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Public Finance(Buss 346) Question Paper

Public Finance(Buss 346)

Course:Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2010

TIME : 2 HOURS
INSTRUCTIONS Answer Question ONE and any Other TWO Questions

Question 1
You are given the following information of a utopia economy.
i) The ministry of finance estimates National income at 400 Billion
ii) Investment 40 Billion
iii) Export 20 Billion
iv) Imports 30 Billion
v) Consumption that does not depend on the level of income 20 Billion
vi) Marginal Propensity to save 0.6
vii) Tax that does not depend on level income is 10 Billion
viii) Out of all the income that people in the economy earn 0.02 goes to taxation
Required:
a) C alculate the public sector borrowing for the economy. (10 Marks)
b) In reference to the purpose of deficit financing why did the ministry of finance adopt a deficit financing in the financial year 2010/2011 (8 Marks)
c) Can the principle of Clarke Tax work in Kenya today? (4 Marks)
d) Discuss the statement ‘A good tax is one that is certain’ (4 Marks)
e) ‘Taxation is a necessary evil’ Elucidate (4 Marks)

Question 2
a) It has been argued that the government should not be a player in the economy but just a moderator of economic activities. Elucidate the economic tools that the government uses in regulating economic variables. (10 Marks)
b) Education produces a positive externality, and this has been used as a justification for having the government subsidize education to internalize the externality. Diagrammatically explain the argument for the government subsiding education in Kenya. (6 Marks)
c) What functions does public finance perform in Kenya. (4 Marks)

Question 3
a) Explain the relevance of the various theories of taxation (10 Marks)
b) The government of Kenya has established various economic stimulus programs. Explain giving reasons, if the following economic stimulus programs meet the principles of good public expenditure:
i) Money channelled to pay the youth to perform some public activities (Kazi kwa Vijana initiative) (3Marks)
ii) The youth and women fund. (3 Marks)
c) State and explain four factors that govern taxable capacity. (4 Marks)

Question 4
a) It is possible to tax one group of persons in an economy and the ultimate tax is paid by another group of persons.
i) Explain this principle, how it works, bringing out the terms that are used to distinguish between the initial group that is taxed and the ultimate group that pays the tax (6 Marks)
ii) Discuss the theories behind the above principle (4 Marks)
b) Explain how public expenditure influences various economic variables (10 Marks)

Public Finance(Buss 346) Question Paper

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