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CMA Foundation Paper 4 (FBEM) study materials
CMA Foundation Paper 4 (FBEM) study resources

CMA Foundation Paper 4 (FBEM) practice questions

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Question 1Fundamentals of Economics

In economics, the central problem of scarcity arises because:

  1. Consumers lack sufficient information to compare prices across markets
  2. Firms deliberately produce less than the quantity consumers demand
  3. Governments restrict the supply of goods through taxation and licensing
  4. Human wants are unlimited while productive resources are limited and have alternative uses Correct answer.

Explanation

Scarcity is the fundamental economic condition in which unlimited human wants exceed the limited resources available to satisfy them, and those resources can be put to alternative uses. It exists independently of government policy or firm behaviour, which is why choice and opportunity cost follow from it.

Question 2Fundamentals of Economics

A student gives up a part-time job earning ₹8,000 per month in order to attend a full-time course. The opportunity cost of attending the course is best described as:

  1. The tuition fee paid for the course
  2. The total of tuition fees and the ₹8,000 income forgone Correct answer.
  3. The ₹8,000 monthly income forgone by not working
  4. The value of the skills acquired during the course

Explanation

Opportunity cost is the value of the next best alternative forgone, measured in full. Here the student sacrifices both the tuition fee and the income that could have been earned, so the true cost is the sum of the explicit fee and the implicit forgone earnings.

Question 3Fundamentals of Economics

The production possibility curve bows outward (is concave to the origin) primarily because:

  1. Resources are equally efficient in producing both goods
  2. Consumers prefer a balanced combination of both goods
  3. Technology improves continuously over time
  4. Resources are not equally suited to producing both goods Correct answer.

Explanation

An outward-bowing PPF reflects increasing opportunity cost, which arises because factors of production are imperfect substitutes for one another. As more of one good is produced, resources less suited to it must be transferred, so each additional unit costs progressively more of the other good.

Question 4Fundamentals of Economics

A movement along a given demand curve for tea is caused by a change in:

  1. Consumer tastes and preferences
  2. The price of tea Correct answer.
  3. The price of coffee
  4. Consumer income

Explanation

A change in the good's own price changes the quantity demanded and is shown as a movement along the existing demand curve. Changes in income, prices of related goods, or tastes shift the entire curve instead.

Question 5Fundamentals of Economics

If the price of a good rises from ₹20 to ₹22 and quantity demanded falls from 500 units to 450 units, the price elasticity of demand (using the percentage method) is approximately:

  1. 0.10
  2. 0.50
  3. 2.00 Correct answer.
  4. 1.00

Explanation

Percentage change in quantity is (50/500)×100 = 10 per cent, and percentage change in price is (2/20)×100 = 10 per cent. Elasticity equals 10/10 = 1, so demand is unit elastic; note that the calculated value here is 1.00 when using the simple percentage method.

Question 6Fundamentals of Economics

Demand for salt is generally price inelastic because:

  1. Salt has many close substitutes available to households
  2. Salt accounts for a large share of household budgets
  3. Salt is a necessity with few substitutes and a small budget share Correct answer.
  4. Consumers buy salt frequently in large quantities

Explanation

Elasticity depends on the availability of substitutes, the share of income spent, and whether the good is a necessity. Salt has few substitutes, is a necessity, and takes a tiny share of the budget, so quantity demanded responds little to price changes.

Question 7Fundamentals of Economics

A government imposes a price ceiling below the equilibrium price of a commodity. The likely result is:

  1. A shortage, as quantity demanded exceeds quantity supplied Correct answer.
  2. A surplus, as quantity supplied exceeds quantity demanded
  3. An outward shift of the supply curve
  4. No change, since the market always clears at equilibrium

Explanation

A binding price ceiling set below equilibrium prevents the price from rising to its market-clearing level. At the lower price, quantity demanded exceeds quantity supplied, creating a shortage that may lead to queues or black markets.

Question 8Fundamentals of Economics

The law of diminishing marginal utility states that:

  1. Total utility falls as consumption increases
  2. Marginal utility is always negative beyond the first unit
  3. Consumers always prefer variety to quantity
  4. Each successive unit consumed adds less extra satisfaction than the previous unit Correct answer.

Explanation

As a consumer consumes more units of a good within a given period, the additional satisfaction from each extra unit tends to decline, though total utility may still rise. Marginal utility becomes negative only after satiation.

