Public Finance Question Paper

Public Finance

Course:Bachelor Of Education

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ARTS

AEC 307: PUBLIC FINANCE
DATE: Thursday 4th December, 2008 TIME: 2.00 p.m – 4.00 p.m

INSTRUCTIONS:
Answer question ONE and any other Two questions.

QUESTION ONE
(a) The government is considering the construction of a motorway connection
two towns . Identify the:
(i) Direct tangible benefits and costs (3 marks)
(ii) Direct intangible benefit and costs (3 marks)
(iii) Indirect tangible benefits and costs (3 marks)
(iv) Pecuniary benefits (1 mark)

(b) The market of a particular product is currently in equilibrium at a price
of Ksh 400 per unit and sale of 10000 units per month. Suppose own
price elasticity of demand is 0.4 and the own price elasticity of supply
at the same point is 0.5. Now the government announced the tax policy
with the new market price to the maintained at Ksh 500 per unit.
(i) Draw a well-labelled diagram showing the situation before and
after the government intervention. (4 marks)
(ii) Calculate the and show diagrammatically the sellers and
buyers tax burden. (4 marks)
(iii) calculate the amount of tax revenue the government will
receive from the new tax policy. (4 marks)
(iv) Explain the factors affecting growth of the public expenditure
in Kenya. (6 marks)

QUESTION TWO
(a) Explain the three functions of budgetary policies, suggesting and
explaining possible policies that can be used to meet the objective.
(11 marks)
(b) Explain the conflict between
(i) Allocation and distribution function. (3 marks)
(ii) Distribution and stabilization functions(3 marks)
(iii) Distribution and growth function (3 marks)

QUESTION THREE
(a) With the help of a diagram explain the principal of maximum social
advantage giving its limitation. (10 marks)
(b) Define the term market failure and explain the four sources of market
failure. (10 marks)

QUESTION FOUR
(a) In the case of negative externalities explain the various measures that
the government may put in place to regulate them. (9 marks)
(b) Using relevant illustration explain the need for a public sector in
developing economy like Kenya. (6 marks)
(c) Briefly explain the weaknesses of Coase theorem. (5 marks)

QUESTION FIVE
(a) Explain in detail how the public expenditure can be used to regulate the
performance of an economy in both developing and developed economies.
(10 marks)
(b) Discuss briefly the sources of public borrowing. (5 marks)
(c) State the factors that determine the public sector borrowing requirement.
(5 marks)

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