CPA FOUNDATION LEVEL CIFA FOUNDATION LEVEL ECONOMICS
TUESDAY: 20 August 2024. Afternoon Paper. Time Allowed: 3 hours.
This paper has seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.
QUESTION ONE
(a) (i) Explain the concept of “price ceiling”. (2 marks)
(ii) Discuss THREE advantages of setting price ceilings. (6 marks)
(b) Describe FOUR types of labour mobility. (4 marks)
(c) Enumerate FOUR challenges of capping interest rates in a country. (4 marks)
(d) Describe FOUR strategies that developing countries might apply to correct the balance of payment deficit. (4 marks)
QUESTION TWO
(a) Using a well labelled diagram, illustrate the regressive supply curve of labour. (6 marks)
(b) Explain THREE exceptions to the law of diminishing marginal utility. (6 marks)
(c) State FOUR challenges faced by small scale industries in developing countries. (4 marks)
(d) Outline FOUR characteristics of developing countries. (4 marks)
QUESTION THREE
(a) Outline SIX roles played by commercial banks in the economic development of a country. (6 marks)
(b) Argue SIX cases for restrictions in international trade. (6 marks)
(c) The following information represents the national income of country X in billions of shillings. C = 220 + 0.8Yd
T = 30 + 0.1Y I = 70
G = 20
Where: C = Consumption expenditure T = Taxes
G = Government expenditure Yd = Disposable income
Required:
(i) The marginal propensity to save. (2 marks)
(ii) The multiplier. (2 marks)
(iii) The consumption expenditure. (2 marks)
(iv) The equilibrium level of national income and taxes. (2 marks)
QUESTION FOUR
(a) State FIVE factors that limit the success of economic integration in developing countries. (5 marks)
(b) Distinguish between “debt distress” and “debt conversion”. (4 marks)
(c) Outline SIX methods that may be adopted to clear external debts in developing countries. (6 marks)
(d) Highlight FIVE limitations of the quantity theory of money. (5 marks)
QUESTION FIVE
(a) Explain THREE demerits of the deductive method of economic analysis. (6 marks)
(b) Discuss THREE forms of economic integration in relation to international trade. (6 marks)
(c) Describe how the concept of opportunity cost is applied in decision making with respect to:
(i) Consumers. (2 marks)
(ii) Firms. (2 marks)
(iii) Governance. (2 marks)
(iv) International trade. (2 marks)
QUESTION SIX
(a) State FIVE features that influence the level of Foreign Direct Investment (FDI). (5 marks)
(b) Explain FOUR determinants of money supply in an economy. (8 marks)
(c) Using a well labelled diagram, illustrate the long-run equilibrium of a monopoly firm. (7 marks)
QUESTION SEVEN
(a) Using well labelled diagrams, distinguish between “inflationary gap” and “deflationary gap” as used in national income statistics. (10 marks)
(b) Highlight FOUR principles of a good tax system. (4 marks)
(c) A firm operating in a perfectly competitive market has the demand and total cost functions represented by the following:
P = 40 – 60Q
TC = 100 + 50Q – 80Q2
Where;
P = Price
Q = Quantity TC = Total cost
Determine:
(i) Average fixed cost function. (2 marks)
(ii) Average variable cost function. (2 marks)
(iii) Marginal cost function. (2 marks)