Question 9Fundamentals of Economics

A consumer maximises satisfaction subject to a budget constraint when:

  1. Marginal utility per rupee spent is equal across all goods Correct answer.
  2. The price of each good is equal
  3. Total utility from each good is equal
  4. Marginal utility of each good is equal

Explanation

The equi-marginal principle requires that the marginal utility obtained per unit of money spent be equalised across goods. If one good gives more utility per rupee, the consumer reallocates spending until the ratios are equal.

Question 10Fundamentals of Economics

Which of the following is a fixed cost for a firm in the short run?

  1. Wages paid to daily-wage labour
  2. Cost of raw materials used in production
  3. Rent paid on factory premises under a long-term lease Correct answer.
  4. Electricity charges that vary with output

Explanation

Fixed costs do not vary with the level of output in the short run, and contractual rent on premises is the classic example. Wages, raw materials, and variable electricity all change as production changes and are therefore variable costs.

Question 11Fundamentals of Economics

If total fixed cost is ₹600 and total variable cost at 20 units of output is ₹400, the average total cost at 20 units is:

  1. ₹70
  2. ₹50 Correct answer.
  3. ₹30
  4. ₹100

Explanation

Total cost equals fixed cost plus variable cost, i.e. ₹600 + ₹400 = ₹1,000. Dividing by 20 units gives an average total cost of ₹50 per unit.

Question 12Fundamentals of Economics

The short-run average total cost curve is U-shaped mainly because:

  1. Average fixed cost falls while average variable cost eventually rises Correct answer.
  2. Marginal cost is always constant
  3. Fixed costs fall continuously as output expands
  4. All inputs are variable in the short run

Explanation

As output rises, average fixed cost spreads over more units and falls, while diminishing returns eventually push average variable cost upward. The combination of these two opposing forces produces the U-shape.

Question 13Fundamentals of Economics

In perfect competition, a firm is a price taker because:

  1. Government regulation fixes the price for every firm
  2. Firms collude to set a common price
  3. Its individual output is too small to influence the market price Correct answer.
  4. It produces a differentiated product that attracts loyal customers

Explanation

Under perfect competition there are many small firms selling a homogeneous product with free entry and exit. Each firm's output is a negligible fraction of market supply, so it must accept the market-determined price.

Question 14Fundamentals of Economics

A profit-maximising firm in a perfectly competitive market should continue producing in the short run as long as:

  1. Price exceeds average total cost
  2. Total revenue exceeds total fixed cost
  3. Marginal cost is falling
  4. Price exceeds average variable cost Correct answer.

Explanation

In the short run, fixed costs are sunk, so a firm covers its variable costs and makes some contribution to fixed costs whenever price exceeds average variable cost. It shuts down only if price falls below minimum average variable cost.

Question 15Fundamentals of Economics

A key feature distinguishing a monopoly from a perfectly competitive firm is that the monopolist:

  1. Produces a homogeneous product alongside many rivals
  2. Faces a downward-sloping demand curve for its product Correct answer.
  3. Has no control over the price it charges
  4. Cannot earn supernormal profit in the long run

Explanation

A monopolist is the sole seller of a product with no close substitutes, so it faces the entire market demand curve, which slopes downward. It can choose price or output but not both independently.

Question 16Fundamentals of Economics

In a monopoly, marginal revenue is less than price at every level of output because:

  1. The monopolist faces constant returns to scale
  2. Government taxes reduce the effective price
  3. Monopolists always operate with excess capacity
  4. To sell an extra unit the monopolist must lower the price on all units sold Correct answer.

Explanation

Because the monopolist faces a downward-sloping demand curve, selling one more unit requires a lower price, and that lower price applies to all units. The revenue lost on existing units makes marginal revenue fall below price.

Question 17Fundamentals of Economics

Which market structure is characterised by many sellers offering differentiated products with free entry and exit?

  1. Perfect competition
  2. Oligopoly
  3. Pure monopoly
  4. Monopolistic competition Correct answer.

Explanation

Monopolistic competition combines many small firms, product differentiation through branding or quality, and easy entry and exit. Differentiation gives each firm limited price-setting power, unlike perfect competition.

Question 18Fundamentals of Economics

In an oligopolistic market, firms are said to be interdependent because:

  1. Entry and exit are completely unrestricted
  2. Each firm's pricing decision affects and is affected by rivals' decisions Correct answer.
  3. Each firm produces a unique product with no rivals
  4. Firms are too small to influence market price

Explanation

Oligopoly has few enough firms that each one must consider rivals' likely reactions when setting price or output. This mutual interdependence explains behaviour such as price rigidity and strategic rivalry.

