Seeta Hill College
Business Education Department
ECONOMICS
Resourceful Study Guide and Work
Facilitator:
KIIRYA ASMAN
0702 285810, 0774 434879
Contents
Part I
The Subject of Economics
Introduction
Examinable syllabus
Content linkage
Techniques of assessment
The command words
Question requirement
Common mistakes
Part II (Core Units 1-2)
Types of questions
1) Conceptual-definition
2) Calculation
3) Distinguish-differentiate
4) Neutral point
5) Relationship
6) Challenge-problem
7) Measures
8) Role-contribution
9) Importance-significance
10)
Effects-implications-impact
11)
Illustrative
12)
Descriptive
13)
How-method
14)
Variation
15)
Procedure
16)
Circumstantial-conditional
17)
Why
18)
Inadequate-measure
19)
Theory
20)
Comparative-advantage over
21)
Argumentative
22)
Argumentative-block
Part III
Topical self-test paper questions
Part IV
National examination question paper.
Part I
The Subject of Economics
Introduction
Although Economics as a discipline is widely offered and studied at Advanced-Level
since it cuts across the Arts and Science Subject Combinations, many students have
passed it with either a marginal principal grade, Subsidiary or Completely failed;
Why???
 Economics is a technical social science subject and therefore it requires a
technical approach and treatment when dealing with it.
 It requires a thoroughly and greater literate understanding of the basics and
principles of the subject content.
 It requires one not to only have the ability of recalling factual knowledge but also
to assess, demonstrate and explain an idea(s) which is probably more difficult.
 It requires a rightful application of economics knowledge, terminology, concepts
and theories in verbal, numerical and graphical form; analysis and interpretation
of data or information plus application of understanding to a simple problem,
especially where calculation is required.
 It requires one being in position to relate the subject more directly to the economic
decisions for example, to mix theory with practice and also to judge between
evidence and opinion.
 It necessitates a wider coverage of the syllabus and greater content linkage among
the topics for one to be more knowledgeable in preparation for an examination.
Examinable Syllabus
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Introductory Topic to Economics
Price theory
Theory of Production
National Income
The Structure of Uganda’s Economy
Development and Under development
Economic Development Strategies
Agriculture Versus Industrialization
Labour Economics- Population, Labour, Wages, Trade Unions, Manpower
problems and planning
 Unemployment
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Inflation
International Trade
Money and Banking
Economic Development Planning
Public Finance
Public Enterprises and Parastatals
Content linkage in Economics
It should be born in mind that there is visible linkage and similarity among various
topics within the subject content of economics, such that the knowledge acquired
especially in the introductory and price theory is a pre-requisite for the better
understanding of other topics
On that note, the inclusion of this part is purposely an attempt to extract some areas
where content linkage among topics is evident as hinted below;
a) By way of conceptualization idea, operation, functioning,roles, merits and
demerits
 Introductory topic; Economic systems that is, free market economy, socialist
(planned economy) and the mixed economy.
 Price theory; Price mechanism and price legislation/control
 Labour economics; determinants of wages
 International trade; foreign exchange rates; flexible, managed exchange rates and
foreign exchange control
 Economic development planning, namely decentralized and centralized planning.
b) By way of idea and applicability
 Price theory ;the concept of elasticity of demand and supply
 Production; determinants of economic rent and market structures(i.e. where
AR=DD)
 Labor and wages; in case of the determinants of demand for and supply for labour
and wage.
 International trade; under the policy of devaluation.
 Public finance; in taxation, incidence of a tax and application of the concept of
elasticity of demand to subsidies.
c)
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

By way of negative effects
National Income; inequality of income
Unemployment
Inflation; especially hyper inflation
By way of conceptualization, merits and demerits.
 Economic development strategies; balanced and unbalanced growth strategies/
theories.
 Economic development planning; under nature of planning, in case of coverable,
that is, Comprehensive (macro) and partial (macro) planning.
d) By way of idea, originality (source) and impact (contributions/ roles/effects)
 Production (Business Units/Enterprises); multi-national corporations.
 Economic development strategies; foreign aid foreign direct investments.
e) By way of definition, features, roles, limitations and policy measures.
 The Structure of Uganda’s economy; agricultural and industrial sectors.
 Agriculture Versus industrialization.
f) By way of objectives and goals.
 Development and underdevelopment; objectives of development and development
goal.
 Money and banking; monetary policy.
 Public finance; national budget and fiscal policy.
Techniques of assessment
There are two techniques to accessing examination in economics especially at
Advanced-level namely;
a) Short answer questions; where a word, phrase or sentence is needed to answer
the question; for example
i) Mention the sources of public re venue in your country – taxes, afee, fine/
penalty, rates etc.
 Such questions test the recall of factual knowledge.
ii) Define the term “perspective planning”− a longer term planning in which longterm targets are set in advance for a period of ten or even more years.
 Such questions assess the ability to explain an idea (i.e.perspective) which is
probably more difficult.
iii) Sometimes a calculation is required; for example, from a given information or
data, one might be asked to “calculate”.
 Such questions require the application of understanding to a simple problem and
there is just one correct answer.
b) Essay (continuous writing) questions;
These are the most popular and widely used method of assessment in economics.
 Essay questions are mainly subdivided, that is, (a) and (b); and the subdividing of
questions tend to increase the reliability of the marking, which is to the
candidate’s benefit.
 Such questions normally have three parts, namely;
i) The command word,
ii) Economic theme,
iii) Area of extension (i.e. in the economy, LDC’s or your country)
For example; Account for the unemployment problem in your country.
− The command word is account.
− Economic theme is the unemployment problem.
− Area of extension is in your country.
The command words.
These include any of the following;−
−
−
−
−
−
−
−
−
−
−
−
−
define
what
distinguish
calculate
outline
examine
explain how
state
how
explain
account for
assess
to what extent
−
−
−
−
−
−
−
−
−
mention
when
differentiate
describe
in what ways
discuss
give
why
Suggestetc.
Question requirement
 Answer the question set basing on the “Command word” and not what is in your
mind i.e. what you presume; for example;
− What are the causes of public debts? Is notthe same questions as;
− Why do countries incur public debts?
 Some command words require rightful application and use of head phrasewords
or word qualifiers
 Majorly emphasize economic content notimpressive form.
 For essay (continuous writing) questions, avoid presentation of work in headings
and notes form, but write in continuous prose.
 Narrative type of writing do not merit in economics i.e. do not write long
sentences and paragraphs make the point(s) more clear and better.
 Correct examples and illustrations (diagrams) where applicable should be
provided, as these enhance one’s answer. It should be noted that any writing(s)
given to explain wrong illustrations have no validity.
 A good ‘point development strategy’ is required such that there is consistent
between the stated (given) point and the explanation backing it.
 Avoid the use of words which distort the meaning (message) of the presentation
e.g.formally instead of formerly when explaining the “impart substitution strategy
of industrialization”;a given period of time instead of a particular
timewhendefining a “market price,” etc.
 Statements where technical words are used and given as either direct answers,
factors or in form of problems must be written correctly e.g.complement not
compliment goods; Resale price maintenance not maintenance
;entrepreneurial ability not entrepreneurialetc. to avoid penalties
 Ambiguous question(s) should be answered according to the way it has been set,
as longer as it carries some meaning like shs 800,000,000 million.
 Disturbing terms like pre-requisites, traits, structural features and the like
should not make one to avoid a would be direct, factual and knowledgeable
question; and just attempt another one for formality
 Marks allocated for each question at the extreme end of the right side are of vital
importance as they act as a guide when answering. It should be noted that, in most
cases, for “distinguish /differentiate type” of questions in Section A take 02
marks while in Section B are of 04 marks.
 For essay questions, there is no firm rule for the number of points to be raised
and given; however,atleast 10 points need to be raised where possible.
Common mistakes
i) In relation to spellings;
 Consumer sovereignty not sovereignity under free market economy and price
mechanism.
 Resale price maintenance not maintainance as a method of price determination,
way of interfering with price mechanism and as a cause (factor) of monopoly.
 Complement(ary) good(s) not compliment (ary); in case of prices of……
……… as a factor commenting on the relationship between two commodities.
 Entrepreneur (ial) not enterpreneur (ial) as a factor of production, using the
concept in application as a factor; e.g. availability of entrepreneurship, limited
entrepreneurial ability etc.
 Subsistence production/sector not subsistance
 Brand royaltynot royality in case with monopolistic competition as a feature/
characteristic.
 Differentiatedproducts not heterogeneous products in case of imperfect
oligopoly.
 High degree of Uncertainty not Uncertainity in case of oligopoly as a feature.
 MC=MR not MR=MC, since it is MC to meet (cut) MR from below in the
determination of equilibrium output under perfect competition, monopoly,
monopolistic competition and oligopoly.
 Arithmetic rate not arithimetic/arithmetric rate with population growth under
Malthusian population theory.
 Profit (income) repatriation not repartriation in case of foreign investors, direct
foreign investment, multi-national corporationsetc.
 Tariff not tarrif with protectionism as a tool for commercial policy etc.
 Economic integration not intergration under international tradewhen used as a
substitute for economic (regional) cooperation.
 Compatible/compatibility not compartible/compartiability under the features
and principles of planning respectively.
 Certainty not certainity under the principles of good taxation.
 Divestiture not diverstiture under the methods of privatization.
ii) During presentation of work
 Opportunity cost is the second best alternative foregone; NOT the second
alternative foregone when a choice is made (because second best implies choice).
 Market forces of demand and supply determine a price NOTset a price.
 Defining a market price, ends with “at a particular time NOT in (over) a given
period of time.
 Defining Maximum or Minimum price; is the setting/fixing of a
price……….NOT the set/fixed price………..
 Comparative Advantage; it must be least opportunity cost NOT less (lesser)/low
(lower) opportunity cost.
 Malthusian population theory; …………. At ageometric rate and arithmetic rate
NOT geometrically and arithmetically.
 Liquidity preference (Demand for money), desire to hold NOT have
assets/wealth in cash or near cash form.
 Poor terms of trade (causes); explanation should be in relation to
exportpricesversusimport price NOT foreign exchange earnings to import
expenditure.
 BOP deficit (causes), explanation should be export earnings versus import
expenditure not export prices versus import prices.
 Solve/fight BOP problems NOT improve on BOP problems/deficit.
 Low employment opportunities/limits; employment creation is NOT the same as
leads to unemployment (in case of unbalanced growth and partial planning as a
demerit).
 V is velocity of money in circulation NOT velocity of money circulation.
 Malthus noted (suggested) that there was need for population control measures
through negative (preventive) checks like moral restraint, celibacy etc. Otherwise
positive checks like diseases, wars etc. would serve to reduce population growth.
NOT through negative (preventive) and positive checks/ both negative and
positive checks.
 Average propensity to……..and marginal propensity to….. Is the proportion/
fractional/percentage of……..NOT is the amount (wrong).
 Cash ratio, reserve ratio and liquidity ratio is the proportion/fraction/percentage of
…….NOT is the amount…..
 Progressive tax, regressive tax and proportion tax is tax whose average
rate….NOT is a rate of a tax…..
 Multiplier concepts…………multiplies itself to generate a final change NOT by
itself.
 Credit creation process; the process continues till the initial deposit
defuses/diminishes NOT disappears in the banking systems.
Part II
Types of questions
1. Conceptual/ definition type of questions.
 Such questions test the ability of one’s understanding of the general ides of a
given concept(s) based on the principles of the subject.
 They are required to make (give) exact, precise and clear meaning or scope of the
concept(s) as generally accepted in application and use.
 An ill-defined meaning, implies one is less conceived (uncertain) with the concept
or idea.
 It should be noted that conceptsrepresent the doctrine (thinking) laid down by
Authoritative persons in the discs of economics; and therefor, one as a beginner/
student of economics cannot define any concept vaguely and be accepted by an
examiner(s).
 For concepts to be handled with some degree of ease, necessitates a wider
coverage, reading, understanding and internalizing of the subject topical contents.
 Specialization in specific topics coupled with speculation of what is likely to be
set and brought in an examination paper has proved to be very disastrous to many
candidates basing on the work presented in their answer scripts.
Questions are normally phrased with command words like
− Define the term…….
− What is/are…………
− What is meant by (the term)……..
− Distinguish (differentiate) between….
1.1 Define (the term);
Opportunity cost; is the alternative foregone when choice is made / is the second
best alternative foregone.
Industrial inertia; is the tendency of an industry to remain located (continue
surviving) in an area where other industries exist even when factors which led to
the location of the industry no longer apply.
Marginal propensity to save (MPS); is the proportion (fraction or percentage) of
an additional (increase in) income that is saved / it is the ratio of change in savings
to change in income.
A development goal; is a target or objective; economic, social or political to be
achieved in a specified period of time. Or it is the intended growth and
development objectives a country aims at achieving in a given period of time.
Foreign aid; is the transfer of resources to a country from abroad; it can be from
friendly countries, international institutions or private sources in form of loans,
grants or gifts/ donations.
Over population is a population size that (which) provides excess labour force
relative to the available resources leading to low output per capita or low income
per capita.
Agricultural modernization; is the changing of the agricultural sector from
mainly subsistence production to commercialized high yielding sector/ it is the
policy of increasing output and incomes in the agricultural sector through
measures such as mechanization, use of better production techniques, improved
seeds etc.
Credit multiplier; is the number of times by which an initial (a given) bank
deposit multiplies itself to generate a final change in deposits/ it’s the number of
times initial deposit in a bank is multiplied to give total credit created (total
deposits).
1.2 What is (are);
A free market economy,
Public goods,
A dual economy,
Technology transfer,
Currency depreciation,
A national budget?
A free market economy; is an economic system where the allocation of resources
is determined by the market sources of demand and supply with no or limited
government intervention/ is an economy where there is private ownership of
resources by firms and households with no or limited government intervention.
Public goods; are those goods which when provided for a particular group of
people or individuals become available for others to use at zero or no extra cost
and the consumption by one person does not reduce the amount available to other
users.
A dual economy; is one where there is co-existence of two contrasting sectors;
one being advanced, modern, capitalistic, superior and desirable, and the other
traditional, backward, pre-capitalistic, inferior and undesirable.
Is one where two mutually exclusive situations (phenomena) co-exist within an
economy, one being desirable and the other undesirable to different groups of a
society, for example affluence and extreme poverty.
Technology transfer; is the shifting (movement) of new and efficient production
techniques from one economy to another; mainly from developed countries to less
developed economies.
Currency depreciation; is the fall in the value of local currency relative to
foreign (other) currencies as a result of the interplay of the market forces of
demand and supply in the currency (ies) market.
A national budget; is an estimate of the revenue the government expects
(intends) to raise and how it plans to spend that revenue in a financial year / it’s an
estimate of anticipated government revenue and anticipated government
expenditure for a given year.
1.3What is meant by (the term);
i) A mixed economy,
ii) Price,
iii) Factor prices,
iv) Aggregate demand,
v) Underdevelopment,
vi) Foreign direct investment,
vii)
A trade union,
viii)
Stagflation,
ix) Economic integration,
x) Economic development planning,
xi) Trade liberalization?
A mixed economy is one where resources are owned and controlled by both the
state (Central Authority/public) and the private sector (market forces of demand
and supply) / or an economy that has both public sector and private sector
operating side by side / or an economy with both socialist and capitalistic
elements existing side by side.
Price; is an amount of money that has to be given up in order to obtain a good, a
service or factor of production. It’s also the exchange value of a commodity in
terms of money.
Factor prices; are monetary value or payments (rewards) to factors of production
for their contributions of goods.
Aggregate demand; is the total demand for goods and services in an economy at
a given period of time.
Underdevelopment; is a situation where there is underutilization of resources and
low standards of living characterized poverty (low incomes), low rate of economic
growth, low technology, high unemployment rate, high population growth rate.
Etc.
Foreign direct investment; is the transfer of productive resources or capital by
foreign individuals, companies and multi-national corporations in the form of
business operations.
A trade union; is an association (organization) formed by workers in a particular
craft or industry to collectively bargain for (per sue) common objectives such as
increased wages, improved conditions of work improved skills of member among
others.
Stagflation; is a situation where there exists both high rates of unemployment and
high rates of inflation in an economy.
Economic integration; is the coming together of two or more countries in a given
region for the sake of mutual (economic) benefit of all member states. OR is the
merging to various degrees of the economies and economic policies of two or
more countries in a given region for the mutual benefit of member countries.
Economic development planning; it is the deliberate government effort to
direct, influence and control the major economic variables (activities) such as
investment, income, consumption, employment, savings and others to achieve
specific objectives of national development over a given period of time.
