PAPER NO. 4 ECONOMICS |
GENERAL OBJECTIVE |
| To equip the candidate with knoowledge of fundamental principles of economics. |
4.0 SPECIFIC OBJECTIVES |
A candidate who passes this paper should be able to:
- Explain the principles of micro and macro-economics
- Apply basic mathematical and graphical techniques to analyse economic relationships and interpret the results
- Apply the knowledge of economics in decision making
- Discuss emerging economic issues
- Analyse economic problems and suggest possible policy related recommendations
- Apply knowledge of economics in international trade and finance
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CONTENT |
4.1 Introduction to economics
- Definition of economics
- Micro and macro economics
- The methodology of economics and its basic concepts
- Economic descriptions and analysis
- Economic goals and problems
- Scarcity, choice, opportunity cost and production possibilty frontiers and curves
- Economic systems: free economy, planned economy and mixed economy
- Specialisation and exchange
- Partial equilibriun and general equilibrium
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4.2 Demand, supply and determination of equilibrium
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4.21 Demand analysis
- Definition
- Factors influencing demand
- Types of demand
- Movement along and shifts of demand curves
- Individuals versus market demand
- Exceptional demand curves
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4.22 Supply analysis
- Definition
- Factors influencing supply
- Movements along and shifts of supply curves
- Individual versus market supply curves
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4.23 Determination of equilibrium price
- Interaction of supply and demand, equilibrium price and quantity
- Mathematical approach to equilibrium analysis
- Stable versus unstable equilibrium
- Effects of shifts in demand/supply on equilibrium
- Application of price mechanism for example price control, producer surplus, consumer surplus and susidies
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4.3 Elasticity of demand and supply
- Definition of elasticity
- Factors influencing elasticity
- Measurement of elasticity; point and arc elasticity
- Types of elasticity: Price, income and cross elasticity
- Application of elasticity in management and economic policy decision making
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4.4 The theory of consumer behaviour
- Approaches to the theory of consumer choice-cardinal versus ordinal approach
- Limitations of cardinal approach
- Utility analysis, marginal utility (MU), diminishing marginal utility (DMU)
- Indifference curve analysis
- Budget line and its economic interpretation
- Consumer equilibrium - effects of changes in prices and incomes on consumer equilibrium
- Substitution and income effects of price change
- Derivation of a demand curve and Engel curve
- Applications of indifference curve analysis
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4.5 The theory of a firm
- Communication process and barriers
- Channels of communication
- Types of verbal and non-verbal communication
- Importance of listening skills
- Critical thinking and problem solving
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4.5.1 The theory of production
- Factors of production
- Mobility of factors of production
- Production function analysis
- Short run analysis
- Total product, average and marginal products
- Stages in production and the law of variable proportions
- Long run analysis and returns to scale
- Isoquant and isocost lines
- The concept of producer equilibrium and expansion curve
- Demand and supply of factors of production
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4.5.2 The theory of costs
- Short run costs analysis and size of the firm's total cost, fixed cost, average cost, variable costs and marginal cost
- Long run costs analysis and economies of scale
- Optimal size of a firm
- Mathematical approach to theory of costs
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4.6 Market structures
- Definition of a market
- Necessary and sufficient conditions for profit maximisation
- Mathematical approach to profit maximisation
- Output, prices and efficiency of: perfect competition, monopoly, monopolistic competition, oligopolistic competition
- Public policy towards competition and business behaviour
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4.7 National income
- Definition of national income
- Necessary and sufficient conditions for profit maximisation
- Mathematical approach to profit maximisation
- Output, prices and efficieny of: perfect competition, monopoly, monopolistic competition, oligopolistic competition
- Public policy towards competition and business behaviour
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4.7 National income
- Definition of national income
- Circular flow of income
- Concepts of national income: gross domestic product (GDP), gross national product (GNP) and net national product (NNP), net national income (NNI) at market price and factor cost, disposable income
- Approaches to measuring national income
- Problems of measurement; uses of national income statistics and their limitations
- Analysis of consumption, saving and investment and their interaction in a simple economic model
- Determination of equilibrium income
- Inflationary and deflationary gaps
- A mathematical approach to national equilibrium
- The multiplier and accelerator concepts
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| 4.8 Money and banking |
4.8.1 Money
- The nature and functions of money
- Demand and supply of money
- Theories of demand for money
- The quantity theory, the Keynesian liquidity preference theory
- The monerarist perspective
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4.8.2 The banking system
- Definition of commercial banks
- The role of commercial banks and non bank financial institutions in the economy
- Definition of central bank
- The role of the central bank; traditional and changing role in a liberalised economy, such as financial sector reform
- Monetary policy, definition, objectives, instruments and limitations
- Determination of interest rates and their effects on the level of investment, output, inflation and employment
- Money and capital markets
- Credit creation
- Simple IS-LM Model
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4.9 Inflation
- Definition and types of inflation
- Causes of inflation: Cost push and demand pull
- Measurement of inflation: Consumer and producer price index (CPI and PPI)
- Effects of inflation
- Measures to control inflation
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4.10 Labour and unemployment
- Definition
- Population size and demographic trends
- The demand and supply of labour
- Wage determination, policy and theories
- Trade unions and employer associations
- Measurement of unemployment
- Types and causes of unemployment
- Control measures of unemployment
- Relationship between unemployment and inflation
- The Phillips curve, the vertical Phillips curve
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4.11 Public finance
- Introduction
- The role of the government in the economy
- The role of budgetary policy
- Public expenditure
- Budget surpluses and deficits - causes of budget deficits, implications on macro fundamentals
- Fiscal policy: Definition of taxes, types of taxes, principles of good taxation
- Budgeting and planning, fiscal reforms
- National debt management
- Harmonisation of fiscal and monetary policies: monetary/fiscal policy mix
- Economic governance and transparency
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4.12 International trade and finance
- Theory of absolute advantage and comparative advantage
- World Trade Organisation (WTO) and concerns of developing countries
- Protection in international trade
- Regional integration organisations commodity agreements and the relevance of less developed countries (LDCs)
- Balance of payments: Terms of trade, exchange rates, types of foreign exchange regimes, factors influencing exchange rates, foreign exchange reserves
- International financial institutions
- Facilities of International Monetary Fund (IMF) and World Bank
- Differences between IMF and LDCs economic reform programs
- Social economic impact of economic reforms program in LDCs
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4.13 Agriculture and industry
- The role of agriculture in economic development
- Problems faced by the agricultural economic developmentt
- Policies to improve the agricultural sector
- The role of industry in development
- Advantages of small scale industry in developing countries
- Obstacles to industrial development in developing countries
- Impact of substitution versus export promotion: case studies from developing countries
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4.14 Economic growth, economic development and economic planning
- The differences between economic growth and economic development
- Actual and potential growth
- The benefits and costs of economic growth
- Measures of economic development
- Common characteristics of developing countries
- Obstacles to economic development
- The need for development planning
- Limitation of planning in developing countries
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