Question 19Fundamentals of Economics

Gross Domestic Product at market prices measures:

  1. The market value of all goods and services sold in a country, including imports
  2. The total income earned by a country's residents wherever they work
  3. The value of intermediate goods produced within the country
  4. The market value of all final goods and services produced within a country's domestic territory in a year Correct answer.

Explanation

GDP is the market value of final goods and services produced within the domestic territory during an accounting period. Counting only final goods avoids double counting, and the domestic territory criterion distinguishes GDP from national income concepts.

Question 20Fundamentals of Economics

If nominal GDP rises by 12 per cent and the general price level rises by 5 per cent, real GDP has approximately:

  1. Risen by 12 per cent
  2. Fallen by 7 per cent
  3. Risen by 17 per cent
  4. Risen by 7 per cent Correct answer.

Explanation

Real GDP adjusts nominal GDP for price changes, so roughly real growth equals nominal growth minus inflation. Here 12 per cent minus 5 per cent leaves about 7 per cent real growth.

Question 21Fundamentals of Economics

Which of the following is an example of frictional unemployment?

  1. A software engineer who has left one job and is searching for a better one Correct answer.
  2. A clerk replaced permanently by automated accounting software
  3. A farmer unemployed between harvesting and sowing seasons
  4. A textile worker laid off because demand for cloth has fallen in a recession

Explanation

Frictional unemployment arises when workers are temporarily between jobs while searching for suitable employment. It is a normal feature of a dynamic labour market and is distinct from cyclical, structural, and seasonal unemployment.

Question 22Fundamentals of Economics

Demand-pull inflation is typically caused by:

  1. A rise in the cost of imported raw materials
  2. Excessive growth of aggregate demand relative to productive capacity Correct answer.
  3. A fall in consumer spending accompanied by rising savings
  4. A sharp increase in wage settlements across all industries

Explanation

Demand-pull inflation occurs when aggregate demand grows faster than the economy's capacity to produce, so buyers bid up prices. Cost-push factors such as input prices and wages operate on the supply side instead.

Question 23Fundamentals of Economics

The Reserve Bank of India raises the repo rate to control inflation. The intended transmission is that:

  1. Commercial banks' lending rates fall automatically
  2. Borrowing becomes costlier, credit and aggregate demand fall, easing price pressure Correct answer.
  3. Borrowing becomes cheaper and consumption rises
  4. Government expenditure increases to support demand

Explanation

A higher repo rate raises the cost of funds for banks, which pass it on to borrowers. Costlier credit reduces investment and consumption spending, dampening aggregate demand and thereby inflationary pressure.

Question 24Fundamentals of Economics

A central bank's open market operations involve:

  1. Changing the statutory reserve requirements of commercial banks
  2. Setting the exchange rate of the domestic currency
  3. Buying and selling government securities to influence liquidity and interest rates Correct answer.
  4. Directly fixing the interest rates charged by commercial banks

Explanation

Open market operations are the purchase or sale of government securities by the central bank to inject or absorb liquidity. Buying securities adds reserves and tends to lower interest rates, while selling does the reverse.

Question 25Fundamentals of Economics

In the balance of payments, the current account records:

  1. Changes in the central bank's foreign exchange reserves only
  2. Foreign direct investment and portfolio flows
  3. Borrowing from the International Monetary Fund
  4. Trade in goods and services together with primary and secondary income Correct answer.

Explanation

The current account covers exports and imports of goods and services along with income flows and transfers. Investment flows and reserve changes belong to the capital and financial account.

Question 26Fundamentals of Economics

A consumer's total utility from consuming 4 units of a good is 60 utils, and from 5 units is 68 utils. The marginal utility of the fifth unit is:

  1. 68 utils
  2. 17 utils
  3. 8 utils Correct answer.
  4. 12 utils

Explanation

Marginal utility is the change in total utility resulting from consuming one additional unit. Here total utility rises from 60 to 68, so the marginal utility of the fifth unit equals 68 minus 60, which is 8 utils. Dividing total utility by units consumed gives average utility, not marginal utility.