Trade liberalization, is the removal of unnecessary controls on trade hence
giving people the liberty to trade without undue government controls.
1.4 Distinguish (differentiate) between the following;
i) Vertical and horizontal merging of firms
ii) Gross Domestic Product (GDP) and Gross National Product (GNP)
iii) Economic growth and economic development
iv) Import substitution and export promotion strategy of industrial development
v) Piece rate and time rate method of wage payment
vi) Voluntary and involuntary unemployment
vii)
Trade creation and trade diversion
viii)
Monetary policy and fiscal policy
ix) Centralized planning and decentralized planning
x) Reproductive debt and dead weight debt
xi) Privatization and nationalization of economic enterprises.
Vertical merging of firms is the coming together of two or more firms at different
stages of production in the same industry.
WHILE
Horizontal merging of firms is the coming together of two or more firms at the same
stage of production process in the same industry. For example, two weaving firms in a
textile industry.
Gross Domestic Product (GDP) is the value of goods and services produced within the
territorial (geographical) boundaries of a country during a given period of time usually a
year.
WHILE
Gross National Product (GNP) is the total value of goods and services produced by the
nationals of a country in a given period of time usually a year.
It is the total value of goods and services of a country including net income from abroad
for a given period of time and usually a year.
Economic growth is the persistent (sustained) increase in the country’s volume of goods
and services in a given period of time.
It is the persistent and quantitative increase in the national income (GDP/GNP) of an
economy overtime.
The steady process by which the productive capacity of the economy is increased
overtime to bring about rising levels of national income.
WHILE
Economic development is the qualitative and quantitative increase in the productive
capacity of the economy; and it involves positive structural changes in the political,
social and economic set up of the country.
Import substitution strategy of industrial development is a deliberate government
policy of encouraging the establishment of industries to process and manufacture locally
(domestically) goods which were formerly (previously) imported.
It is strategy of establishing industries internally to produce goods formerly imported.
WHILE
Export promotion strategy is an industrial strategy which advocates for promoting the
domestic manufacturing sector with a view to increasing and expanding the volume of
exports (produce for markets abroad) mainly with the aim of earning foreign exchange
and correcting balance of payments problems.
It is a strategy of promoting domestic manufacturing sector with the aim of increasing
goods for export.
Piece rate is a method of wage payment where labour (workers) are paid according to
the amount of work done.
WHILE
Time rate is a method of wage payment where workers are paid according to the time
they worked, for example per hour, day.
Voluntary unemployment is a situation in which people who are able are not willing to
work at the ongoing wage rate(s) yet employment opportunities exist.
Is one in which labour is not willing to work at the ongoing wage rate yet there is a job.
WHILE
Involuntary unemployment is a situation in which people who are able and willing to
work at the current wage rate(s) are unable to find jobs.
One in which labour is willing to work but is unable to find work at the ongoing wage
rate.
Trade creation is the shifting of trade from a high cost non-member country to a low
cost member state after economic integration.
WHILE
Trade diversion is where there is a shift of trade (from importing) from a low cost nonmember state to a high cost member country when economic integration takes place.
Monetary policy is the deliberate attempt (effort) by the government through the
Central Bank to regulate (control) the amount of money in circulation (money supply) in
the economy so as to attain objectives of development such as price stability, stable
economic growth rates etc.
WHILE
Fiscal policy is a deliberate policy under which government uses its expenditure and
revenue (taxation) programs to regulate the level of economic activities so as to achieve
economic stability, growth and development.
Centralized planning is one where by the Central Authority (state/government) plans
for the whole economy and it directs implementation of plans in line with set targets.
WHILE
Decentralized planning is one whereby economic decision making and the
implementation of plans is in line with set targets are undertaken by local government
(authority) instead of the Central Authority.
A reproductive debt is one where the borrowed money is used to purchase real
assets/finance productive projects which bring in returns used to pay back the loan
i.e.it’s a self-liquidating debt.
WHILE
A dead-weight debt is one where the borrowed money is used to finance unproductive
projects i.e.it’s not a self-liquidating debt.
Privatizationof economic enterprises is the transfer of ownership of public assets/ state
enterprises to individuals/ private investors/private sector.
WHILE
Nationalization of economic enterprises is where the government takes over control
and ownership of privately owned enterprises with or without compensation.
 There are numerous concepts in the subject of economics; but for the purpose of
this resourceful guide, the preceding concepts were randomly chosen to act as
examples on how appropriate a concept(s) can be defined.
 It should be noted that there is a lot of difference in the meaning of these concepts
(terms) as used in ordinary life and in economics.
2. “Calculation” type of questions.




State/ give the correct and rightful formula.
Make the correct substitutions, minding the units where applicable.
Finally give the correct answer, minding the units where applicable.
Possible topical areas where questions can be set from-;
− Price theory
− Theory of production
− National income
− Population
− International trade
− Money and banking
2.1Calculate the price elasticity of demand, if an increase in the price of sugar from
shs 2,000 to shs 2,500 per kilogram resulted in a 10% decrease in its demand.
PED = Percentage change in quantity demanded of a commodity
Percentage change in the price of the commodity
%
Q = -10%
%
P = 500
X 100 =25%
100
PED
= -10%
= -10
25%
25
= 2/5 OR 0.4
Alternatively,
PED
= -10%
(2500 -2000) X 100
2000
= 2/5 OR 0.4
Alternatively,
PED
= (-)
P
Q
Q
= (-) -10
500
X P
X 2000
100
= 2/5 OR 0.4
2.2
i) The price of a commodity increased from shs. 80,000 to shs. 120,000 per unit. The
quantity of a commodity demanded in the market decreased from 500 to 2000
units; calculate the price elasticity of demand for the commodity.
ii) When the price of a commodity decreased by 40% this led to an increase in
quantity demanded of a commodity by 50%; calculate the price elasticity of
demand for the commodity.
2.3
i) Given that an individual’s income increased from shs. 50,000 to shs.80, 000 per
month and this led to increase demanded for a commodity by 10%; calculate the
income elasticity of demand.
ii) State the uses of income elasticity of demand in your country.
2.4
i) Calculate the income elasticity of demand when the household’s income increased
from shs. 25000 to shs.30, 000 and the quantity demanded of commodity X
decreased from 900 to 600 units.
ii) What type of commodity is X?
iii) Why may the income elasticity of demand for a commodity be negative?
2.5
i) Calculate the cross elasticity of demand if the price of commodity X falls from
shs.2, 000,000 to shs. 1,600,000 per unit and the quantity demanded of
commodity Y increases from 40,000 to 60,000 units.
ii) State the relationship between commodities X and Y.
2.6
i) Given that the price of commodity Yincreased from shs 100,000 to shs 150,000
and the quantity demanded of a related commodity Z increased from 200,000 to
600,000 units; calculate the cross elasticity of demand for commodity.
ii) State the relationship between commodities Y and Z.
2.7 Calculate the price elasticity of supply for commodity from point A to D in the
supply schedule below;
A B
C
D
Price of maize in shs/kg
10 20 30 40
Quantity of maize supplied in kg 50 100 150 200
2.8 The price of a commodity increased from shs.80, 000 to shs. 120,000 per unit.
The quantity of a commodity supplied in the market increased from 2,000 to 5,000
units.
i) Calculate the price elasticity of supply for the commodity.
ii) With a reason(s), state whether supply is elastic or inelastic.
2.9 Given that the supply of commodity X increased from 20,000 to 30,000 units as a
decrease in price for commodity Y from shs 8,000 to shs 6,000 per unit.
i) Calculate the elasticity of supply for commodity X.
ii) State the relationship between commodities X and Y.
iii) Mention the possible examples of commodities X and Y.
2.10
The supply of commodity M rose by 25% from 800 units as a result of the
rise in the price of commodity N from shs 3,000 to shs 5,000 per unit.
i) Calculate the degree of elasticity.
ii) Identify the degree of elasticity.
iii) With a reason(s), state the relationship between the two commodities.
2.11
i) Study the tale below showing the price and quantity purchased of commodity X
and calculate the consumer’s surplus if 4units of the commodity where purchased
at shs 1500.
Price consumers are willing
Units purchased
to pay (shs)
3000
1
2500
2
2000
3
1500
4
1000
5
500
6
Consumer’s surplus = planned Expenditure — Actual Expenditure
= (3000+2500+2000+1500)—(4*1500)
=shs 3000
Alternatively;
= (3000-1500) + (2500-1500) + (2000-1500) + (1500-1500)
= shs 3000
This can be in form of a table.
PE
AE
CS
3000
2500
2000
1500
1500
1500
1500
1500
1500
1000
500
0
9000
— 6000
= 3000
ii) Given that market price of a commodity is shs 65,000. Calculate the producer’s
surplus in the table below;
Price 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000
(shs)
supply 1
2
3
4
5
6
7
8
Producer’s surplus = Actual Revenue— Expected revenue
Expected Revenue = 30,000+35,000+40,000+45,000+50,000
+55,000+60,000+65,000
= 380,000/=
Actual Revenue
= 65,000*8 = 520,000/=
.
. . Producer’s Surplus = 520,000 – 380,000
= shs. 140,000
Alternatively,
Producer’s surplus = (65,000 – 30,000) +
(65,000 – 35,000) +
(65,000 – 40,000) +
(65,000 – 45,000) +
(65,000 – 50,000) +
(65,000 – 55,000) +
(65,000 – 60,000) +
(65,000 – 65,000)
= shs. 140,000
This can be in form of a table.
AE
PE
PS
65,000
65,000
65,000
65,000
65,000
65,000
65,000
65,000
520,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
380,000
-
=
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Shs. 140,000
2.12
i) Given that the market price is shs 300; calculate the consumer’s surplus in the
demand schedule below;
PX (Shs)
QX
700
1
600
4
500
9
400
16
300
24
200
37
100
50
ii) If a consumer was willing to buy quantities of a commodity as represented by the
demand schedule below;
Price
70
60
50
40
30
20
10
Quantity 2
5
15
28
45
70
100
Given that the market price is shs 30 per unit; calculate the consumer’s surplus.
2.13
Given that a factor of production receives a transfer earning of shs 100,000
and its economic rent is twice its transfer earnings. Calculate the factor’s actual
earnings.
Actual Earnings = transfer earnings +economic rent earning
= 100,000 +2(100,000)
= shs 300,000
2.14
Below are the costs and revenue of a firm. Using the information provided,
answer the questions that follow;
Output
Total
Total Costs
(Q)
Revenue(TR) (TC) in Shs.
in Shs
0
—
1100
1
500
1400
2
1000
1620
3
1500
1750
4
2000
1800
5
2500
1850
6
3000
1940
7
3500
2190
8
4000
2600
9
4500
3250
i) What are its fixed costs?
The fixed costs are shs 1100
Reason; when output (Q) = 0 (zero), then total fixed Costs (TFC)/ FC) are equal
to total costs (TC) of a firm.
That is, when f (Q) =0
Then TFC (FC) =TC
ii) What are its total variable costs for the first two units of output?
Total Variable Costs (TVC) for the first two units of output;
= TVC1 +TVC2
= (TC1 –TFC) + (TC2 –TFC)
=shs {(1400-1100) + (1620-1100)}
= shs 820
Alternatively;
= TC1 +TC2 –2 (TFC)
= shs (1400 +1620) -shs (2*1100)
= shs (3020-2200)
= shs 820
iii) What is the marginal Revenue (MR) of the firm?
MR =
TR
Q
TR is shs 500 since the firm is under perfect competition because MR is constant ie
the sell of an additional unit of output brings in the same revenue as that brought in by
each unit sold (AR = MR = P)
MR = Shs 500
1
= shs. 500
2.15
Given the table below;
output
0
3
4
5
6
7
8
9
10
Total cost
600
1650
1860
2100
2400
2800
3400
4300
5800
i) What is the average fixed cost when output is 10?
ii) What is the average variable cost when output is 4?
iii) What level of output represents the break-even point of the firm?
iv) What level of output represents the shut-down point of the firm?
v) If the marginal revenue (MR) constant at 600 per unit of output, what would be
the equilibrium output of the firm?
2.16
Study the table below and answer the questions that follow;
sector
total
Intermediate Value
output
purchases
added
($m)
($m)
($m)
Agriculture
300
100
—
Manufacturing 700
Services
300
450
150
—
—
others
100
—
250
Determine the;
i) Value added by the various sectors.
Value Added Tax = Total output – Intermediate Purchases




Agriculture
Manufacturing
Services
Others
= $ (300-100)m
= $ (700-450)m
= $ (300-150)m
= $ (250-100)m
= $200m
= $250m
= $150m
= $150m
ii) Gross Domestic product (GDP) in the economy;
GDP= summation of (total) value added.
=$ (200+250+150+150) m
= $ 750m
2.17
Given the information below;
Consumption
US $M
Exports
200
Consumption
700
Grants
Taxation
Savings
Imports
Investments
Government
expenditure
Interest on loans
300
100
200
150
100
150
400
Calculate the level of;
i) Injections
ii) Leakages
iii) Aggregate demand in a closed economy.
iv) Aggregate demand in an open economy.
Answers
i) The level of injections;
This is given by the total sum of Exports, Investments, government expenditure
and Grants.
= US $ (200+100+150+300) millions
=US $ 750 millions
ii) The level of leakages;
This is given by the total sum of Taxation, Savings, Imports and interest on Loans.
= US $ (100+ 200+150+400) millions
= US $ 850 millions
iii) The level of aggregate demand in a closed economy;
AD = C+I+G
= US$ (700+100+150) Millions
= US$ 950 Millions
iv) The level of aggregate demand in an open economy;
E = C+I+G+ (X-M)
= US $ (700+100+150+200) - 150 millions
=US $ 1000 millions
2.18
Given that a country’s GNP was;
Expenditure
million shillings
Household
530,610
Investment
487,498
Government
325,428
Net Income from abroad
-10,325
Depreciation
70,520
Indirect taxes
642,252
Subsidies
286,912
Calculate the country’s;
i) Gross Domestic Product at market price.
ii) Net National Product at factor cost.
2.19
Given that the country’s GDP is shs 400 billion, net income from abroad is
shs 40 billion and value of depreciation is shs 20 billion; calculate the Net
National Product (NNP).
NNP = GDP + Net income from abroad —depreciation
=shs (400 +40 -20) billion
=shs. 420 billion
2.20
Given that a country’s stock of machinery is valued at Ug. Shs 100 billion
at the beginning of the year, the total output from the machinery during the year
was Ug.shs 500 billion, depreciation costs during the year were 20%; calculate
the;
i) Value of depreciation,
ii) Net output during the year.
i) Value of depreciation;
= stock of machinery *rate of depreciation
=shs 100 billion *20
100
=ug. Shs 20 billion
ii) Net output during the year;
= total output- depreciation
=Ug. Shs (500-20) billion
=Ug. Shs 480 billion
2.21
i) Given that GDP at market price is £ 500 billion, indirect taxes amount to £155
billion and subsidies are £200 billion; calculate the GDP at factor cost.
ii) A nation’s GDP at factor cost is 300 billion £, indirect taxes amounted to 100
billion £ and subsidies were 150 billion £, calculate the GDP at market price.
iii) Given that the Gross National Income is shs. 275,000,000million and the Net
Income from abroad is shs. 15,000,000 million; calculate the Gross Domestic
Income.
iv) Given that Gross Domestic Product at factor cost is 2500 million shillings, Net
Income from abroad is 800 million shillings and depreciation of capital
equipment is 50 million shillings, calculate the Net National Product.
2.22
Given that the country’s National income at market price is shs. 360 billion,
outlays amounting to 40% of the national output at market price and negative
taxes totals to shs 60 billion.
Determine the value of the country’s;
i) National Product at factor cost
ii) Net National Income at factor cost, given that capital consumption amounts to
one-half of the subsidies.
2.23
The table below shows the population and GNP of countries A and B.
Country
GNP(million $)
Population
(million people)
A
B
1200
750
20
15
Calculate the per capita income of country A and country B
Per capita income = GNP
Population
PCY of country A
= $ 1200M
20M
= $ 60
PCY of country B
= $ 750M
15M
=$ 50
2.24
Given that nominal Gross Domestic Product is shs 150,000,000,000 and the
consumer price index is 105, calculate the real Gross Domestic Product.
