Economics Revision Questions Question Paper

Economics Revision Questions

Course:Cpa Part I

Institution: Strathmore Business School question papers

Exam Year:2004

NATIONAL INCOME
QUESTION TWENTY-SEVEN
(a) Assume the following information represents the National Income Model of an ‘Utopian’ economy.

Y = C + I + G
C = a + b(Y – T)
T = d + tY
I = IO
G = GO

Where a > O; O < b < 1
d > O; O < t < 1

T = Taxes
I = Investment
G = Government Expenditure

i) Explain the economic interpretation of the parameters a,b,d and t. (4 marks)
ii) Find the equilibrium values of income, consumption and taxes. (8 marks)
b) Discuss the three approaches used in measuring the national income of a country and show why
they give the same estimate. (8 marks)
(Total: 20 marks)

QUESTION TWENTY-EIGHT
a) Why is it important to estimate National Income of a Country? What difficulties do economists encounter while carrying out such a task particularly in developing countries? (10 marks)
b) The table below represents economic transactions for country XYZ in billions of shillings:

Total output Intermediate purchases
Agriculture 30 10
Manufacturing 70 45
Services 55 25

Required:
i) Calculate the Gross National Product of this economy using the value added approach. (3 marks)
ii) If depreciation and indirect taxes equal 8 billion and 7 billion shillings respectively, find the Net Domestic Product both at Market prices and at factor cost. (4 marks)
c) Briefly explain the multiplier and accelerator principles. (3 marks)
(Total: 20 marks)

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