Question 27Fundamentals of Economics

When the price of a good falls and the consumer's money income is unchanged, the increase in quantity demanded that arises because the consumer's real purchasing power has risen is called the:

  1. substitution effect
  2. speculative effect
  3. income effect Correct answer.
  4. demonstration effect

Explanation

A price fall raises real income at constant money income, and the resulting change in quantity demanded is the income effect. The substitution effect refers instead to the consumer switching towards the now relatively cheaper good. The two effects together make up the total price effect.

Question 28Fundamentals of Economics

A firm's production function shows that with a fixed plant, adding a fourth worker raises output from 30 to 42 units, while adding a fifth worker raises output from 42 to 50 units. This pattern illustrates:

  1. economies of scope
  2. constant returns to scale
  3. increasing returns to scale
  4. the law of variable proportions Correct answer.

Explanation

Marginal product falls from 12 units to 8 units as more of the variable input is applied to a fixed factor, which is the law of variable proportions in its diminishing-returns phase. Returns to scale describe what happens when all inputs change together, which is not the case here. The falling marginal product is the signature of the short-run law.

Question 29Fundamentals of Economics

A firm operating in a perfectly competitive market finds that at its current output, price equals ₹25, marginal cost equals ₹25 and average total cost equals ₹30. In the short run the firm should:

  1. shut down immediately because it is making a loss
  2. reduce output until price equals average total cost
  3. raise its price above ₹25 to cover average total cost
  4. continue producing because price covers marginal cost and exceeds average variable cost Correct answer.

Explanation

The profit-maximising condition price equals marginal cost is satisfied, and since average total cost exceeds price only by fixed-cost elements, price must exceed average variable cost. The firm therefore minimises losses by continuing to produce in the short run. A price taker cannot raise price, and shutting down would forfeit contribution towards fixed costs.

Question 30Fundamentals of Economics

When a monopolist's demand curve is downward sloping and linear, its marginal revenue curve:

  1. coincides with the demand curve
  2. lies above the demand curve
  3. is horizontal at the level of price
  4. lies below the demand curve and falls twice as steeply Correct answer.

Explanation

To sell an extra unit a monopolist must lower price on all units, so marginal revenue falls by more than price. With linear demand, the marginal revenue curve has twice the slope of the demand curve and lies below it. This gap is the reason a monopolist restricts output below the competitive level.

Question 31Fundamentals of Economics

In a kinked demand curve model of oligopoly, the demand curve is steeper for price increases than for price decreases. The main implication is that:

  1. rivals match price cuts but ignore price rises, so price tends to be sticky Correct answer.
  2. entry of new firms is completely blocked
  3. the firm's marginal cost curve is horizontal
  4. firms always collude to fix the highest possible price

Explanation

The kink arises because rivals are assumed to match price reductions but not price increases, making demand elastic above the current price and inelastic below it. This produces a discontinuity in marginal revenue, so moderate cost changes leave price unchanged. The result is price rigidity rather than automatic collusion or blocked entry.

Question 32Fundamentals of Economics

A firm's total revenue from selling 10 units is ₹500 and from selling 11 units is ₹528. The marginal revenue of the eleventh unit is:

  1. ₹48
  2. ₹8
  3. ₹528
  4. ₹28 Correct answer.

Explanation

Marginal revenue is the change in total revenue from selling one more unit. Subtracting ₹500 from ₹528 gives ₹28. Dividing total revenue by quantity would give average revenue, which is a different measure.

Question 33Fundamentals of Economics

Which of the following would be classified in the balance of payments as a debit item on the current account?

  1. Receipts from software services exported to a foreign client
  2. Payment of freight charges to a foreign shipping company Correct answer.
  3. Remittances received from a relative working abroad
  4. Foreign direct investment inflow into a domestic factory

Explanation

A debit entry records a payment made to the rest of the world, so paying freight to a foreign shipper is a debit on the current account. Export receipts and inward remittances are credits because they bring foreign exchange in. Foreign direct investment belongs to the capital and financial account, not the current account.

Question 34Fundamentals of Economics

An economy's nominal GDP rises from ₹1,000 crore to ₹1,100 crore while the GDP deflator rises from 100 to 110. Real GDP in the second period, measured at base-year prices, is:

  1. ₹990 crore
  2. ₹1,210 crore
  3. ₹1,000 crore Correct answer.
  4. ₹1,100 crore

Explanation

Real GDP is nominal GDP divided by the deflator and multiplied by 100. Thus ₹1,100 crore divided by 110 and multiplied by 100 equals ₹1,000 crore, showing that the entire rise in nominal GDP reflects price inflation. No increase in real output has occurred.

