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Econ 422: Public Finance &Amp; Fiscal Policy Question Paper

Econ 422: Public Finance &Amp; Fiscal Policy

Course:Bachelor Of Science In Economics And Statistics

Institution: Chuka University question papers

Exam Year:2013

CHUKA

UNIVERSITY

UNIVERSITY EXAMINATIONS
EXAMINATIONS FOR THE AWARD OF
DEGREE OF BACHELOR OF SCIENCE ECONOMICS AND STATISTICS
ECON 422: PUBLIC FINANCE & FISCAL POLICY

STREAMS: ECON & STAT TIME: 2 HOURS

DAY/DATE: TUESDAY 13/8/2013 11.30 AM- 1.30 PM

INSTRUCTIONS:

Answer Questions ONE and any other TWO Questions
Do not write anything on the Question Paper

Question One (Compulsory)

1. (a) The following are George and Harriet’s utility functions for bread (b) and parkland (z).

U_G=b_G+10z Where b is a private good
U_H=(b_H )^(1/2) Z^(1/2) z is a public good

Assume that the economy is endowed with one acre of land, and that one acre of land allocated to farming produces 50 loaves of bread. What is the pareto optimal allocation (optimal in which George’s utility is fixed at u ¯. [10 Marks]

(b) Compare and contrast public and private finance. [10 Marks]

(c) Discuss the reasons why the government should intervene in Economic activities. [10 Marks]
Question Two

(a) The government is interested in taxing sugar in order to increase its tax revenue. The market is currently at equilibrium at a price of Ksh10and sale of Ksh 1000kgs per month. Suppose the own price elasticity of demand is 0.1 and the own price elasticity of supply is 0.2. Now the government announces the tax measure with the new market price to be maintained at Ksh 15 per Kg.

Required:

(i) Compute and show with a diagram suppliers and buyers tax burden.
(ii) How much will the government get from the new tax measures?
(iii) Calculate the deadweight loss of the tax. [15 Marks]

(b) Discus the canons of good tax system. [5 Marks]

Question Three

(a) Discuss four main causes of market failure. [12 Marks]

(b) Explain clearly the principle of maximum socio advantage indication the weaknesses. [8 Marks]
Question Four

Explain the following theories of public expenditure growth.

(i) Musgrave-Rostown’s theory [4 Marks]

(ii) Wagner’s organic state theory [4 Marks]

(iii) Political theory [4 Marks]

(iv) Ratchet effect theory [4 Marks]

(v) Peacock & Wiseman’s theory [4 Marks]

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Econ 422: Public Finance &Amp; Fiscal Policy Question Paper

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