Real GDP = Nominal GDP x 100
Price Index
= shs 150,000,000,000
x100
105
=shs 142,857,142,857
=shs 142.857 billion
2.25
Study the table below and answer the questions that follow;
commodity
Base Year
Base Year
Prices (2006)
Prices (2005) Indices
200
100
150
P
250
100
300
Q
150
100
240
R
400
100
400
S
300
100
450
T
Weights
4
1
3
5
2
Calculate the;
i) Price relative for each commodity in 2006.
ii) Weighted Index for each commodity.
iii) Simple price index for 2006.
iv) Weighted index for 2006.
Soln.
i) Price Relative for each commodity in 2006;
SPI = PC X 100
PB
Commodity P = 150 X100 =75
200
Commodity Q= 300 X 100 = 120
250
Commodity R = 240 X 100 = 160
150
Commodity S= 400 X 100 =100
400
Commodity T= 450 X 100 = 150
300
ii) Weighted index for each commodity;
WPI = SPI X W
Commodity P
= 75 X 4
= 300
Commodity Q
= 120 X 1
= 120
Commodity R
= 160 X 3
= 480
Commodity S
= 100 X 5
= 500
Commodity T
= 150 X2
= 300
iii) Simple price index for 2006;
ASPI
= Ʃ Price relatives
No. of commodities
=
75+120+160+100+150
5
=121
iv) Weighted index for 2006.
AWI = Ʃ (Price relatives X W)
Ʃ Weights
= 300+120+480+500+300
5+4+3+2+1
= 113.333….
2.26
Study the table below and answer the questions that follow;
commodity
Base Year
Base Year
Selected
Weight
Prices
simple index Year (2018 )
(2010)
(2010)
200
100
700
5
A
150
100
500
4
B
500
100
1000
3
C
100
100
300
2
D
700
100
1200
1
E
Calculate the;
i) Simple price index for each commodity in 2018.
ii) Weighted index for each commodity in 2018.
iii) Average weighted index.
2.27
Study the table below and answer the questions that follow;
commodity Average Simple Average Simple Weight Weighted
Price
2012
(U.shs)
Sugar (kg) 800
Soap (bar)
450
Maize (kg) 220
Meat (kg)
700
Fuel (Ɩ)
550
Clothing(m) 1200
index
2012
100
100
100
100
100
100
Price
2016
(U.shs)
1,000
600
400
1,200
950
1,500
Index
2016
—
—
—
—
—
—
Index
2016
3
5
6
2
4
1
—
—
—
—
—
—
Calculate the;
i) Simple index for 2016
ii) Weighted index for 2016
iii) Average weighted index for 2016.
2.28
Study the table below and answer the questions that follow;
commodity
Base year
Base Year
Current year
prices 2010
simple index prices 2013
Sugar (kg)
1500
100
2100
Beans (kg)
300
100
450
Rice (kg)
1200
100
1500
Bread (
1200
100
1800
Calculate;
i) Simple price index,
ii) Average price index,
iii) Weighted index for the year 2013.
Weight
4
3
2
1
2.29
Study the table showing commodity prices for selected items (2000 and
2004) and answer questions that follow;
Commodity Average
Simple
Average
Weight
price
index
Price2004
index
index2000
(2000 )
(Ug.shs)
(2004 )
(Ug.shs)
1000
100
1200
2
A
800
100
1000
4
B
400
100
650
3
C
750
100
900
5
D
1500
100
1800
1
E
Calculate the;
i) Simple index for 2004
ii) Weighted index for 2004.
2.30
Given that a country’s income is shs.60,000 billion and its total
consumption is shs 48,000 billion, calculate it’s;
i) Average propensity to consume (APC)
ii) Average propensity to save
(APS)
i) Total NY =60,000B/N=
Total consumption = 48,000 B/N=
APC = Total ConsumptionOR
C
Y
Total income
= 48,000 B/N
60,000 B/N
= 4/5 OR 80% OR 0.8
ii) Total savings = total NY — TOTAL CONSUMPTION
= (60,000-48,000) B/N
= 12,000B/N
APS
= Total Savings
Total Income
= 12,000 B/N
60,000 B/N
= 1/5 OR 20% OR 0.2
Alternatively,
APS = 1 - APC
= (1- 4/5) OR (100 – 80) OR (1-0.8)
= 1/5 OR 20% OR 0.2
2.31
i) Given that a rise in national income from £ 5,000 million to £ 5,200 million led to
an increase in savings from £400 million to £ 420 million; calculate the marginal
propensity to save (MPS)
MPS =
S
Y
= € (420 -400)M
€ (520- 5000) M
= 1/10 OR 10% OR 0.1
ii) Given that a country’s Gross Domestic Product (GDP) increased from 100million
$ to 300 million $ and the value of imports increased from 25 million$ to 75
million$; calculate the marginal propensity to import (MPS).
2.32
Calculate the multiplier given that
i) MPC = 0.75
Multiplier (ƙ) =
1
OR
1 – MPC
=
1 – 0.75
1
0.25
= 4 times
ii) MPC =50%
= 50
100
= 0.5
1
MPS
OR
1
Ƙ
=
1
OR
1 – MPC
= 1
1 – 0.5
= 2 times
1
MPS
OR
0.5
1
2.33
Country Z had an increase in the level of investment from US $ 2million to
US $2.4million which led to an increase in income from US$ 150 million to US$
225 million. Calculate the investment multiplier in the economy.
Investment multiplier (Ʀ)
Ʀ=
Y
I
= $ (225 -150)M
$ (2.4 -2) M
= 187.5 times
2.34
Given that the current level of Gross Domestic Product is 300million
shillings, the increase in national investment expenditure is 50 million shillings
and the marginal propensity to save is 0.2, calculate the;
i) Multiplier value
Ʀ= 1
MPS
=
1
0.2
= 5 times
ii) Final value of national income.
FY = OY +
Y
OY = 300M/=
Y=
IXƦ
= 50M X 5
= 250M/=
FY = 300M/= +250M/=
= 550M/=
2.35
Given that the marginal propensity to consume (MPC) in a two –sector
economy is 80%, initial investment is shs. 20,000,000 million , initial equilibrium
level of income is shs 80,000,000 million and if the investment is increased by shs
5,000 million; calculate the;
i) Multiplier value
ii) New equilibrium level of income.
2.36
Given that in a two-sector economy, MPS =0.2, I= $ 500 million and Y= $
2500 million.
i) Assuming the investment remains constant, what is the equilibrium level of
saving?
ii) If investment were to increase by $100 million, what would be the new
equilibrium level of income?
2.37
Study the table below showing changes in the level of income ,
consumption and savings in an economy and answer the questions that follow;
Time Period
Changes in
Changes in
Changes in
Income
Consumption
savings
A
100,000
80,000
20,000
B
—
—
—
C
—
—
—
D
—
—
—
Given that marginal propensity to consume (MPC) is 80% and change in income
is 100,000,000 US$;
i) Calculate the changes in the level of Income, Consumption and Savings for the
period B, C and D to complete the table above (show the working).
ii) Determine the multiplier,
iii) Calculate the overall change in the level of income in the economy.
i)
The change in the level of income for the period of B, C and D;
Given MPC = 80% = 80
= 0.8
100
Y is 100,000,000 us $, then;
e for the current =
Period B;
Y
e for preceding period X MPC
=
YA X MPC
= 100,000,000 US$ X 0.8
= 80,000,000 US$
Period C;
Y
=
YB X MPC
= 80,000,000 US $ X 0.8
= 64,000,000 US$
Period D;
Y
=
YC X MPC
= 64,000,000 US$ X 0.8
= 51,200,000US$
The change in the level of consumption for the period B, C and D;
Period B;
C
=
CA X MPC
= 80,000,000 US$ X 0.8
= 64,000,000US$
Period C;
C
=
CB X MPC
= 64,000,000US$ X 0.8
= 51,200,000 US$
Period D;
C
=
CC X MPC
= 51,200,000US$ X 0.8
= 40,960,000 US$
The change in the level of savings for the period of B, C and D;
Period B;
S
=
SA X MPC
= 20,000,000US$ X 0.8
= 16,000,000US$
OR
=
YB -
CB
= (80,000,000 – 64,000,000)
= 16,000,000US$
Period C;
S
=
SB X MPC
= 16,000,000 X 0.8
= 12,800,000US$
OR
=
YC -
CC
= (64,000,000 – 51,200,000) US$
= 12,800,000US$
Period D;
S
=
SC X MPC
= 12,800,000US$ X 0.8
= 10,240,000US$
OR
=
YD -
CD
= (51,200,000 – 40,960,000) US$
= 10,240,000 US$
ii)
The multiplier (Ʀ)
Given MPC =80% = 80
= 0.8
100
Ʀ
=
1
OR
1 – MPC
=
1
MPS
OR
1 – 0.8
1
1
O.2
= 5 times
iii)
The overall change in the level of income in the economy;
F
Y =initial
YXƦ
= 100,000,000US$ X 5
= 500,000,000 US$
2.38
Given that the working population in a country is 12,000,000, the young
population is 14,000,000 and the elderly population is 4,000,000, calculate the
country’s dependency ratio.
Dependency ratio = Number of dependents
Working population
0R
= (Unproductive population):
(Productive population)
X 100
= (14,000,000 + 4,000,000)
X 100
12,000,000
= 18,000,000
X 100
12,000,000
= 150% 0R 3:2
2.39
Study the table below showing output levels of two countries in two
commodities given the same units of labour and answer question which follows;
Country
Commodities
Generators
Coffee
X
400
600
Y
100
300
i) State the country with absolute advantage in the production of both commodities.
ii) Calculate the opportunity cost of producing each commodity in each country.
iii) In which commodity should each country specialize?
i) Country X absolute advantage in the production of both commodities,i.e.
Generators and Coffee.
ii) Calculated opportunity cost of producing each commodity in each country;
For Country X;
Generators in terms of coffee
400G = 600C
400G = 600C
400
400
1G = 1.5C
Coffee in terms of Generators
600C = 400G
600C = 400G
600
600
1C = 0.67G
For Country Y;
Generators in terms of coffee
100G
= 300C
100G
= 300C
100
100
1G = 3C
Coffee in terms of generators
300
300C
= 100G
300C
= 100G
300
1C
= 0.33…G
iii) The table of least opportunity costs is as given below;
Country
Generators
X
Y
1.5
3
Coffee
0.67
0.33…
A Vertical comparison of the least opportunity costs from the table shows that:
Country Xneeds to specialize in the production of Generators where it incurs the
least opportunity cost.
WHILE
Country Y needs to specialize in the production of coffee.
2.40
Study the figure below showing two production Possibility Frontiers (PPF)
for countries P and Q; and answer the questions that follow;
Maize (tons)
20,000
15,000
Country P
Country
Q
0
5000
15000sugar (tons)
i) What principle of cost in international trade is illustrated by the frontiers?
ii) In which commodity should each country specialize? Illustrate your answer.
2.41
Given 95 as a country’s export price index and 110 as its import price
index.
i) Calculate the terms of trade (T.O.T) of such a country.
ii) Comment on such a country’s state of terms of trade.
i) Terms of trade = price index of exports x 100
Price index of imports
Simply T.O.T =Px x 100
Pm
95 x 100
110
=86.4
ii) The country’s state of terms of trade was unfavorable i.e. Unfavorable
terms of trade; because the ratio of price index of exports to the price index
of import is less than 1(T.O.T <1) or 100.
2.42
Study the table below showing the terms of trade for
country Z (2014-2018) and answer question that follow;
Year
2014
2015
2016
2017
2018
Export Price Index
100
142
120
128
154
Import Price Index
100
108
114
132
173
Terms of Trade
100
__ -
i) Calculate the terms of trade for the years 2015 – 2018.
ii) Did country Z experience favorable or unfavorable terms of trade in 2017?
Give a reason.
2.43
Given that the exchange rate is 1€=4000 Ug. Shs; calculate the new
exchange rate after devaluation of the shilling by 20%.
New Exchange Rate;
= 4000 + (20 x4000)
100
=4000 + 800
=4800
Therefore, 1€= 4800 Ug. Shs.
Alternatively,
Take 20% as an increase in the Ug.shs. , that is 100=20 =120
=120 x 400
100
=4800.
Hence, 1€=4800 ug. shs.
2.44
What will be the new exchange rate after devaluation of the
shilling by 10% given that the exchange rate is 1US dollar = 3500 Ug.shs?
2.45
Given that the volume of money in an economy is €20
billion; total level of transactions is € 250 million and the transaction velocity of
money is 20; calculate the general price level in the economy.
M = €20 billion
V= 20
T =€ 250 million
P = MV
T
= € 20,000,000,000 x 20
€ 250,000,000
=1600.
2.46
i) Given that the amount of money in circulation is 200 million Ug.shs and its
velocity is 10 and the level of transactions is 40,000; calculate the general price
level in the economy.
ii) Given that the quantity of money in economy is US $1,000,000 its velocity of
circulation is 20 and the number of transactions made are 250; calculate the
general price level in the economy.
2.47
Given a cash ratio of 0.1 and initial deposits of shs. 250,000; calculate the;
i) Credit multiplier,
ii) Total credit created.
i) Cash ratio = 0.1
Initial deposits =shs 250,000
Credit multiplier = 1
CR
=1
0.1
=10 times
ii) Total deposit = Initial deposit X credit multiplier
= shs. 250,000 x 10
= shs. 2,500,000.
2.48
Given a cash ratio of 0.2 and the total deposit created in Uganda shs 200,000; calculate
the initial deposit that was available to the bank.
 Cash ratio = 0.2
 Total deposit created = shs 200,000.
Initial deposit = Total deposit Created
Credit multiplier
=shs 200,000
1/0.2
= shs 200,000
5
= shs 40,000.
2.49
Calculate the credit created where; initial deposit amount to 10,000 shillings; cash ratio
is 5% and four banks are involved.




Initial deposit = shs 10,000
Cash ratio = 5%
Number of banks = 4
Credit created =?
Bank
A
B
Initial Deposit
10,000
9,500
Cash ratio
500
475
New loans
9,500
9,025
C
D
9,025
8573.75
451.25
428.69
8573.75
8145.06
Credit created= (10,000 +9,500 + 9,025+8573.75)
=shs 37,098.75.
2.50
Calculate the compound interest earned on the principle sum of sum of shs 100,000 lent
for a period of three years at an interest rate of 10% per annum.
 Principle sum = shs 100,000
 Time period = 3 years
 Interest rate = 10% per annum.
Compound interest = Amount – Principle
But A (amount) = P (1+ R) n
= 100,000 (1 + 10 ) 3
100
= 100,000 (1+0.1)3
=100,000 (1.1)3
=100,000 x 1.331
Amount = shs 133,100
Compound Interest = 133,100 – 100,000
= shs 33,100.
Alternatively, use of;
Cumulative approach;
Year 1;
10 x 100,000
100
= shs 10,000
Year 2;
10 x 110,000
100
=shs 11,000
Year 3;
10 x 121,000
100
=shs 121,100
Compound interest = (10,000+ 11,000 + 12,100)
=shs 33,100.
2.51
Given that a micro finance has initial deposit of shs 1,000,000 and the required
cash ratio of 25%;
Calculate the;
i) Credit multiplier;
ii) Total deposits that will be created in a multi- bank system.
2.52
Given that the initial deposit in a bank is Uganda shillings 10,000,000 and
the cash ratio is 20% calculate the total amount of credit that will be created in a
multi- bank system.
3. “Distinguish / Differentiate” type of questions
 Requires to give (make) the difference (distinction) between two or more
concepts.
 In most cases consider the highlighted/ bolded concepts.
 The two or more statements given (written) should be almost similar only to differ
by one or a few words.
 Always use the separating /conjugate words of whereas or while; and preferably
on an independent line.
 It is acceptable to use the word appearing especially on both concepts to be used
when distinguishing by way of definition or explanation.
 Sometimes, one of the concepts is used to define the other; in such a situation, the
first one must be defined \ explained rightly to make the validity of the second
statement to be correct.
3.1Distinguish\differentiate between
i) Inferior and gifted goods
Inferior goods are goods whose demand falls (reduces) as consumer’s level
of income increases.
While
Gifted goods are goods whose demand falls (reduces) when their prices
falls.
ii) Normalandpure profit;
Normal profit is a profit level earned where average revenue (AR) is equal
to average cost (AC) i.e.AR=AC
While
Pure profit is profit earned where average revenue (AR) is greater than
average cost (AC) i.e.AR>AC
iii) Impact and Incidence of a tax.
Impact of a tax is the first (initial) resting place of a tax.
While
Incidence of a tax is the last (final) resting place of a tax.
iv) Nominaland Real income
Nominal income is income to an individual or country expressed in terms
of money.
While
Real income is which expresses the purchasing power of nominal income.
