CA Foundation · Business Economics · Nature and Scope of Business Economics
Which of the following is a typical microeconomic area in the scope of Business Economics concerned with how a firm should handle uncertainty about future returns on a new investment?
Capital budgeting and risk analysis is the correct choice. It concerns how a firm evaluates investment projects when future returns are uncertain, which is a microeconomic decision area. Inflation, fiscal policy and forex reserves are macroeconomic matters describing the wider economy rather than the firm's investment appraisal.
- ACapital budgeting and risk analysisCorrect
- BMeasurement of inflation in the economy
- CFiscal policy of the Union Government
- DForeign exchange reserves of the country
Explanation
Capital budgeting, covering the evaluation of investment projects under risk and uncertainty, is a firm-level microeconomic concern within scope. Inflation measurement, fiscal policy and foreign exchange reserves are economy-wide matters. They influence the environment but are not themselves the firm's method of judging returns on an investment.
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