease as a result of a decrease in price.From the graph, a decrease in the price of the commodity from P1 to P2 brought about a corresponding decrease in the quantity supplied from 100 to 50 units.
35. Goods sold in perfectly competitive markets are generally
- A. homogenous
- B. intermediate and final
- C. durable and non-durable
- D. heterogeneous
Correct Answer: Option A
Explanation
The goods bought and sold in a perfect market must be homogeneous. That is, they must be identical. They must be of same size, shape, weight, colour etc. The goods must be the same in the eye of the customer.
36. Cost - push inflation occurs when_______
- A. production cost is high
- B. government embarks on deficits financing
- C. factors decrease
- D. there is too much in circulation
Explanation
Cost push inflation occurs when increase in cost of production are passed on to consumers in the form of high price for the goods and services on sale. The price of goods are pushed up by rising costs.37. The basic principle of cooperative societies is to ________
- A. maintain the integrity of their members
- B. protect the interest and pursue the welfare of members
- C. ensure better working conditions for members
- D. provide voluntary services to the members
Correct Answer: Option B
38
Explanation
A cooperative society as a voluntary business organization in which a group of individual with common interest pool their resources together to promote the economic welfare of the members in production, distribution and consumption of goods and services.38
![](https://myschool.ng/storage/classroom/13613140431_17_01.jpg)
From the table above, the average product of the 3rd unit of labour is
- A. 50
- B. 70
- C. 350
- D. 150
Correct Answer: Option A
For a detailed explanation, taken a company A for example. If company A employs only one worker and with one worker, total production is 20kg each hour. This gives an average product of 20kg. Now if company A employs two workers and the total production is 50kg, the average product for the two workers give 25kg. Also when company A employs three workers and the total hourly production increase to 90kg, these means 30kg is the average product for the three workers and so on.
In this case, 3 workers produce 150kg of output therefore, the Average product of labour for the 3rd unit is 50kg. Given by:
Average product=
39. Which of the following institutions does not operate in the money market?
Explanation
This is because the average product (AP) is found by dividing total product by the input of labour. For example, a company that produce 100kg of product with 10 workers has an average product of 10.For a detailed explanation, taken a company A for example. If company A employs only one worker and with one worker, total production is 20kg each hour. This gives an average product of 20kg. Now if company A employs two workers and the total production is 50kg, the average product for the two workers give 25kg. Also when company A employs three workers and the total hourly production increase to 90kg, these means 30kg is the average product for the three workers and so on.
In this case, 3 workers produce 150kg of output therefore, the Average product of labour for the 3rd unit is 50kg. Given by:
Average product=
39. Which of the following institutions does not operate in the money market?
- A. central bank
- B. mortgage banks
- C. money deposit banks
- D. insurance companies
Explanation
This question is a little bit tricky to answer because out of the 4 options provided only one is not aparticipant in the (Nigeria) money market and that is the mortgage banks because mortgage loans
are usually not in short term of say 13months which makes it not fit into the money market
characterised by short term loans. The central bank, Money deposit bank and insurance companies
are all participant of the money market because they offer short term loans.
40.Other products gotten from Petroleum include the following EXCEPT:
- A. Rubber
- B. fuel
- C. paints
- D. insecticides
Explanation
Rubber is a coagulated, elastic latex. Plants that produce elastic latexes are largely neotropical. Commercial rubber is produced from latex of Hevea brasiliensis.41
Is a formula used to calculate for ____________
- A. variance
- B. the quartile
- C. standard deviation
- D. mean deviation
Explanation
where;N = number of items in the distribution
X = is variable
x̄ = Arithmetic mean
∑ = sum of
42. Completely competitive market exist when each member is a —
- A. price maker
- B. price taker
- C. price seeker
- D. a and b
Explanation
Given C = 10 + 0.6Y when Y = 20Substitute for the value of Y in the equation to calculate the actual value for C
Therefore, C = 10 + 0.6(20)
C = 10 + 12
C = 22.00
43. Given a consumption function C = 10 + 0.6Y, determine the value of C if Y is 20
- A. 36.60
- B. 22.00
- C. 30.60
- D. 26.00
Explanation
Given C = 10 + 0.6Y when Y = 20Substitute for the value of Y in the equation to calculate the actual value for C
Therefore, C = 10 + 0.6(20)
C = 10 + 12
C = 22.00
44. A partnership sourcing for funds to expand its business would approach _______
- A. a central bank
- B. a money market
- C. an insurance
- D. a stock exchange
Explanation
Money market can be defined as a market for short term loan. The market consists of institutionor individuals who either have money to lend or wish to borrow on a short term basis. The central
bank is the sole authority in the banking industry and act as banker to the government and the
commercial banks.
