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Eae 313:Public Finance Question Paper

Eae 313:Public Finance

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2015

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2015/2016
FIRST SEMESTER EXAMINATIONS FOR THE DEGREE OF BACHELOR OF ECONOMICS, BACHELOR OF COMMERCE, BACHELOR OF ARTS.
EAE 313: PUBLIC FINANCE
DATE: THURSDAY 26TH NOVEMBER 2015 TIME: 11.00A.M- 1.00 P.M
INSRUCTIONS: Answer questions ONE and any other TWO questions.
Question one
a) Explain the two characteristics of public goods and state what causes each one of them. (6marks)
b) State any three methods of measuring the size of the public sector. (4marks)
c) You are provided with the following national income statists
C=10+2Yd
Yd=Y-T
T=2+0.2Y
Investments= 20
Net exports= -10
Required:
i. Calculate the size of public sector (SPS) using government expenditure approach. (5marks)
ii. Solve the public sector borrowing requirements. (5marks)
d) Using relevant examples, discuss the four public policy objectives. (10 marks)

Question two
a) The goal of public finance is to understand the proper role of the government in the economy. When should the government intervene in the economy?
b) Suppose that the demand for good Q is by 2 groups and given by;
Q1=45-0.2P1
Q2=15-0.2 P2
And the cost function for the same good is given as;
Cost =4Q
i. Find the equilibrium levels of prices for each group and quantities for each group when the good is private in a competitive market and when the good is public good. Which group will be a free rider and why? (10 marks)
Question Three
a) Explain any 5 methods that a government can use to repay its debts. (10 marks)
b) Discuss any five canons of taxation. (10 marks)

Question Four
a) Explain any five reasons for the growth of government expenditure in developing countries. (10 marks)
b) If cash flows for a project are as follows:
Year 0 1 2 3 4
Benefits -100000 25000 40000 40000 50000
And that the discount rate is 12%. Find
I. The benefit cost ratio and Net Benefit Cost Ratio. (8 marks)
II. Should the investor invest in the project? (2marks)

Question Five
a) Explain any five principals of a good budget. (10 marks)
b) Explain any five causes of government (non-market) failure. (10marks)

Eae 313:Public Finance Question Paper

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