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Cpa Section 2 Economics Question Paper

Cpa Section 2 Economics

Course:Cpa

Exam Year:2012

KASNEB
CPA PART I SECTION 2
CPS PART I SECTION 2
CSIA PART I SECTION 2
CCP PART I SECTION 2

Answer any five questions.
QUESTION ONE
(a) Using a suitable example, explain the term ‘’opportunity cost”. (2 marks)
(b) Distinguish between “partial equilibrium analysis” and the “general equilibrium analysis”
(4 marks)
(c) Briefly explain five characteristics of a free market system (10 marks)
(d) Summarize four ways in which the government could influence the allocation of resources
(4 marks)
QUESTION TWO
(a) Distinguish between the income effect and the substitution effect of a change in the price of a commodity (4 marks)
(b) With the help of a diagram, explain the income and substitution effects of a change in the price of a giffen good (6 marks)
(c) Differentiate between marginal cost and marginal revenue (4 marks)
(d) Highlight six factors that lead to increasing returns to scale in the production process (6 marks)
QUESTION THREE
(a) Using illustrations, distinguish between the income consumption curve and the Engel curve. ( 8 marks)
(b) Outline six reasons that cause the prices of agricultural commodities to be low and keep on fluctuating ( 6 marks)
(c) Developing countries experience balance of payments deficits. Explain six disadvantages of adopting an import substitution strategy to correct balance of payment deficits (6 marks)
QUESTION FOUR
(a) With the aid of a diagram, explain the tradeoff between work and leisure (5 marks)
(b) Explain five advantages of collusive oligopoly to the member firms. (5 marks)
(c) Explain the term price discrimination under monopoly. (2 marks)
(d) With the aid of well labeled diagrams, explain the conditions that must be fulfilled in order for a monopolist to charge different prices for the same commodity in different markets. (8 marks)
QUESTION FIVE
(a) Differentiate between “Nominal national Output” and “Real National Output” figures in an economy (4 marks)
(b) The data provided below represents estimated national income Figures for country XYZ in trillions of shillings.
Government transfer 110
Business taxes 30
Depreciation allowance 55
Indirect taxes less subsidies 42
Personal income taxes 63
Gross national product at market price 480

Use the data to compute the following:-
(i) Net national income at factor cost (2 marks)
(ii) Net national product at market price (2 marks)
(iii) Personal Income (2 marks)
(iv) Disposable income for country XYZ (2 marks)
(c) Explain four economic policy options that are available to a government that wishes to promote growth In the country (8 marks)
QUESTION SIX
(a) Explain the term “monetary policy” (2 marks)
(b) Summarize the objectives of a monetary policy in an economy (8 marks)
(c) Describe five tools of monetary policy (10 marks)
QUESTION SEVEN
(a) Using a diagram, explain the term “inflationary gap”. (5 marks)
(b) Illustrate how a fiscal policy instrument might be used to control inflationary gap. (3 marks)
(c) Country X has experienced a high inflation rate over the past one year. Highlight eight negative effects of the high inflation rate on the economy of country X. (8 marks)
(d) The following information relates to a consumer in a certain market.
Income
Sh. Price of X
Sh. Demand for X
Units Demand for Y
Units.
5,000
6,000
8,000 16
18
24 30
25
20 100
120
150
Calculate the cross elasticity of demand as the price of X changes from Sh.18 to Sh.24 (4 marks)

Cpa Section 2 Economics Question Paper

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