The stock market is an instrument for raising fund for limited liability companies which have
shares of the company to give out in exchange for fund.
Insurance company are financial institution that are concerned with insurance. Insurance company
indemnify the insured against loss which he may suffer in the future upon payment of a premium.
45.Opportunity cost helps the government to:
- A. Distribute money to citizens
- B. support better production
- C. remove competition
- D. prepare budget
Explanation
Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Opportunity cost helps the government in the preparation of budget, since it assists in the effective allocation of scarce resources to certain sector of the economy. It helps in making certain decision e.g. the priority areas that may require immediate attention.
46.Which of the following is NOT a source of government revenue?
- A. Grants, aids and borrowing
- B. Taxes, fees, licenses and fines
- C. Interest, dividends, profits and earnings
- D. personal income, disposable income and transfer earnings
Explanation
Personal income, disposable income and transfer earnings are sources of individual income afterpayment of taxes and charges left to be spent or saved as one wishes.
Source of Government revenue include Grants, aids, borrowings, taxes, fees, licences, fines,
dividends, profit and many others but not personal income. Disposable income and transferable income.
47. Which of these is a type of partnership in business?
- A. Limited partnership
- B. limited liability company
- C. private partnership
- D. joint stock partnership
Explanation
Limited partnership is one who has agreed to contribute a certain sum to a partnership in business and is prevented by law from taking any active part in the management and administration of the business. He is liable for debts and obligations of the partnership only up to the amount of capital he has contributed. A limited partner has limited liability.48. Which of the following is an indirect tax?
- A. Poll tax
- B. personal income tax
- C. Company tax
- D. excise duties
Explanation
Indirect tax refers to taxes which are imposed or levied on goods and services. The producers bear the initial burden of tax before shifting them to the final consumers in the form of higher price.49. Localization of industry is encouraged because of ________
- A. low interest charges on loans
- B. improvements in infrastructure
- C. low foreign exchange rate
- D. high standard of living
Explanation
This is one of the reasons government participates in the location of industries. When such industries are located, goods are made available and the people get employment and earn income hence, their standard of living will be improved50.Which of the following is correct?
- A. Traditional budgeting focuses on goals and objectives
- B. Zero based budgeting produces a single level of appropriation for an activity
- C. Traditional budgeting starts with last year’s funding appropriation
- D. Zero based budgeting does not systematically consider alternatives to current operations
Which of the following is correct?
- A. Traditional budgeting focuses on goals and objectives
- B. Zero based budgeting produces a single level of appropriation for an activity
- C. Traditional budgeting starts with last year’s funding appropriation
- D. Zero based budgeting does not systematically consider alternatives to current operations
Correct Answer: Option C
Explanation
Zero-Based budgeting and traditional budgeting are the two predominantly used budgeting techniques. Zero-based budgeting is a budgeting method where current year’s budget is prepared from the scratch i.e. taking the base as zero. The old and the new activities of the business are ranked according to their importance and based on that, resources are allocated to each activity without considering the past budgets or achievements.Traditional budgeting is a method of preparation of the budget in which the last year’s budget is taken as the base. Current year’s budget is prepared by making changes to previous year’s budget by adjusting the expenses based on the inflation rate, consumer demand, market situation etc.
In case of zero-based budgeting, it is easy to eliminate an existing item or add a new item to the current budget, as zero-based budgeting is a creation of entirely new budget from the ground. In other words, zero-based budgeting is more flexible in nature.
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