3.2Distinguish(differentiate) between the following;
− Market price and normal price
− Composite demand and joint demand
− Elasticity of demand and price elasticity of demand
− Economic rent and quasi
− Overhead costs and operating costs.
− Nominal GDP and real GDP
− Marginal propensity to consume (MPC) and marginal propensity to
save (MPS).
− Investment multiplier and consumption multiplier.
− Economic dependence and economic inter-dependence.
− External resource dependence and direct economic dependence.
− Balanced and unbalanced growth strategies.
− Capital-saving and labour saving techniques of production
− Under population and over population
− Cost push and structural inflation
− Comparative and absolute cost advantage.
− Money supply and demand for money.
− Fiduciary issue and fiat money
− Partial and comprehensive planning
− Direct and indirect taxes
− Progressive and regressive taxation
− Public and national debt
− Surplus and deficit budget
4. “Neutral point”type of questions
 Requires points\ answers to be stated in a neutral\unbiased form.
 Points must be stated with lead-phrase words like
Availability of……………………
Possibility of……………………..
Government policy………………..
Proportion of………………………
Level of……………………………
Size of…………………………….
Degree of………………………….
Number of………………………….
 Explanation of the point(s) should be 2-sided, that is in favour/ based in
favour and (biased) in disfavor.
 It is advisable to put (use) either a comma (,), semi-colon (;) or a full stop
(.) immediately after the stated neutral point because wrong explanation
without any of,or. makes even the point to be cancelled.
 Questions of this typed are phrased with command words like;
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What are the determinants of …………….
What are the factors affecting /influencing (that affect/influence)
Explain the factors affecting /influencing (that affect/influence)
Examine the factors affecting/influencing (that affect/influence)
Discuss the factors affecting/influencing (that affect/influence)
4.1Explain the factors that cause a change in demand for a commodity.
 A change in the prices of substitute commodities, (an) increase in prices of
substitute commodities lead to an increase in quantity demanded for a
commodity while a decrease in the prices of substitute commodities lead to
a decrease in quantity demanded for a commodity.
 A change in the prices of complementary goods; an increase in prices of
complementary goods lead to a decrease in quantity demanded for a
commodity while a decrease in prices of complementary goods lead to an
increase in quantity demanded for a commodity.
 A change in the levels of income of the consumer.
 A change in tastes and preferences / fashion; a favorable
change…….while unfavorable change………………….
 A change in government policy of taxation and subsidization; a favorable
change (a decrease in taxation and increase in
subsidization)………………while unfavorable change (an increase in
taxation and a decrease in subsidization)………
 A change in seasons; afavorable change e.g. increase in rainfall increases
demand for umbrellas while unfavorable change…….
 Expectation of future changes in price of the commodity, expectation of
future increase …….while expectation of future decrease in the price of
the commodity lead to a decrease in the quantity demanded of the
commodity (a decrease in demand).
 A change in population size and structure.
 Changes in income distribution among households.
 A change(s) in availability of credit facilities e.g. hire purchase.
 A change in the level of advertisement.
Note:
 A change (s) is a neutral point
 An increase while a decrease/ favorable change while unfavorable
change makes it a 2-sided explanation.
4.2Examine the factors that influence the level of national income in an
economy.
 Level of exploitation of natural resources.
 Entrepreneurial ability.
 Existing stock of capital.
 Techniques of production.
 Labour skills.
 Level of infrastructural development.
 Market size.
 Investment climate/ availability of investment incentives.
 Land tenure system i.e.good or poor
 Price stability/rate of inflation/ economic stability.
 Political atmosphere/climate.
 Level of monetization of the economy, size of subsistence sector.
 Population growth rate.
 Level of savings.
 Level of accountability.
 Degree/level of conservatism.
 Degree of attitude to work i.e. high/ positive or low/negative.
 Level of economic planning.
 Level of credit facilities.
 Points stated in a neutral form
 2-sided explanation is required.
4.3Explain the factors that;
i) Affect the elasticity of demand in an economy.
ii) Influence the implementation of development plans in your country.
4.4Explain the factors that;
i) The efficiency of labour in an economy.
ii) Labour supply in an economy.
iii) Economic growth in an economy.
4.5Examine the factors that influence;
5.
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i) The quantity of a commodity supplied in your country.
ii) People’s standards of living in an economy.
iii) Consumption expenditure in your country.
iv) Level of wages in an economy.
v) The process of credit creation in an economy.
vi) The effective operation of the monetary policy in developing countries.
4.6Discuss the factors that influence capital formation in your country.
“Relationship” type of questions.
Require to give /state a logic link (connection) between two or more economic
themes /concepts.
The phrasing should be “they are related in a way that…………….
Always apply and use the conjugate words like whereas or while when giving the
other side of the relationship.
Avoid using words like directly, inversely or oppositely related or vice versa
when stating the relationship.
5.1 State /explain/ what is the relationship between cost of living and standard of
living.
Cost of living and standard of living (they/ the two) are related in a way that;
Low cost of living implies high standard of living while high cost of living leads
to low/poor standard of living in an economy.
5.2How the degree of specificity of a factor of production does affects its
mobility?
The relationship between the degree of specificity and mobility of a factor of
production is that;
The more specific a factor is, the more difficult it is to put the factor to some use
other than that for which it was originally intended.
WHILE
A low degree of specificity of a factor of production leads to a high degree of
factor mobility e.g. unskilled (untrained) labour for any manual work in any type
of occupation or location.
5.3Explain the relationship between the following;
i) The fundamental economic problems (i.e. scarcity, choice and opportunity cost)
ii) Price and quantity demanded of a commodity.
iii) Rent and transfer earnings in an economy.
iv) Marginal propensity to Consume (MPC) and marginal propensity to save. (MPS)
v) MPC and multiplier
vi) MPS and multiplier
vii)
Multiplier and accelerator principles.
viii)
Income, Investment and employment in an economy.
ix) Qualities and functions of money.
x) Interest rate and demand for money.
xi) Money supply and price level.
Relationship between cash ratio, bank deposit and credit creation;
 Given a certain cash ratio, an increase in bank deposit will increase on the bank’s
ability to create credit WHILE a decrease in bank deposit reduces on the bank’s
ability to create credit.
 Given a certain bank deposit, an increase in cash ratio will decrease on credit
created WHILE a decrease in cash ratio leads to an increase on credit created.
6. “Challenge/ constraint/ obstacle/hindrance/ problem/factors which limit
(undermine)/low level” type of questions.
 Require to consider the factors (reasons) acting against /in disfavor.
 Conventionally, start (open) statements with lead –phrase words like;
− Problem of…….
— stiff (competition)
− Difficulty of……
— high level of (corruption)
− Inadequate
—unfavorable
− Shortage of
—ineffective
− Limited
—unstable
− Poor
− Small (market)
− Low level of (technology)
 Point explanation has to clearly bring out the “how part” i.e. limitation of its
cause not as a result of what?E.g.
Inadequate capital / limited market; which hinders the expansion of activities in
the private sector. OR which causes activities to be operated at excess capacity in
the private sector.
 Avoid the use of “double negatives” like problem of lack of market, problem of
poor infrastructure etc. (this is totally wrong).
6.1Account for the low –level of economic development in your country.
An account (Reasons) for the low level of economic development in my country;
 Low level of technology.
 Limited capital stock/ low savings/low incomes.
 Limited labour skills/ high illiteracy rates/brain drain
 Unfavorable terms of trade.
 Low levels of accountability/corruption.
 High rates of capital outflow/ profit repatriation.
 Poor attitude towards work / conservatism
 Limited market (both at home and abroad)
 Poor infrastructure.
 Dominance of subsistence sector/ low levels of monetization.
 Dependence on agriculture.
 High debt burden and problem of debt servicing.
 Limited (quantity, quality and variety of) strategic natural resources.
 Low entrepreneurial skills.
 Instabilities in price and exchange rate.
 High population growth rates.
 Poor land tenure systems.
 Poor investment climate/ poor government policy on investment.
 Unfortunate structural adjustment programs (SAPs)
6.2Explain the factors which limit credit creation by commercial banks in your
country.
The factors which limit credit creation by commercial banks in my country;
 Lack of collateral security.
 Few credit worthy borrowers.
 High cash ratio.
 High interest rate on loans.
 Corruption by bank officials which either limits the volume of deposits for lending
or lend only to those who bribe them.
 High liquidity preference.
 Unpopularity of loans.
 Few and mainly urban based commercial banks / poorly distributed commercial
banks.
 Low income level of the population.
 Low savings/ low deposits.
 Restrictive /contractionary monetary policy by the central bank /government.
 Poor (unfavorable) political climate.
 Economic uncertainty in the country.
 Low level of investment.
 Large subsistence sector.
 Limited knowledge about services offered by commercial banks.
6.3What challenges do developing countries face when implementing
development plans?
Challenges faced when implementing development plans.
 Inadequate funds / limited capital.
 Inadequate /limited necessary data/information.
 Limited good will by the people/ conservatism.
 Presence of non-responsive (growing) private sector.
 Poorly developed infrastructure.
 Dependence on foreign aid which is uncertain, inadequate, inconsistent etc.
 Interference by politicians/government.
 Political instability.
 High rates of inflation.
 Inefficient/ weak implementation /administrative machinery/ limited labour skills.
 Low accountability/corruption on the part of plan implementers.
 Plans being too ambitious i.e. far beyond the means.
 External /foreign interference.
 High population growth rates.
 Bureaucratic delays/ red tape tendencies.
6.4Explain/examine the factors that limit;
i) Effective demand for a commodity in an economy.
ii) Capital accumulation in your country.
iii) On the merging of firms in an economy.
iv) Level of savings /investment in your country.
v) The effective operation of investment multiplier in your country.
vi) The application of the “Big push’’ theory in your country.
vii)
The ability of trade unions to raise wages in your country.
viii)
The success of the monetary policy in your country.
6.5What (explain) are the problems faced by;
i) The industrial sector in your country.
ii) The informal sector in your country.
iii) Multi-national corporations in your country.
iv) Banking financial institutions in developing countries.
6.6Account for the low rate (level) of/poor;
i) Profit to entrepreneurs in your country.
ii) National income in developing countries.
iii) Performance of the agricultural sector in developing countries.
iv) Economic growth in developing countries.
6.7What are the challenges being faced by;
i) The private sector in your country.
ii) The stock exchange market in your country.
iii) Trade unions in your country.
iv) Your country when providing public goods.
6.8Examine (what are) the limitation of the import substitution strategy of
industrial development in developing countries.
“Measures (policies/steps)” type of questions.
7
a)
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They are basically of three (3) types namely;
Measures that should be taken /adopted;
Here statements made have to express a “future course of action or obligation”,
that is, have to be phrased in a suggestive form with an element of should, can,
has to.
It is also accepted to begin statements (i.e. lead- phrased words) with either an
action verb or “noun” form of word.
Hint;
Market should be expanded……. (Should be expanded is suggestive form.)
Expand market ……..(expand is used as an action verb)
Expansion of market….(expansion as a noun)
Such questions require one to be well informed of the factors affecting and
limiting factors / problems to be in a better position of suggesting a correct
measure.
Hint;
Factor(s)
Size of market
Limiting factor(s) /problems
small / limited/ narrow market
Measure(s)
Market should be expanded -----Expand market ------Expansion of market ------- Explanation must bring out how the measure will solve the problem but not how
market can be expanded
b) Measures (steps) being taken ; this implies that the measures are in place and
operating, and therefore, statements made have to express a “ continuing course
of action” with the element of is and are (i.e. present continuous tense )
Hint;
− Markets are being expanded / widened -------− Expanding / widening markets ----And not expanding ‘of’ markets because the inclusion “of” means that the measure is
yet to be in place i.e. suggestive form.
Note: expanding markets and expanding of markets differ.
c) Measures that have been adopted ;
This means that measures are already in course of action and therefore operating.
Statements made have to express the element of has, has been, have, have been
and also is or are.
Hint;
Expanded / widened markets -----
7.1Suggest measures (the steps) that “should” be taken (adopted) to;
Increase the level of national income,
OR
Increase the rate of economic growth in your country.
Measures that “should” be taken to increase level of national income or economic
growth in my country.
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Promote\ increase the utilization of natural resources\idle resources.
Widen market(s),both local and foreign
Develop infrastructures
Stabilize the political atmosphere.
Improve entrepreneurship skills
Control population growth rate
Improve labour skills
Encourage savings
Stabilize prices\control inflation
Provide(tax) incentives to investors
Develop techniques of production\improve technology.
 Privatize public enterprises\assets
 Provide affordable credit\loans for investment
 Diversify the economy\develop the industrial sector\encourage inter-sector
diversification and linkages
 Liberalize the economy.
 Change the land tenure system.
 Monetize the economy.
 Modernize agricultural sector.
 Fight conservation
 Improve economic planning
 Encourage proper accountability \fight corruption
7.2Suggest measures that “should” be taken to reduce the level of
unemployment in your country;
Measures that should be taken to reduce the level of unemployment in my country:
 Control population growth rate
 Improve labour skills \ train (equip) labour with skills\ education reforms\ under
take proper man power planning.
 Develop infrastructures.
 Diversify the economy
 (Further) privatization of public enterprises \assets\ properties.
 Reform (change) the land tenure system
 (Further) liberalization the economy.
 Improve\ stabilize the political atmosphere
 Encourage use of appropriate technology.
 Improve investment climate \ provide tax incentives to investors
 Widen market(s)
 Advertise jobs
 Modernize the agriculture sector
 Provide special programs for persons with special needs\disabilities
 Export surplus labour to other countries
 Further industrialization
 Provide affordable credit\loans for investment
 Fight corruption\encourage proper accountability
7.3Suggest measures that should be taken to improve the terms of trade in
developing countries.
Measures that should be taken to improve the terms of trade in developing countries.
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Process exports so as to add value
Improve the quality of exports.
Diversify export markets\strengthen regional economic integration
Diversify exports to reduce dependence on traditional products
Strengthen international commodity agreements negotiate for removal of trade
barriers in export markets.
Negotiate for removal of trade barriers in export markets.
Stabilize exchange rates.
Encourage importation of goods from cheaper sources
Adopt import substitution industrial strategy.
Improve on technology\invest in research and development
Encourage\ campaign for the use of natural products.
7.4Suggest measures that “should” be taken to reduce balance of payments
deficits in your country.
Measures that should be taken to reduce BOP deficits in my country;
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Trade restrictions to discourage imports
Promote import substitution industrial strategy\industrialization.
Diversify export markets
Increase volume of exports
Diversify exports
Stabilize the political atmosphere (so as to reduce huge expenditure on
importation of military hardware).
Develop local man power to reduce expenditure on expatriates.
Restructure foreign missions (and reduce foreign travels by government officials.
Strengthen\join commodity agreements to increase bargaining power in export
markets.
Appeal for debts relief\ debt conversion.
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Process exports to increase value and prices.
Improve quality of exports.
Encourage depreciation of currency
Negotiate for removal of trade restrictions on exports.
7.5Describe the measures “being” taken to control inflation in your country.
Measures “being” taken to control inflation in your country.
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Reducing government expenditure
Increasing direct taxes
Developing infrastructures
Modernizing agriculture
Providing tax incentives to investors
Maintaining stable political atmosphere \improving the political climate.
Liberalizing the economy
Privatizing public enterprise \assets
Regulating\discouraging exportation of essential goods
Undertaking contractionary monetary policy.
Controlling issuance of currency.
Encouraging importation (of essential goods and services) from cheaper sources
to supplement domestic supply.
 Reducing government borrowing from the central bank
 Promoting industrialization\ under taking import substitution industrial strategy.
7.6Explain the measure that “have been” taken to minimize price fluctuations of
agricultural products in your country.
Measures that “have been” taken to minimize price fluctuation of agricultural products
in my country.
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Developed transport system
Reduced dependence on nature for example by encouraging irrigation
Formed producers co-operative societies
Encouraged proper planning of production
Improved storage facilities
Expanded \diversified market (e.g. by joining regional economic co-operation),
this has helped to sell off more products and avoided surplus
 Promoted futures trade (market)\ encouraged contract farming
 Subsidized farmers, and this has enabled farmers to access more inputs, hence
increasing on supply.
 Joined / strengthened commodity agreements which has increased on the
bargaining power so as to stabilize prices.
 Processed the products\established agro-processing industries which have offered
market to produce or increase the quality (added value) to the products.
 Diversified the sector, and this has helped to control excess surplus for only a
particular product.
 Established buffer stock schemes
 Established stabilization funds
 Legislated minimum prices for products of agriculture to stabilize prices.