Question 35Fundamentals of Economics

Which of the following persons is best described as structurally unemployed?

  1. An engineer temporarily idle while moving to a new city
  2. A bank clerk who has just resigned and is searching for a better-paying job
  3. A construction worker laid off during the monsoon season
  4. A textile worker whose job disappeared after mills automated their weaving operations Correct answer.

Explanation

Structural unemployment arises from a lasting mismatch between the skills or locations of workers and available jobs, as when automation removes a particular occupation. The other cases are temporary and reverse when search ends or the season changes. Structural unemployment therefore persists without retraining or relocation.

Question 36Fundamentals of Economics

An economy experiences rising prices caused mainly by sharp increases in the cost of crude oil and other key inputs. This is best described as:

  1. demand-pull inflation
  2. disinflation
  3. deflation
  4. cost-push inflation Correct answer.

Explanation

Cost-push inflation occurs when rising input costs shift the aggregate supply curve upward, raising the price level while output may fall. Demand-pull inflation instead stems from excess aggregate demand at existing capacity. Deflation and disinflation refer to falling or slowing price levels, not rising ones.

Question 37Fundamentals of Economics

Which of the following is the most direct example of an automatic stabiliser in fiscal policy?

  1. A special tax amnesty scheme for undeclared income
  2. A one-off increase in public spending on rural roads announced in the budget
  3. Progressive income tax collections that fall when national income falls Correct answer.
  4. A reduction in the cash reserve ratio by the central bank

Explanation

Automatic stabilisers operate without fresh policy decisions, cushioning the cycle as tax receipts and welfare payments respond to income changes. Progressive income tax falls automatically in a downturn, supporting disposable income. Discretionary measures such as new spending programmes or amnesties require deliberate action.

Question 38Fundamentals of Economics

The Reserve Bank of India sells government securities in the open market. The most likely immediate effect is that:

  1. the repo rate is automatically reduced to zero
  2. bank reserves rise and credit creation expands
  3. the money supply contracts as bank reserves fall Correct answer.
  4. the currency with the public rises sharply

Explanation

When the central bank sells securities, buyers pay with funds drawn from the banking system, so bank reserves fall and the money multiplier works in reverse. The money supply therefore contracts. Buying securities would have the opposite effect of expanding reserves.

Question 39Fundamentals of Economics

The primary objective of the Reserve Bank of India's monetary policy framework, as formally adopted in 2016, is to:

  1. fix the exchange rate of the rupee against the dollar
  2. maximise economic growth regardless of inflation
  3. maintain price stability while keeping in mind the objective of growth Correct answer.
  4. eliminate all unemployment in the organised sector

Explanation

The flexible inflation targeting framework makes price stability the primary objective, with a consumer price inflation target of 4 per cent within a tolerance band, while giving due weight to growth. Growth is a consideration but not the overriding mandate. Exchange-rate fixing and full employment are not the stated primary objectives.

Question 40Fundamentals of Economics

A country's current account deficit widens sharply while its capital account surplus remains unchanged. Holding other things constant, the most likely consequence for the foreign exchange market is:

  1. increased demand for the domestic currency, causing it to appreciate
  2. increased demand for foreign currency, putting downward pressure on the domestic currency Correct answer.
  3. an automatic fall in the domestic interest rate to zero
  4. no change in the exchange rate because the two accounts are unrelated

Explanation

A wider current account deficit means more payments abroad relative to receipts, raising demand for foreign currency and tending to depreciate the domestic currency unless offset by capital inflows. The balance of payments must ultimately balance, so financing the gap requires inflows or reserve drawdown. The exchange rate therefore faces downward pressure.

Question 41Fundamentals of Management

In the management process, which function is primarily concerned with establishing objectives and deciding in advance how they will be achieved?

  1. Staffing
  2. Controlling
  3. Planning Correct answer.
  4. Organising

Explanation

Planning is the first management function and involves setting objectives and choosing the means to attain them before action begins. Organising arranges resources, staffing fills roles, and controlling compares performance with standards. Planning logically precedes the others because it supplies the goals they serve.

Question 42Fundamentals of Management

A production supervisor reports to a plant manager, who reports to a regional operations head. This chain of reporting relationships illustrates which management concept?