7.7Suggest measures that “should” be taken (adopted) to;
i) Stabilize prices of agricultural products in developing countries
ii) Increase on mobilityof labour in your country.
iii) Improve the agricultural sector in your country
iv) Promote the private sector in developing countries
v) Improve economic development planning in your country
vi) Control inflation in an economy.
7.8Suggest measures “being” taken to improve the industrial sector in your
country.
7.9 What (explain the) measures that have been taken to;
i) Minimize uneven distribution of income;
ii) Promote the level of investment;
iii) Promote the development of the private sector in your country?
8 “Role\ Contribution” type of questions
Questions of this type are answered basing on the command word(s) which qualifies it
to be either one or two- sided approach, as hinted in the table below;
One – sided approach (only positive
position/ function)
Two sided
What is the role of
Explain the role of
Discuss the role of
What are the contributions of
Examine the role of………………..
Assess the role of………………….
Examine the contributions of……….
Access the contributions of…………
Explain the contributions of
Discuss of contributions of
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Price mechanism
Multi-national corporations
Private sector
Informal sector
Foreign aid
Economic development planning
Taxation
Public enterprises
Parastatal organizations
NOTE: The role of the national budget in a country is one-sided
8.1 Explain the role of price mechanism in an economy.
The role of price mechanism in an economy;
 It ensures the allocation of resources.
 It guides on what to produce.
 It provides an incentive for economic growth in cases where high prices
encourage high production.
 It provides an automatic adjustment between demand and supply i.e. how much to
produce.
 It determines the type of technology to be used in production i.e. how to produce.
 Ensures production of better quality products because of competition.
 Determines income distribution.
 It guides consumers when making choice\ enables consumers to buy from the
cheapest source and maximize utility.
 It determines where to produce i.e. location of production unit.
 Determines when to produce i.e. when demand is high
 Determines the distribution of goods and services i.e. for whom to produce.
NOTE: what is \ explain the role of price mechanism basically requires one to
work at the functions of the price mechanism.
8.2 Examine the role (effects \implications\ impact) of price mechanism in an
economy.
Role of price mechanism.
Positive role
 It leads to increased employment opportunities.
 It encourages arbitrages which benefits producers.
 It encourages competition which leads to production of better quality goods and
services.
 It promotes incentive for hard work leading to increased production.
 It reduces the cost of administration.
 It reduces the costs of administration because of limited government control.
 It avails a wide variety of goods and services.
 It decentralizes economic power i.e. individual households make their own
decisions.
 The profit motive encourages research, inventions and innovations.
 It leads to efficient allocation and utilization of resources.
Negative roles;
 It leads to consumer exploitation due to consumer ignorance \market
imperfections.
 It leads to distortion of consumer choices through advertising
 It leads monopoly power where consumer’s preference may be ignored.
 It leads to divergence between private and social benefits e.g. Over exploitation of
resources.
 It does not adjust quickly to structural changes.
 It fails to allocate resources in priority areas\ ignores socially profitable ventures \
disappearances of cheap goods.
 It leads to economic instabilities e.g. inflationary and deflationary tendencies\
price fluctuations.
 It leads to wastage of resources due to wasteful competition\ duplication of
activities.
 Unemployment problem arises where inefficient firms are out completed
 It leads to income and wealth inequality.
9 “Importance- significance” type of questions.
Regardless of the command word of the question i.e.what, explain,
examine, assess, discuss etc.; such questions require only the positive position /stand.
9.1Explain the importance of computing national income in an economy.
The importance of computing national income in an economy;
 Useful for economic analysis and planning/ research purposes.
 It shows the level (trend) of development by way of per capita income (GNP).
 It indicates the rate of economic growth / shows the level of resource exploitation.
 International agencies giving aid may require information about national income
to see which sector they can aid.
 Useful for comparison purposes overtime e.g. standard of living with in a country.
Useful for international comparison between countries.
 It shows the structure of the economy and identifies weaknesses of the structure
for future action/ identifies leading sectors.
 It shows income / resource distribution and helps on appropriate action to be
taken.
 It shows the expenditure patterns with in a country.
 National income figures are used for taxation purposes.
 National income figures show the extent of a country’s dependence on other
economies.
9.2Explain the significance (importance/role) of the national budget in your
country.
 Raise revenue for the government / helps government to mobilize funds through
taxation, forced savings.et.
 Reduce unemployment / creation of employment opportunities.
 Control inflation / used to attain and maintain price stability /as a correcting tool
during inflationary periods.
 Correction of BOP deficits / used to improve balance of payments positions.
 Protection of infant industries/ firms through subsidization and import duties.
 Discourages consumption of harmful/ demerit/ undesirable products.
 Influences investment / influences resource allocation.
 Accelerates the rate of economic growth.
 Used to create balance in regional development / reduces regional imbalance in
development.
 Used to reduce economic dependence.
 Helps in the regulation of government expenditure.
 Useful in the management of the public debt.
 Helps in the mobilization of the masses/ solicit for political support.
10. “Effects / implications/ impact” type of questions.
 In “most cases” such type of questions require to give both the positive and
negative side of the economic theme in the question.
 However, there are few exceptional cases which require to consider only one side
i.e. either the positive or negative; among these include the effects/
implications/impact of the following;
− price fluctuations of agricultural products
Negative
− Unemployment
negative
− Creeping/mild inflationnegative
− Hyper/ galloping inflationNegative
− Deteriorating terms of tradeNegative
− Balance of payments deficitNegative
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10.1 Explain the effects of inflation in an economy.
Effects of inflation in an economy;
Positive effects;
Increases government revenue.
Encourages investment.
Leads to creation of employment opportunities.
Encourages innovations and inventions.
Increases output hence economic growth.
Promotes hard work/ effort among people.
Encourages import substitution/ industrialization/ increases the level of
industrialization.
Leads to increased labour supply.
Increases the rate of utilization of idle resources.
Debtors gain.
Increases labour mobility.
Monetizes the economy.
Negative effects
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Discourages savings.
Discourages investment.
Worsens BOP position.
Promotes rural-urban migration and associated evils.
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Leads to unemployment
Discourages hard work bythe poor/breeds apathy.
Promotes tax evasion/low government revenue through taxation.
Creditors loose.
Leads to industrial/social unrest.
Leads to unpopularity of government.
Promotes speculation.
10.2 Explain the economic implications of your country’s population
structure.
Economic implications of my country’s population structure;
Positive implications.
High market potential.
High potential for labourforce.an incentive (potential) for massive future
investment.
High tax potential to the government.
Initiates effort to work harder.
Awakening of the government to undertake its responsibility.
Potential increase in invention and technological progress.
High potential for increased resource utilization.
Reducing of the percapita social overhead costs.
Negative implications
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Low labour productivity.
High dependence burden
Unemployment and underemployment results
Strain on infrastructure.
Increases external resource dependence.
Balance of payment problems.
Effective planning for the population becomes difficult.
High government expenditure on provision of social services.
High social costs inform of pollution, congestion, greater spread of diseases.
Results into brain drain.
10.3 Assess the impact of taxation in an economy
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Impact of taxation in an economy;
Positive impact
It is a means of acquiring public revenue
Improves on balance of payment positions.
Influences resource allocation.
Protects domestic firms/ discourages dumping.
Discourages production and or consumption of undesirable /harmful products.
Controls inflation
Regulates/controls monopoly power.
Influences the level of economic growth/ production levels.
Promotes hard work in case of regressive taxes.
Negative impacts of taxation
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Discourages savings
Discourages investment
Reduces welfare due to reduced consumption
Discourages effort and initiative in case of progressive taxes.
Encourages illegal activities e.g. Smuggling
Leads to inflationary tendencies /high cost of living in case of indirect taxes.
Leads to resource diversion from highly taxed activity (ies) to sometimes nonproductive ventures.
 Creates resentment that may erode popularity of the government.
 Reduces the volume and thus the benefits of trade in case of import duties.
 Widen income inequalities in case of regressive taxes.
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10.4 Explain the effects of agricultural price fluctuations in your country.
Effects of agricultural price fluctuations in my country;
Unstable /fluctuating terms of trade.
Unstable export earnings.
Balance of payment instabilities
Planning is made difficult
Unstable incomes to farmers / agricultural producers.
Fluctuation in government revenue
 Worsening of income inequalities
 Investment in agriculture becoming uncertain and causes speculation and thus
irrational use of land.
 Rural urban migration
 Instability in exchange rates.
 Fluctuation in employment levels/ unemployment e.g. seasonal unemployment
 Farmers are frustrated or discouraged and thus reduction production i.e. slowered
economic growth.
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10.5 Explain the effects of creeping inflation in your country.
Effects of creeping inflation in my country;
Increased incentive to work harder
Promoting entrepreneurship as many people are encouraged to undertake risks in
business venture.
Encouraging savings
Innovativeness and creativity are being encouraged
Production is encouraged hence more output.
Idle potentials are being exploited as profit margin improves.
Commercialization is encouraged thus reduction in subsistence sector/production.
More employment opportunities are created due to increased investment.
Debtors are gaining in real terms
Encourages labour mobility.
Increased government revenue.
10.6 What are /explain /examine / assess the;
Effects /implications/ impact of;
i)
Price control
ii) Localization of industries
iii) Monopoly in an economy
iv) Multi-national corporations
v) Economic dependence
vi) Economic growth
vii)
Import substitution strategy of industrialization
viii)
A high population growth
ix) Unemployment
x) Foreign aid
xi) Deteriorating terms of trade
xii)
Balance of payment deficit
xiii)
Trade protectionism
xiv)
Direct/ indirect taxes
xv)
Government borrowing
xvi)
Trade liberalization
xvii)
Privatization pf public enterprises
In an economy / developing countries /in your country.
11 “Illustrative” type of questions
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Such questions require either graphs, diagrams or expressions to be used to illustrate
and enhance the given answer.
It should be noted that any illustration presented has to correctly drawn for a
mark(s) to be awarded.
Wrong illustration implies losing a mark(s) and even makes the proceeding
explanation not applicable i.e. presumed correct information cannot explain what is
wrong
Possible areas of extract for questions include;
− introductory topic (the transformation curve)
− price theory
− cost and revenue curves
− market structures
− national income
− theories
− Taxation etc.
11.1
What is meant by a transformation curve (production possibility
frontier)?
A transformation curve is a curve that shows all possible combinations of two
commodities that can be maximumly produced when all resources are fully and
efficiently employed.
OR
It is a curve showing the maximum production possibilities for two commodities
given the resources available to produce them.
A diagrammatic illustration of a transformation curve.
ABCD is Best Combination (maximum efficiency)
E is Attainable but low efficiency.
F is Unattainable.
11.2
i) With illustration, explain (show) the relationship between total utility,
marginal utility and price.
ii) What is the relationship between marginal utility and demand curve?
iii) Distinguish between substitution effect and income effect.
i) Illustration of the relationship between total utility (TU), marginal utility
(MU) and Price(P);
From the illustration above, it can be noted that;
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When TU is rising, MUis positive.
When TUreaches maximum (i.e. the point of satiety), MU is zero (0).
When TU is diminishing, MU is negative.
When MU is high, Price also is high.
As MU diminishes, Price also reduces; hence MU is Price.
ii) The relationship between diminishing marginal utility and the demand
curve is that;
As marginal utility decreases, the consumer will only be willing to consume
more units at successively lower prices; as illustrated below;
Therefore, it is the law of diminishing marginal utility that explains the
Downward sloping of the demand curve from left to right.
iii) Substitution effect is the change in quantity demanded of a commodity as a
result of a change in its price; and it involves movement along the same
indifference curve.
WHILE
Income effect is the change in quantity demanded of a commodity due to a
change in the real income of a consumer as a result of a change in its price;
and it involves a shift from one indifference curve to another.
Illustration of substitution and income effects.
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B0B0, B1B1, B2B2 are budget lines.
IC is an indifference curve
Movement from e0 to e1is substitution effect.
A shift from e1 to e2 is income effect.
Note;
 From e0 to e1 to e2is price effect i.e.e0e1 + (plus) e1e2 is price effect.
 Budget line is a locus of points showing all possible combinations of two
commodities that can be purchased by the same (constant) amount of income of
the consumer.
 Indifference curve is a locus of points showing all possible combinations of two
commodities which when purchased and consumed yield the same level of
satisfaction.
11.3
Distinguish between the following;
i) A change in demand and a change in quantity demanded.
ii) An increase in demand and an increase in quantity demanded.
iii) A decrease in demand and a decrease in quantity demanded.
iv) A change in supply and a change in quantity supplied.
v) An increase in supply and an increase in quantity supplied.
vi) A decrease in supply and a decrease in quantity supplied.
i) A change in demandrefers to an increase or decrease in the amount of a
commodity demanded at a constant price due to changes in other factors that
affect the demand of the commodity; and it involves a shift in the demand
curve either to the right or left or left as illustrated below;
A CHANGE IN DEMAND.
 Change from D0D0 to D1D1 is an increase in demand.
 Change from D0D0 to D2D2 is a decrease in demand.
Whereas
A change in quantity demanded refers to an increase or a decrease in the amount of a
commodity demanded due to changes in the price of a commodity, other factors that
affect its demand remaining constant, and it involves movement along the same demand
curve as illustrated below;
A CHANGE IN QUANTITY DEMANDED
 A movement from A (OQo) to B (OQ1)is an increase in quantity demanded.
 From A (OQ0) to C (OQ2) is a decrease in quantity demanded.
ii) An increase in demand is a situation whereby a longer amount of a
commodity is demanded at a constant price due to changes in any of the other
factors in favour of the demand for a commodity; and it involves a shift of the
demand curve to the right as illustrated below.
An increase in demand.
A shift of the demand curve from D0D0 to D1D1i.e. from A to B at a constant
price (OP0) indicates an increase in demand.
While
An increase in quantity demanded is a situation where a larger amount of a
commodity is demanded due to a fall in the price of a commodity, other factors that
affect demand remaining constant; and it involves movement along the same demand
curve downwards as illustrated below;
Increase in quantity demanded
A down ward movement along the same demand curve from point A to B indicates an
increase in quantity demanded.
iii) A decrease in demand is where a less amount of a commodity is demanded at
a constant price due to changes in any of the other factors in disfavor of the
demand for the commodity; and it involves a shift of the demand curve to the
left as illustrated below;
A decrease in demand
A shift of the demand curve from D0D0 to D2D2 indicates a decrease in demand.
While
A decrease in quantity demanded is where a less amount of a commodity is demanded
due to a rise in the price of the commodity.
Decrease in quantity demanded.
An upward movement along the same demand curve from A to C indicates a
decrease in quantity demanded.
iv) A change in supply refers to an increase or decrease in the amount of a
commodity put on the market at a constant price due to changes in factors that
affect supply of the commodity. It involves a shift in the supply curve either to
the right or left as illustrated below;
A change in supply.
 Change from S0S0 to S1S1 is an increase in supply.
 Change from S0S0 to S2S2 is a decrease in supply.
Whereas
A change in quantity supplied refers to an increase or a decrease in the amount of a
commodity put on the market due to changes in the price of the commodity, other factors
that affect its supply remaining constant. It involves movement along the same supply
curve.
A change in quantity supplied
 A movement from B (OQ0) to C (OQ1) is an increase in quantity supplied.
 From B (OQ0) to A (OQ2) is a decrease in quantity supplied.
v) An increase in supply is a situation when at a constant price, more of a
commodity is put on the market. It involves a shift in the supply curve to the
right of the original curve.
An increase in supply.
A shift of the supply curve from S0S0 to S1S1 indicates an increase in supply.
While
An increase in quantity supplied is a situation when the amount of ac commodity put on
the market increases due to increase in the price of the commodity; it involves an
upward movement along the same supply curve.
Increase in quantity supplied.
An upward movement along the same supply curve from point AtoB indicates an
increase in quantity supplied.
vi) A decrease in supply is a situation when at a constant price, less amount of a
commodity is put on the market. It involves a shift in the supply curve to the
left of the original curve.
Decrease in supply.
A shift of the supply curve from S0S0 to S1S1 indicates a decrease in supply.
While
A decrease in quantity supplied is a situation when the amount of a commodity put on
the market decreases due to decrease in the price of the commodity. It involves a
downward movement along the same supply curve.
Decrease in quantity supplied
A downward movement along the same supply curve from point A to B indicates a
decrease in quantity supplied.
11.4
Explain with illustrations, what you understand by the concepts
consumer’s surplus and producer’s surplus.
Consumer’s surplus is the difference between what the consumer is willing to
pay and what he actually pays for the commodity.
It is the extra utility enjoyed by the consumer without paying for the commodity.
An illustration of consumer’s surplus.
Pm is the market price i.e. the actual price paid for the commodity.
The shaded area is the consumer’s surplus i.e. the area between the demand curve
and a horizontal line at the market price (area below the demand curve and above
the market price).
While
Producer’s surplus is the excess earnings between what the producer was willing
to charge for the commodity and what he actually receives after selling it.
An illustration of producer’s surplus
Pm is the market price is the actual price charged.
The shaded area shows the producer’s surplus i.e. the area between the supply
curve and a horizontal line at the market price (area above the supply curve and below
the market price).
TASK;
Explain how producer’s surplus and economic rent are related.
11.5
Distinguish between break-even point and shut-down point of a firm.
Break-even point is where a firm is earning normal profits, where AR=AC.
WHILE
Shut-down point is the point below which the firm and not cover the average
variable costs, where AR= AVC.
It is the point where a firm covers only the average variable costs. (AVC)
Illustration of Break-even point and shut-down point.
B is the break-even point.
S is the shut-down point.
11.6
i) How are profits maximized in a perfect competition market in the short
run?
ii) How is normal profit determined under perfect competition?
i) I a perfect competition market, in the short run, profits are maximized where
MC =MR as illustrated below.
 Price is determined at point A where the output line meets the AR/DD curve. I.e.
Price OP.
 The firm earns abnormal / supernormal profits shown by the shaded area /
rectangle PABC.
 Abnormal profits are earned where AR > AC.
 Please Note; the shaded area / rectangle has to be indicated in a clockwise form
notanti-clockwise (wrong).
ii) Normal profit under perfect competition is determined at equilibrium position.
Where MC=MR=AR=AC=P as illustrated below;
11.7
Illustrate how profits are maximized under monopoly.
Profit maximization under monopoly;
Under monopoly, the firm maximizes profit when it is in equilibrium at a point
where MC = MR.
This is illustrated as follows;
 The monopolist fixes price at point where the output line meets AR / DD curve
i.e. Price OP.
 A monopolist earns supernormal profits represented by the shaded area PXYC.
 Super normal profits are earned where average revenue (AR) is greater than
Average Cost (AC) at equilibrium output.
11.8
How does the firm under monopolistic competition maximize profits in
the;
i) Short run,
ii) Long run?
i) In the short run a firm under monopolistic competition maximizes profits / is
at equilibrium at a point where marginal cost is equal to marginal revenue.
I.e.MC= MR; as shown below;
 Price is determined at point where the output line meets the AR/DD curve i.e.
price OP.
 The firms earns abnormal profits shown by the shaded area / rectangle PXYC.
 Abnormal profits are earned where AR is greater than AC.
ii) In the long run a firm under monopolistic competition maximizes profits at a
point where MC = MR; as illustrated below;
 Price is determined at a point where output line meets the AR / DD curve; that is,
where the AR is tangential to the AC.
 Normal profits are earned since the AR = AC / because many (other) firms enter
the industry and compete away the abnormal profits earned in the short run.
11.9
How does a firm in a monopolistic competitive market determine
output, price and profits in the;
i) Short run,
ii) Long run?
11.10
Distinguish between an inflationary gap and a deflationary gap.
An inflationary gap is a situation where a country’s aggregate demand exceeds
aggregate supply at full employment.
Or
It is a situation where an economy’s equilibrium level of national income is above
full employment level of national income.
WHILE
A deflationary gap occurs when aggregate demand is less than aggregate supply
at full employment.
OR
It is where national income is at equilibrium at a level which is lower than full
employment.
An illustration of an inflationary gap and a deflationary gap.
Ye
- Equilibrium level of income.
Yf - Full employment level of income.
I.G -Inflationary gap.
D.G – deflationary gap.
11.11
What is meant by the term “optimum population”?
Optimum population is that size of the population which provides the
labourforce which when combined with other factors of production (resources)
yields maximum output per worker.
OR
It is a population size that provides labourforce that is sufficient to combine with
existing cooper ant factors leading to maximum output per worker / highest per
capita income.
Diagrammatic illustration of optimum population;
OP is the optimum population
APC is the Average Product Curve.
11.12
Explain the incidence of tax when demand is;
i) Inelastic
ii) Elastic
iii) Perfectly elastic
iv) Perfectly inelastic
v) unitary
Incidence of a tax;
i) when demand is inelastic
Total tax AC = P1P2
Buyer (consumer) pays AB = P1P0 (large)
Seller (producer) pays BC = P0P2 (small).
The consumer bears a heavier burden of a tax than the producer i.e.buyer pays more of
the tax.
ii) When demand is elastic
Total tax AC = P1P2
Consumer pays AB = P1P0 (small)
Producer pays BC = P0P2 (large)
The seller pays more of the tax then the buyer.
iii) When demand is perfectly elastic.
The producer bears all the tax burden of AB =P0P1.
iv) When demand is perfectly inelastic;
The consumer (buyer) bears alone all the tax of AB= P0P1.
v) When demand is unitary;
Total tax is AC; but AB = BC.
Therefore, producer and consumer share the tax equally i.e. both bear the same tax
burden.
11.13
Apply the concept of price elasticity of demand to subsidies.
Application of the concept of price elasticity of demand to subsidies.
i) In elastic demand and a subsidy;
Total subsidy AC = P0P2
Consumer (buyer) benefits AB = P0P1 (large)
Producer’s (seller) benefits BC = P1P2 (small)
The consumer receives a larger subsidy than the producer i.e. buyer benefits more of the
subsidy.
ii) Elastic demand and a subsidy;
Total subsidy AC = P0P2
Consumer benefits by AB = P0P1 (small)
Producer benefits by BC = P1P2 (large)
The producer benefits more from the subsidy than the consumer.
iii) Perfectly elastic demand and a subsidy;
The producer benefits alone from the whole subsidy of AB = P0P1
iv) Perfectly inelastic demand and a subsidy;
The consumer benefits alone from the whole subsidy of AB = P0P1
v) Unitary elasticity of demand and a subsidy.
Total subsidy is AC; but AB = BC.
Therefore, producer and consumer share the subsidy equally i.e. both benefit in
the same way from the subsidy.
12 “descriptive” type of questions.
 The message of such questions is linked mainly to characteristics, features,
traits and qualities of a given economic theme /concept.
 Basically such questions are answerable by making statements depending on their
messages.
 Possible topical areas where such type of questions can be set from include;
− Introductory topic i.e. types of goods and economic systems.
− Production; mainly the types of market structures.
− National income; especially the features of a recession.
− The structure of Uganda’s economy; most common in Paper 2.
− Development and under development; Rostow’s stages of economic
growth. E.g. the take –off stage.
− Labour Economies; population structure, Labourforce and Trade unions.
− Money and banking; qualities of good money and features of banking and
non-banking financial institutions.
− Economic development planning; features and qualities of a good plan.
− Public finance (taxation; features and qualities of a good tax system.
 There are three (3) common type of descriptive questions as analyzed below;
a) Descriptive requiring typical distinctive features in character i.e.what makes it
different/ unique from others.
 Statements made have to reflect the unique (exclusive) characters of what is being
considered from others.
 Describe / state (what are) the features (characteristics) of;
i)
A public good
ii) A free good
iii) A free market economy
iv) A planned economy
v) A mixed economy
vi) A perfectly competitive market
vii)
Monopoly
viii)
Monopolistic competition
ix) Oligopolistic markets
x) Dualism
xi) An economic union.
Features of;
i)
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A public good;
Usually provided by the state.
Always equally available to all individuals i.e. Supply to all.
Non-excludability i.e. difficult to stop one from utilizing it for personal benefits or
gains.
 Non-exhaustibility (rivalry) i.e. its use by one person does not reduce on the
amount available for others.
ii)
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A free good
Normally exists in natural abundancy.
It’s a free gift of nature.
One’s desire is satisfied at zero price i.e. no cost.
It offers utility.
iii) A free market economy
 Private ownership of resources / property.
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Freedom of choice and enterprise/ consumer sovereignty.
Self-interest as the dominating motive.
Competition in the product and factor markets.
Reliance on price mechanism in the allocation of resources / prices are determined
by forces of demand and supply.
 Limited / no government intervention.
 Profit maximization is the main objective.
iv) Monopolistic competition
 Existence of free entry and exit of firms.
 Existence of many producers’ /firms/ sellers and many buyers.
 Elastic (fairly elastic) demand curve.
 Firms deal in (produce) differentiated products which are close substitutes.
 Existence of brand loyalty by consumers.
 Existence of excess capacity.
 Wide spread persuasive advertising.
 Profit maximization is the major objective of producers.
 Absence/ limited interdependence of firms.
v)
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Oligopolistic markets
Existence of few firms and many buyers.
Production of either differentiated or homogenous products.
Existence of limited freedom of entry and exit.
Different sizes of firms.
Close interdependence between firms.
Intensive sales promotional activities / non-price competition e.g.advertising, after
sales services etc.
High degree of uncertainty.
Price rigidity
No unique pattern of pricing e.g. price leadership and collusion.
Profit maximization is the main motive of production.
Kinked demand curve.
vi) Dualism
 Commercial versus subsistence production.
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Modern technology versus rudimentary (primitive) technology.
Monetary exchange versus barter exchange.
Large scale production versus small scale production.
Formal versus informal sectors.
Urban versus rural sectors.
Rich versus poor people.
Elites versus illiterates.
Production for home market versus foreign markets.
vii)
An economic union
 Free movement of goods and services / free trade within the union.
 Free movement of factors of production.
 Common external tariff structure.
 Harmonized economic policies.
 Strong regional institutions.
 Use of a common currency.
 Sharing of common services.
b) Descriptive; requiring “comparative form” of statements.
 The approach here requires the use and application of word qualities (i.e.
comparative words) like;
− Dominantly
− Basically
− Most / mostly
− Mainly
− Limited (linkages)
− Simple (technology)
− Generally low
− Narrow range
− Highly (dependent)
 Describe the structure / features of;
i) Economy of your country.
ii) Subsistence sector in your country
iii) Agricultural sector in your country.
iv) Industrial sector in your country.
v) Informal sector.
vi) Exports in your country.
vii)
Private sector in your country.
viii)
Public sector in your country.
A description of the structure / features of the;
i)
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Economy of my country.
Pre-dominantly agricultural.
There is a small but growing and expanding industrial sector.
It is a dualistic.
It is a mixed economy.
It is an open economy
Dependent economy
Underutilized resources / high levels of underemployment and unemployment.
Labourforce is predominantly unskilled and semi-skilled.
High population growth rates relative to economic growth of about 3.5%
There is a large and growing informal sector.
Underdeveloped infrastructural facilities.
Poor technology is mainly used.
The occupational distribution of labour force is in such a way that the majority are
in the primary sector, then tertially and then small percentage in the industrial
sector.
ii) Subsistence sector
iii) Agricultural sector
 Highly dependent on family labour.
 Mainly practiced on small scale.
 Mainly rural based.
 Mainly uses labour intensive technology.
 Uses mainly unskilled and semi-skilled labour.
 Mainly dependent on nature.
 Dominated by subsistence production.
 Mainly low quality of output produced.
 Quantity of output produced is generally low.
 Production is mainly for the local market.
 Mainly food stuffs / narrow range of cash crops produced.
 Narrow range of production for export.
 Activities are mainly influenced by cultural factors.
 There is poor land tenure systems.
iv) Industrial sector in my country.
 Mainly small scale industries/ firms.
 Mainly urban based.
 Mainly labour intensive techniques of production used.
 Mainly unskilled and semi-skilled labour employed.
 Production of mainly low quality (manufactured) goods.
 Mainly privately owned.
 Basically import-substituting industries / production is mainly for the domestic
market.
 Limited linkage with other sectors of the economy.
 Mainly low quantity of output produced / production at ………..excess capacity /
low contribution to GDP / low contribution to employment.
 Mainly comprises of processing industries.
 Production of mainly consumer goods.
 Durable consumer goods industries are mainly assembly plants.
 High component of imported raw materials and intermediate products.
 Mainly agro based.
 Mainly use hydro- electric power, although some use fuel and fire woods.
v)
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Features of the informal sector.
It is dominated by small scale firms.
Produces mainly consumer goods.
Production is mostly for local / domestic market.
Produces mainly low quality products.
Mainly uses local resources / inputs.
Mainly uses simple production techniques / mainly labour intensive techniques.
Uses mainly unskilled and semi- skilled labour.
Characterized mainly by low productivity / low output is produced.
Limited government control of firms.
Mainly urban / semi-urban / sub-urban / peri-urban based.
Dominated by sole proprietorship.
Limited or no book keeping / poor or no record keeping.
vi) Exports in my country.
 Exports are mainly agricultural.
 Limited variety / commodity concentration of trade.
 Basically semi-processed or unprocessed goods / low value added / primary
products.
 Limited range of markets for exports / geographical concentration of trade.
 Few manufactured consumer goods.
 Few services exports i.e. tourism, electricity and labour.
 Mainly low quality of exports.
 Prices of exports are low and / or fluctuating in international markets.
 Low volume of exports.
Public and private missing
12.3
i) State the features of Rostow’s transitional stage of economic growth.
ii) What are the characteristics of Rostow’s take-off of economic growth?
Features of Rostow’s transitional stage of economic growth;
Cultural barriers begin to reduce / society becomes less conservative.
The economy becomes dualist in nature.
Savings rise to 5% of GDP / GNP / NY.
Investment increases to 5% of GDP / GNP/ NY.
Emergence of entrepreneurs in the economy.
Adoption of better and efficient methods of production / improvement in
technology.
 Improvement in socio-economic infrastructure.
 Industrialization starts to take root / emergence of industrialization.
i)
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ii)
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Characteristics of Rostow’s Take-off stage of economic growth.
High savings of 10-15% of GDP / GNP/ NY.
High investment of 10-15% of GDP/ GNP / NY.
Self-sustained growth / self-reliant economy.
Emergence of new economic and political institutions.
High level of employment.
High level of industrialization / a leading sector appears.
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Emergence of new markets i.e. domestic and abroad.
High level of urbanization.
High level of technology / high levels of innovations and inventions.
High literacy rates / social transformation.
High levels of infrastructural development.
12.4 Describe the characteristics (features) of Rostow’s Drive to maturity stage of
economic growth.
12.5
i) Describe the population structure of your country.
ii) What are the features of the labour force in your country?
iii) What are the features of trade unions in developing countries?
i)
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A description of the population structure in my country.
It is dominated by the young who constitute over 40% of the population.
Females tend to be more than males, with 51% of females and 49% of males.
Population is mainly rural based; i.e. approximately 80% of the population live in
the rural areas.
Majority of the population are unskilled and semi-skilled.
The illiteracy rates are high of about 32%
The productive force of the population are mainly engaged in primary production.
The population growth rate is high of about 3.4%.
There is uneven and spatial distribution of the population in different parts of the
country; with the capital city being most densely populated with 7360 people /km2
and Moroto being the least populated with 20 people / km2.
A big population live below international poverty line of about 35%.
ii)
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Features of the labour force in my country;
It is dominated by the young.
Basically unskilled and semi-skilled.
It is abundant and cheap.
It is mainly rural based.
Its productivity is relatively low.
It’s geographically immobile.
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 Its occupationally fair mobile.
iii) Features of trade unions in developing countries.
 They are amorphous.
 Financially weak.
 Attract small membership.
 Mainly urban based; because most wage earners are employed in urban areas.
 Have weak leadership.
 Characterized by disunity based on tribal, religious and racial basis.
 Tend to be politically motivated.
 Too much government interference in the affairs of trade unions.
 High degree of corruption among leaders.
 High level of illiteracy of members / illiterate members dominate.
 Highly resented by employers.
12.6 Describe the characteristics of banking financial institutions (money
markets) in developing countries.
Characteristics (features of banking financial institutions in developing countries;
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They are mainly urban based.
Mainly foreign owned.
They charge mainly high interest rates.
They deal in limited variety of financial assets.
c) Descriptive where answers have to be in a “suggestive form”
 Always apply and use should be, is supposed to be or has to in every
statement made.
 It is in correct (wrong) to apply “must be ” when dealing with questions where
the message requires answers to be in a suggestive form as regards to
qualities, featuresand principles an limited below;
12.7
i) Explain the qualities of good money.
ii) Describe the features of a good economic development plan
iii) Describe the principle of economic development planning
iv) Describe the features of a good tax system.
v) Explain the principles of good taxation.
i) Qualities of good money;
 Acceptability, good money should be generally accepted to the public for the
discharge of debts and other purposes for which money may be demanded.