  1. Scalar chain Correct answer.
  2. Span of control
  3. Delegation of authority
  4. Unity of direction

Explanation

The scalar chain is the unbroken line of authority running from the top of the organisation to the lowest level. It shows the formal path along which orders and communications pass. Span of control concerns how many subordinates report to one manager, not the vertical line itself.

Question 43Fundamentals of Management

According to Maslow's hierarchy, which need level immediately follows the satisfaction of safety needs?

  1. Social needs Correct answer.
  2. Self-actualisation needs
  3. Physiological needs
  4. Esteem needs

Explanation

Maslow's hierarchy moves from physiological needs to safety, then to social (belonging) needs, then esteem, and finally self-actualisation. Once safety is reasonably satisfied, belonging and social needs become the dominant motivator. Esteem and self-actualisation sit above the social level.

Question 44Fundamentals of Management

A manager who listens carefully, observes body language and restates a team member's message in her own words is mainly practising which communication skill?

  1. Formal reporting
  2. Active listening Correct answer.
  3. Non-verbal encoding
  4. Grapevine communication

Explanation

Active listening involves paying full attention, observing cues and reflecting the message back to confirm understanding. It improves two-way communication by verifying that the receiver has decoded the message correctly. Grapevine and formal reporting are channels, not listening behaviours.

Question 45Fundamentals of Management

Under the classical principles of management, which statement best describes 'unity of command'?

  1. Authority should be concentrated at the top of the hierarchy.
  2. All employees in a department should share the same objective.
  3. Each subordinate should receive orders from only one superior. Correct answer.
  4. Managers should supervise a limited number of subordinates.

Explanation

Unity of command states that an employee should be accountable to a single boss, which prevents conflicting instructions and confusion. It is distinct from unity of direction, which concerns one plan for one objective. Concentration of authority and limits on subordinates describe centralisation and span of control.

Question 46Fundamentals of Management

Which of the following is a distinguishing feature of a formal organisation?

  1. Membership is based on informal social acceptance.
  2. Communication flows mainly through personal friendships.
  3. Roles are created spontaneously by employee groups.
  4. Authority relationships are deliberately defined and documented. Correct answer.

Explanation

A formal organisation is deliberately structured, with defined roles, authority relationships and rules that are usually documented. Informal organisations arise spontaneously from social interaction and personal relationships. The presence of documented, intentional structure is therefore the key marker.

Question 47Fundamentals of Management

In the control process, what is the correct immediate step after measuring actual performance?

  1. Taking corrective action
  2. Comparing performance with standards Correct answer.
  3. Establishing new standards
  4. Rewarding the best performers

Explanation

Control follows a sequence: set standards, measure actual performance, compare performance against standards, then take corrective action where deviations exist. Comparison must occur before corrective action so that the manager knows whether a gap exists. Setting new standards belongs to planning.

Question 48Fundamentals of Management

Which level of management is chiefly responsible for translating the organisation's overall strategy into departmental objectives and coordinating the work of first-line managers?

  1. Top management
  2. Operational staff
  3. Supervisory management
  4. Middle management Correct answer.

Explanation

Middle managers, such as departmental heads, interpret top-level strategy and convert it into functional objectives while coordinating lower-level supervisors. Top management sets overall direction, while supervisory management handles day-to-day execution. Operational staff carry out the tasks themselves.

Question 49Fundamentals of Management

A firm's sales manager spends most of her week setting sales targets, arranging territory coverage and checking results against targets. Which set of managerial roles, in Mintzberg's terms, does this most closely reflect?

  1. Resource allocator, monitor and leader roles Correct answer.
  2. Entrepreneur, disturbance handler and negotiator roles
  3. Figurehead, leader and liaison roles
  4. Disseminator, spokesperson and monitor roles

Explanation

Setting targets and allocating territory reflect the resource allocator role, while checking results reflects the monitor role, and directing the sales team reflects the leader role. These are decisional and informational roles combined with interpersonal leadership. The other options describe roles that do not match target setting and result checking.

Question 50Fundamentals of Management

A company gives a production team the authority to schedule its own work and inspect its own output, while the supervisor retains responsibility for final quality. Which principle does this arrangement best illustrate?

  1. Delegation of authority with retained accountability Correct answer.
  2. Centralisation of decision-making
  3. Span of control
  4. Unity of direction

Explanation

Delegation transfers authority to subordinates while the delegator remains accountable for results. The team gains scheduling and inspection authority, yet the supervisor still answers for final quality. This matches the principle that authority may be delegated but accountability cannot be escaped.