 Convenience\ Portability; good money should be easy to carry and should not
be bulky
 Durability; a commodity chosen as money should not easily wear away in the
process of exchange. Money should be durable.
 Divisibility; good money should be divisible, that is, it should be not only in
large denominations but also is small denominations such that transactions of
any value can be accommodated.
 Relatively scarce \ Scarcity; it should be relatively scarce in circulation,
otherwise if it is plentiful in supply, then some of its functions may not hold.
 Malleability; good money especially coins should maintain its intrinsic value
when being mounded and stamped.
 Homogeneity; good money should be of the same unit, character\features for
the purpose of making it hard for the public to forge or duplicate, i.e. difficult
to circulate counter fake money.
 Cognoscibility; good money should be easily recognizable by the eye, ear or
touch.
ii) A description of features of a good economic development plan:
 A good plan should be compatible
 It should have a good sequence\ should be sequenced.
 It should have clear objectives to all people involved in plan formulation and
implementation.
 It should ensure proportionality in allocation of resources.
 A good plan should be optimal.
 It should be economically achievable\feasible.
 It should be politically acceptable.
 It should be socially relevant.
 It should be internationally relevant.
 It should have an element of continuity.
 It should be comprehensive.
 A good plan should be consistent.
iii) Principles of economic development planning.
 (Principle of) Comprehensiveness; should cover the whole economy\ all
sectors of the economy.
 Consistency (consistence); should be in line with targets and objectives of
development
 Sequencing; Implementation of projects should be done in an orderly manner\
i.e. order in the implementation.
 Compatibility; Projects in the plan should be related to create (promote)
linkages.
 Simplicity; should be easy to understand by both formulators and
implementers.
 Proportionality; should allocate resources \ sectors basing on their signifance in
the economy.
 Optimality; should put the resources available to their best use such that the set
projects yield the maximum outcomes expected from them.
 Economic feasibility; should be achievable and attainable (i.e. set target and
objectives) with the existing available resources \ should not be one which is
far beyond means \over ambitions.
 Principle of acceptability; should be socially, politically and internationally
acceptable and relevant.
 Principle of continuity; should not be abandoned just because the current
authorities do not identify projects despite its economic and social relevance.
iv) Describe the features of a good tax system;
 It should be certain, that is, one whose base, time of payment, amount to be
paid etc. are known.
 It should be convenient to the tax payer.
 It should be economical\cheap\ efficient; i.e. the cost of tax administration
(assessment and collection) should be low.
 It should be equitable\ fair\ability to pay i.e. the burden of payment should fall
equitably on all the tax payers.
 It should be neutral\ impartial; should not discriminate among tax payers.
 It should be simple; i.e. should be easily calculated and understood.
 It should be elastic/flexible; i.e. should be altered/adjusted according to the
prevailing economic conditions.
 It should be productive; should be able to encourage effort, initiative and hard
work and should not discourage investment.
 It should be comprehensive\ diverse i.e. should have a wider source or base.
 It should be consistent; that is should be in line with national economic
objectives.
 It should be optimal, i.e. should ensure minimum balance between amount of
revenue, services rendered and work effort from the tax payers.
 It should avoid double taxation; i.e. should not be imposed on the same source
or base twice.
v) Principles of good taxation are;
 (Principle) of certainty; Agood tax is one whose base, time of payment,
amount to be paid etc. are known.
 Convenience; that is when and how to pay tax should be convenience to tax
payers.
 Equity of sacrifice; i.e. the burden should be convinced to tax payers.
 Economy\ efficiency; the cost of collection should be low.
 Neutrality\impartiality; it should not discriminate among the tax payers.
 Simplicity; it should be easy to calculate and understand.
 Elasticity\flexibility; the tax should change according to prevailing conditions.
 Productivity; a good tax should be able to encourage effort and initiatives and
should not discourage investment.
 Comprehensiveness\diversity; it should have a wider source or base.
 Consistency; it should be in line with national economic objectives, especially
in allocation of resources.
 Built in stabilizer; it should have stabilizing influence on the economy.
 Avoid double taxation; it should not be imposed on the sane source or base
twice.
13.“How-method” type of questions
 Questions of this type are phrased with command words like;
− How
− Explain how
− Explain (what are) the methods………
− State / explain (what are) the ways…….
 Approach to such questions depend on their messages and requirements; and
the common ones include;
a) How (methods); seeking for “in which ways”; and such questions require the
use of lead phrase words like;
− By……
− Through……
− Starting the statements in a present continuous tense format like
Achieving…... ensuring……etc.
13.1 How are prices of commodities determined in an economy?
Methods (ways) of determining prices in an economy;
 Auctioning / bidding.
 Haggling / bargaining.
 By forces of demand and supply.
 Through price leadership.
 Through resale price maintenance.
 Through price control / legislation. I.e. government policy.
 Through sales treaties / agreement.
 Through collusive pricing policy.
 Through offers at fixed prices e.g. individuals, institutions, government.
13.2 Explain the methods used to reduce the burden of public debts in
developing countries.
Methods used to reduce the burden of public debts in developing countries.
 Negotiating for debt cancellation.
 Through debt conversion.
 By use of foreign exchange reserves.
 Through sale of gold reserves existing in the Central Bank.
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Through sale of public investments.
Utilizing grants from foreign sources.
Borrowing through sale of treasury bills and bonds.
Through taxation.
13.3 How can price mechanism be interfered with in an economy?
How price mechanism can be interfered with in an economy.
 Through maximum price legislation.
 Through minimum price legislation.
 By government fixing a minimum wage.
 By way of rental control by the government or any other authority.
 By way of rationing, a system of limiting and sharing of goods.
 Through resale price maintenance.
 By imposing taxes i.e. through taxation.
 By way of fixing quotas.
 By way of state trading i.e. establishing of public enterprises / parastatals.
 Through direct administrative controls by government e.g. setting certain
quality standards to be fulfilled.
 Through effecting a fixed exchange rate.
13.4 State the ways of closing an inflationary gap in an economy.
Ways of closing an inflationary gap in an economy;
 Increasing direct taxation.
 Lowering government expenditure.
 Controlling incomes / incomes.
 Implementing / adopting restrictive monetary policy.
 Reducing exports.
 Increasing imports.
b) How;which seeks for the steps involved (refer to “procedure” type of
questions)
13.5
i) Explain how price indices are computed in an economy.
ii) How do commercial banks create credit?
c) How; which requires illustration (refer to “illustrative” type of questions)
13.6
i) How are profits maximized in a perfect competition market in the short
run?
ii) How are profits maximized under monopoly?
d) How; requiring to give / explain / establish the relationship.
14.“Variation” type of questions.
 Require to give \ consider the factors (causes) leading to situations not being
the same i.e. unsimilar\ unidentical situations.
 The lead-phrase word(s) has to depict the element of an outcome (result) not
being the same in relation to the factor (s) being considered.
The accepted lead-phrase words are;
− Differences in……………
− Variation in……………..
− Discrimination………….
− Non-matching (e.g. wage policy)……………
 It must be noted that the correct and right word is differences not difference as the
two do not imply the same.
14.1 Account for the uneven distribution of income in your country.
An account (reasons) for \causes of uneven distribution of income in my country;
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Variation in natural resource distribution
Differences in the level of education and skills
Differences in the quantity of output produced
Differences in family/ social background
Differences in talents and other natural abilities
Differences in experience or seniority or responsibility
Differences in elasticity of labour supply.
Differences in trade unions ability to pay
Discrimination in the labour market on the basis of gender, race etc.
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Variation in accessibility to developed infrastructures
Differences in the nature of occupations and risks.
Differences in the number of hours worked
Differences in the cost of living
Differences in access to credit or contacts
Differences in the degree(s) of political climate / state of security.
Non-matching wage policy by the government /employers.
Political influence in the allocation of resources in favor of certain regions\sectors.
14.2 Account for the wage differentials in an economy
Wage differentials in an economy (a country) are due to;
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Differences in the nature of jobs
Variations in levels of skills (education and training)
Differences in bargaining strength of individual workers.
Non-matching government policy on income and wages.
Differences in employers ability/ and/ or willingness to pay.
Differences in the number of hours worked; for the case of time rate system.
Differences in talents and natural gifts.
Discrimination in the labour market.
Differences in elasticity of supply of labour.
Differences in people’s ability to do work, for the case of piece rate system.
Differences in the strength of trade unions and professional association’s ability
to bargain.
 Differences in the non-matching benefits/payments
 Differences in elasticity of demand for the product labour produces
 Differences in experiences, expertise or responsibility; in that, senior workers
tend to earn more.
14.3Account for the existence of dualism in developing countries / explain (what
are) the causes of dualism in developing countries.
15.“Procedure” type of questions
 Basically, such questions require stating the steps involved
 The steps\ stages\ procedures have to be given in their correct order.
 Interchanging of any steps(s) simply means wrong handling of the questions.
15.1.
Describe the procedure of compiling the cost of living index
Or
Explain how the cost of living index (price indices) is computed in an economy.
Description of the procedure of compiling the cost of living.
 Choosing a base year, one in which prices were stable.
 Selecting a (representative) basket of goods and services.
 Collection (attaching) of prices of goods and services in the basket, both in the
current year and in the base year.
 Calculation of price relative (PR)\ simple price index (SPI) for each
commodity (in the basket using the formula;
SPI/PR = current year price x 100
Base year price
 Computing the average price relative (APR)/ Average Simple Price Index
(ASPI) using the formula;
APR\ASPI = ƩSimple price index for each commodity
N (number of commodities)
 Attachment of weights to the commodities in the basket/selected goods
(according to the frequency at which they are exchanged)
 Calculating the weighted price index (WPI) for each commodity, using the
formula;
Weighted price index= price relative/ SPI x weighted
 Calculating the average weighted index;
Average weighted index = Ʃ SPI x W
Ʃ Weight
Or = Ʃ WPI
ƩW
15.2 Describe Rostow’s stages of economic growth.
15.3 Describe the forms of regional economic integration.
Forms of regional economic integration;
Preferential Trade Area (PTA) is a form in which member countries reduce tariffs
among themselves for selected commodities only and maintain tariffs on non-selected
goods from member states.
Free Trade Area (FTA) is a form in which member countries have free trade (eliminate
all tariffs\ trade barriers) among themselves and continue to charge different (external)
tariffs structures on goods from non-member states.
Customs Union is a form of economic integration in which member states have free
trade among themselves and common external barriers \whose tariffs i.e. it is where after
the formation of economic integration, member states abolish individual tariffs
structures and establish common tariffs structures against non-member countries.
Common Market is a form of economic integration in which member states have free
trade among themselves common external tariff structure(s)/ trade barriers and free
mobility of factors of production among themselves.
Economic Union is a form of economic integration in which member states have free
trade among themselves, common external tariffs, and free mobility of factors of
production and harmonized economic policies, strong regional institutions, use of strong
regional institutions, and use of a common currency plus sharing of common services
among member countries.
15.4 Describe the process of credit creation by commercial banks
Or
How do commercial banks create credit?
(Illustrate your answer)
Commercial banks create credit by;
 Receiving of the initial deposit by the first bank (bank A) from a client /
depositor / customer.
 Keeping a percentage of the deposit as a cash (reserve)ratio by the first bank
(Bank A)
 Lending the balance to a credit worthy customer by bank A
 Receiving the money lent out as a new deposit in another/ second bank (Bank
B)
 Keeping of a percentage of the deposit in bank B as a cash (reserve) ratio.
 Lending the balance to a credit worthy customer by bank B.
 The process continues till the initial deposit defuses/ diminishes in the banking
system.
 At the end of the process, the total credit created is;
Total credit created = Initial Deposit x 1 (credit multiplier)
CR
Where CR is the cash ratio.
16. “Circumstantial / conditional type of questions.
 Such type o questions require one to comprehend the cause(s) for, resulting
after a particular situation has happened.
 Questions of this type are answered bearing in mind lead- phrase words like
when, where, during and in case.
 Avoid the use of “if” as a condition cannot answer a condition.
16.1
Why may a consumer buy less of a commodity when its price falls?
Circumstances under which a consumer buys less of a commodity when its
price falls.
 When a consumer prefers goods of ostentation/ in case of snob effect.
 When the commodity in question is a giffen one.
 When the fall in price is associated with a fall in the quality of the good.
 Where there is an anticipated price reductions in future / when the price is
expected to fall further in future.
 During the period of economic depression / when prices for goods are very low
due to the low levels of income.
16.2
When are trade unions (workers) justified to demand for wage
increases?
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Trade unions (workers) are justified to demand for wage increases under the
following increases;
When higher wages are being offered to workers of a similar industry.
When the cost of living is increasing / the rate of inflation is increasing.
When there has been increased labour productivity.
In case the employer(s) fail to effect agreed upon periodical increases.
When the wages being offered are lower than or below the government set
minimum wage.
Where there has been an increase in prices of products produced by the workers.
When high or abnormal profits are earned by the employer.
When labour supply is inelastic / existence of full employment.
In case of inelastic demand for goods of that particular industry.
When there has been increased work load / hours of work.
In case of increased risks on the job.
Where labour has high skills to offer.
16.3
Explain why an increase in money supply may not necessarily lead to
inflation in an economy.
Why an increase in money supply may not necessarily lead to inflation in an
economy:
 When an economy is reviving from a recession / depression or slump.
 When the rate of money supply is slower than the rate of increase in the level of
output i.e.when the economy is not at full employment.
 In case most of the money supplied is held in form of bank deposits.
 When there is increased investment expenditure in the economy.
 When the marginal propensity to save (MPS) is high in the economy.
 When an increase in money supply is followed by price control by way of
maximum price legislation.
 When there is increase in income taxes which lead to a reduction in disposable
income.
 Where most of business transactions are on credit basis, involving the use of
cheques, credit cards, bank drafts etc.
 When the government reduces on its expenditure.
 When the cost of production is low.
 When there is increased internal borrowing by government through the sale of
securities.
 When there is a low degree of liquidity preference.
 When there is existence of greater inequalities in income such that increase in
money supply may be in the hands of the few rich whose marginal propensity to
consume (MPS) is low hence not changing aggregate demand and general price
level.
17 “why” type of questions?
 Questions of this type are normally phrased in any of this format;
− State / mention / give reasons for --------- in case of short –answer
questions.
− Why is -----− Why may
− Why do
− Why should
− Explain why
 The approach to such questions depends on their messages and requirements as
hinted below;
a) Why; requiring to give reasons ( answers ) in form of objectives ( purposes); and
the lead – phrase ( action ) words to be used include ;
− To ----− For ----− ----- ing---- (using a present continuous tense, for example, Attaining -----,
Achieving ----- etc.
 In addition, also lead – phrase words in the format of; so as to, due to, in order
to, because of the need to can be applied.
17.1
Why is there need to stabilize prices of agricultural products in an
economy?
Reasons for stabilizing prices of agricultural products in an economy are;
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To stabilize incomes of farmers.
To stabilize balance of payments.
For purposes of ensuring stable and high government revenue from taxes.
To ease the planning process.
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To control income inequalities.
To stabilize foreign exchange earnings.
To control rural – urban migration.
To minimize unemployment.
To stabilize the terms of trade.
For purpose of developing the agricultural sector.
To discourage speculation in the agricultural sector.
To ensure a stable exchange rate.
To encourage investment in agriculture.
To control structural inflation / to ensure food security.
To promote growth of the industrial sector by ensuring a steady supply / source of
raw materials.
Note: To “stabilize” is the correct word to be used other than to “improve”, “correct”
or “increase” because price fluctuation involves cyclical movement of prices, either
upwards or downwards; therefore, where should it be improved or corrected other
than to stabilize the likely outcome.
17.2 Why should (may) the government influence the location of an
industry?
The government may influence the location of an industry for the following
reasons;
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To encourage the exploitation of some resources.
To create (more) employment opportunities.
To facilitate fair distribution of income.
To ensure balanced regional development.
To minimize adverse effects of localization.
To control monopoly tendencies.
To avoid unnecessary duplication and wastes.
To fulfill political obligations.
For strategic reasons.
17.3 Why is there need for economic development planning in (an economy)
your economy?
Need for economic development planning in (an economy) my country;
 To ensure proper allocation (utilization) of resources.
 To ensure equitable distribution of resources (income) / to promote balanced
regional development.
 To reduce the level of unemployment.
 To correct balance of payment problems.
 To ensure stability in prices.
 To ensure self-sufficiency / to reduce economic dependence.
 To promote resource mobilization.
 To encourage public participation in the development of the economy.
 To ensure harmonious and consistent use of resources.
 To attract (solicit for) foreign aid.
 To identify areas suitable for public and private investment.
 To relate present to future trends and targets.
 To promote faster rate of economic growth.
 To correct deficiencies of price mechanism especially during situations of
rapid structural changes.
Note: an explanation is required on “how” to attain the objective(s); for
example,
To ensure proper allocation (utilization) of resources; because through planning,
the government ensures that the available resources are allocated proportionally to
different sectors or projects basing on their significance / importance in the economy.
17.4
i) State reasons for the merging of firms in your country.
ii) Give reasons for imposing progressive taxes in your country.
iii) Mention reasons for incurring of a public debt in an economy.
iv) Give reasons for the establishment of public enterprises in your country.
17.5
i) Why may the government interfere in the allocation of resources in afree
market economy?
ii) Why may price mechanism be interfered with in an economy?
iii) Why may price controls be adopted in an economy?
17.6 why is there need to / or;
i) Control monopoly power in your country,
ii) Modernize the agricultural sector in your country,
iii) Industrialization in less developed countries,
iv) (Trade) protectionism in your country?
17.7
i) Why is it necessary to compute motional income figures or price indices in
your country?
ii) Why may a country adopt an import substitution or export promotional
strategy of industrial development?
iii) Why should capital intensive techniques of production be adopted by
developing countries?
iv) Why may a low rate of inflation be desirable in an economy?
v) Explain the rationale for centralized planning in an economy.
vi) Why do countries incur public debts?
vii) Why have public enterprises been privatized in your country?
b)
Why; requiring to give reasons (answers) in form of causes / factors; that is,
reasons for the cause.
17.8 Why is the demand curve down sloping from left to right?
Reasons (causes) for the down sloping of the demand curve from left to right
are;
 The law of diminishing marginal utility, whereby as more and more units of
a commodity are consumed, the satisfaction derived from each additional unit
consumed decreases; implying that the consumer will be willing to consume
more units at successively lower prices.
 Substitution effect, whereby a fall in the price of a commodity in question
relative to the price(s) of its substitutes lead to a consumer(s) to buy more of
the commodity than the substitute(s).while an increase in its price reduces on
the quantity demanded given constant prices of the substitutes.
 Income effect, when the price of a commodity in question reduces, the real
income of the consumer increases, since the consumer can either spend less to
buy the same quantity or buy more quantities of it using the same money
income while a rise in its price reduces the real income of the consumer.
 Price effect, which is a combination of both substitution and income effects;
such that a fall in the price of a commodity leads to more of it being bought an
consumed while an increase in its price leads to less amount of the commodity
being purchased.
 Behavior of low-income earners, who normally tend to buy more of a
commodity when its price falls and less when its price increases.
 Various (different) uses of a commodity, such that a fall in its price leads to
more of the commodity being demanded and put to different uses e.g.
electricity for lighting, ironing, heating , cooking, while an increase in its price
leads to less quantity of it being demanded and used for only important
situations like lighting and ironing.
Similar questions to the preceding question.
i) Explain the law of demand.
ii) Explain why more of a commodity is demanded when its price falls.
iii) Why the demand curve is negatively sloped?
iv) Account for the inverse relationship between price and quantity demanded of
a commodity?
17.9 Why do prices of agricultural products fluctuate in an economy?
Why prices of agricultural products fluctuate in an economy;
 Long gestation period / inelastic supply in the short run.
 Heavy dependence on nature / natural factors / seasonal factors.
 Perishability of agricultural products hence storage problems.
 Low price elasticity of demand (inelastic demand) for agricultural products.
 Bulkiness of agricultural products thus transport problems.
 Low income elasticity of demand for agricultural products.
 Weak bargaining position of LDCs on the world market / external
determination of prices.
 High competition from synthetic / artificial fibers.
 Poor surplus disposal system / machinery / poor infrastructure.
 Divergence between planned and actual output levels / poor planning by
farmers.
 Agricultural products forming minor inputs in industrial sector.
 Raw material saving technology by major buyers.
 High competition among agricultural producers / many producers making
planning difficult causing market flooding.
 Lack of cooperation among producers of agricultural products / weak
commodity agreements.
 Changes in the cost of production.
17.10 Why may high income per capita not necessarily imply a high standard
of living for the people in an economy?
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High income per capita may not necessarily imply a high standard of living
for the people in an economy for the following reasons;
Greater uneven income distribution among people.
Long working hours at the expense of leisure.
Expenditure by the government on wars and insecurity i.e. due to political
instability at the expense of developing and providing social amenities to the
people.
Increase in price levels / high rate of inflation.
Poor quality goods being produced and availed to the people.
Inaccurate data for either GNP or population figures.
High unemployment levels due to use of capital intensive techniques.
High expenditure on capital rather than consumer goods which do not directly
improve on people’s welfare.
Poor working conditions for example, occupational hazards.
Increase in social costs / negative externalities like pollution.
High taxation on incomes of the people by the government.
Greater differences in consumption pattern among different groups of people
or societies.
17.11 Why is it difficult to attain full employment in your country?
It is difficult to attain full employment in my country because of the following reasons;
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Poor education system / poor man-power planning / limited labour skills.
Technological development / substitution of labour skills.
Poor land tenure system.
Discrimination in the labour market on the basis of religion, race, ethnicity,
nationality, political affiliation. Etc.
High population growth rate.
Rural-urban migration.
Unfavorable (changes in) climate / seasons.
Physical and mental incapacitation.
Limited / insufficient investment incentives.
Inadequate capital.
Small markets both at home and abroad / decline in demand for products of
some firms.
Retrenchment in order to cut costs.
Break-down of (industrial) firms / break-down of the production process.
Underdeveloped infrastructures.
Limited / lack of entrepreneurial skills.
Large subsistence sector / conservatism.
Low levels of accountability.
Political instabilities / poor political atmosphere.
c) Why; requiring to give reasons in form of causes for the problems, failures or
limitations.
17.12
i) Why is the computation of price indices difficult?
ii) Why may the policy of devaluation fail to improve on the BOP in an
economy?
d) Why; requiring to give reasons in form of “comparative analysis” i.e.
advantages of one economic theme over the other.
17.13
i) Why do developing countries depend more on indirect taxes than direct taxes?
ii) Why may government rely more on debt financing than taxation financing?
e) Why; requiring to give reasons in form of “inadequate measure” i.e.failure to
consider other factors.
17.14 Why may per capita income not be a good indicator of standard of living?
18
inadequate-measure type of questions.
Such questions test the ability of understanding plus applicability of factual knowledge.
Areas considered include mainly economic indicators and theories as hinted below;
a) Where a given economic indicator being considered (like per capitaincome,
price indices, GNP etc.) as a measure of economic situation (like standard of
living, cost of living , economic growth etc.) falls short as a true (realistic) yard
stick by not taking into account the factors that influence it.
 The statement have to be phrased
− It ignores………………..
− It does not consider………
− It does not take into account of……………
 Then proceed by considering the factors that influence the economicsituation
(theme) in the question.
18.1
Why may per capita income not be a good indicator of standard of living in
an economy?
Per capita income may not be good indicator of standard of living for the following;
 It does not take into account the distribution of national income, the uneven
distribution of income and wealth.
 It does not take into account the pattern of expenditure, whether on social
amenities or military.
 It does not take into account the composition or type of goods produced; because
capital goods may be produced which do not directly improve people’s welfare.
 It does not take into account the amount of leisure vis-à-vis long working hours.
 It does not take into account the working conditions, for example, the existing
occupational hazards.
 It does not consider the level of subsistence output.
 It does not consider the price levels (rate of inflation), because price level cannot
be the same in a given period of time in an economy.
 It does not take into account the factor of political climate in a country, it could be
good or bad.
 It does not take into account the quality of goods and services produced, whether
of poor quality or high quality goods.
 It does not take into account the level of social costs/ negative externalities like
pollution.
 It does not take into account the level of employment or unemployment; because
the majority of the people may be unemployed due to the use of capital intensive
techniques.
 It does not take into account the accuracy or inaccuracy of statistical data, for
example, and population figures.
 It does not consider the level of taxation on income by government i.e. whether
it’s high or low which in turn affects the peoples disposable income.
b) Where an economic indicator does not consider that factors which influence such
an economic condition change over time \ vary with time.
18.2 What are the limitations of using income per capita to compare the welfare of
the people in the country over time?
Limitations of using income per capita to compare welfare of people in a country over
time;
 It does not take into account that the distribution of income among people change
over time in a country.
 It ignores that the pattern of expenditure in a country change over time whether on
defense, investment or on consumer goods.
 It ignores that over time, production may be geared towards more capital goods
than consumer goods.
 It ignores that the quality of goods produced and availed to people varies with
times.
 It does not consider that prices of commodities in a country change as time goes
on.
 It ignores that the level of social costs/ negative externalities change as time goes
on.
 It ignores that the political climate may be good or bad over time in a country.
 It ignores that the accuracy of data varies with time especially in relation to
population figures.
 It ignores that the number of people who have jobs (employed) usually change
over time.
 It ignores that the government level of taxation and expenditure on citizens
usually vary with time.
 It ignores that the cost of living of people change over time.
c) Where a given economic indicator ignores “differences” in the factors that
influence a given economic situation “between” countries.
18.3What are the limitations of using per capita income to compare standard of
living between countries.
Limitations of using per capita income to compare standards of living between
countries;
 It does not take into account differences in the nature of income distribution
between countries, because it cannot be the same.
 It ignores differences in the nature of government expenditure between
countries.
 It ignores differences in the amount of leisure enjoyed between countries.
 It does not take into consideration differences in the size of subsistence
between countries.
 It ignores differences in requirements between countries, for example, due to
climate differences.
 It ignores differences in tastes and preferences between countries.
 It does not consider differences in the quality of goods produced and consumed
between countries.
 It does not consider differences in the nature or types of goods produced
between countries, whether capital goods or consumer goods.
 It does not consider differences in structures \ levels\ rate of inflation between
countries.
 It does not consider differences in the value of currencies coupled with the
problem of exchange rate between countries.
 It does not consider differences in the levels of employment between countries.
 It ignores differences in the levels of taxation between countries because the
tax rates cannot be the same between countries.
 It does not consider differences in conditions of work between countries.
 It ignores differences in political climate between countries because it cannot
be the same i.e. good or bad.
 It does not consider differences in transport costs or costs of production
between countries.
 It does not consider differences in boundary of production and methods of
compiling national income between countries.
 It ignores differences in social costs between countries.
d) Another area for application of “inadequate-measure” format of approach is when
dealing with limitations/irrelevancy/ weaknesses/ non-applicability of the
“theory” type of questions, where statements have to be phrased as;
− The theory ignores/ ignored…………….
− The theory does not/ did not consider (take into account
of)…………………
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“Theory” type of questions.
 One is required to be well versed with theory by way of;
− Stating, as it was formulated / put forward.
− Explanation, expressing a relationship between cause and effect.
− Illustration, where applicable.
− Assumptions
− Applicability that is relevance and irrelevance.
 Applicability part requires one to be well knowledgeable both with evidence and
opinions.
 Every theory has both the relevance and irrelevance parts.
 In most cases (conventionally), the relevant precedes the irrelevant part with the
“exception” of the Keynesian theory of unemployment.
19.1
State the following ;
i) The law of demand.
ii) The law of supply
iii) The law of diminishing marginal utility.
iv) The law of variable proportions
v) The balanced growth theory
vi) The big push theory.
i) The law of demand, states that “The quantity demanded of a commodity at a
given time increases when its price falls and decreases when its price increases
other factors remaining constant”.
ii) The law of supply, states that “The higher the price of a commodity, the higher
the quantity supplied and the lower the price, the lower the quantity supplied of a
commodity, ceteris paribus”.
iii) The law of diminishing marginal utility, states that “As more and more
(successive) units of commodity are consumed, the satisfaction derived from each
additional unit consumed decreases / falls”.
iv) The law of variable proportions (diminishing returns) states that “As more and
more units of a variable factor are applied to a given quantity of a fixed factor, the
marginal product / marginal output first rises, reaches a maximum point and then
falls (diminishes)”.
v) The balanced growth theory states that “There should be harmonious and
simultaneous development / investment in all sectors of the economy so that they
complete each other and grow more or less at the same pace”.
vi) The big-push theory, states that “For a back-ward economy (i.e. LDCS) to take
off into a self-sustained growth, a massive investment programmers in industries
and economic infrastructure is required”.
19.2
i) State the Malthusian population theory.
ii) Explain the Malthusian population theory.
iii) Explain the ways in which the Malthusian population theory is relevant to
developing countries.
iv) State the limitations of the theory.
v) To what extent is Malthusian population theory relevant to your country?
i) Malthusian population theory states that whereas population grows at a geometric
rate, food production tended to grow at an arithmetic rate. Malthus stated that
due to the above trend, population growth after a time would outstrip food
production (population trap), and after such a time, there was need for control of
population growth through preventive (negative) checks like moral restraint,
celibacy etc. Otherwise positive checks like pestilence, wars diseasesetc. would
serve to reduce the population.
ii) Malthusian population theory states that, whereas population grows at a
geometric rate, food supply tended to grow at an arithmetic rate; such that a given
period of time (t), which Malthus referred to as population Trap, population
would equal to the means of subsistence, beyond which population growth would
outstrip food production, leading to misery, starvation, famine and death.
He however noted that there was need for population control measures through
negative (preventive)checks like moral restraint, celibacy etc.
Otherwise positive checks like diseases, wars etc. would serve to reduce
population growth such that population would equal to food supply.
An illustration of Malthusian population theory.
iii) Ways in which the theory is relevant to developing countries;
 Land supply being fixed and subject to the law of diminishing returns is being
experienced and he envisaged the situation.
 Natural family planning methods / control measures like celibacy are being used;
these control measures are his initiation / negative checks.
 The positive checks on population exist in LDCS today e.g. epidemics, wars etc.
 Land problems (disputes) are common issues in developing countries.
 Some areas of LDCS are facing food shortages / famine.
 Existence of a subsistence sector which is still large in LDCS.
iv) Limitations of Malthusian population theory.
 It assumes constant technology which is unrealistic, since technology is ever
changing i.e. there is technological progress.
 It assumes a closed economy, yet economies of most LDCS are open economies /
ignored the role of international trade.
 Agricultural modernization is not foreseen by the theory yet this is taking place in
most LDCS.
 Failure of the theory to visualize labour mobility.
 Population growth does not depend on food alone.
 The theory is based on the subsistence economy, yet LDCS economies are not
predominantly subsistence any longer.
 The theory did not fore see great improvement in transport.
 It did not fore see the possibility of getting foreign aid / resources from other
countries.
 There is no mathematical relation as regards growth in food and population.
 The theory ignored the deliberate and scientific methods of birth control i.e.
Modern family planning methods.
 It did not realize that rising standards can cause a fall in birth rates and population.
 It ignored the possibility of emigration to ease pressure on resources.
 Malthus was influenced by the Law of diminishing returns, which is not always
true.
v) The theory to a lesser (a minor) extent is relevant (applicable) to my country
in that;
 Land is fixed in supply and subject to the law of diminishing returns, this situation
is being experienced as Malthus envisaged.
 Natural family planning methods (control measures) like celibacy are his
initiation.
 Positive checks like wars, famine, epidemics on population exist in my country
today.
 Land problems (disputes) are common in my country today.
 Some areas in my country face food shortages.
 Existence of a subsistence sector which is still large in the rural areas in my
country.
However, to a greater extent the theory is not relevant to my country today in
that;
 It assumes constant technology but technological progress occurs.
 My country’s economy is an open one with possibility of international trade and
yet the theory assumes a closed economy.
 The theory did not fore see possibility of getting foreign aid and resources from
others which is happening in my country today.
 Ignored the possibility of emigration to ease (reduce) population pressure, a
situation being experienced in my country today.
 My country’s population growth does not depend on food alone.
 Agricultural modernization is not fore seen by the theory, yet this is taking place
in my country.
 My country’s economy is not predominantly subsistence any longer, yet the
theory is based on the subsistence economy.
 The theory did not fore see great improvement in transport, yet this is taking place
in my country.
 Failure of the theory to visualize labour mobility which is happening in my
country today.
 The theory ignored the deliberate and scientific methods of birth control that is
modern family planning methods which are being used and applied in my country.
 It did not realize that rising standards can cause a fall in birth rates and population
a situation being experienced in my country.
 Malthus was influenced by the law of diminishing returns which is not always true
in my country.
 There is no mathematical relation as regards growth in food and population in my
country.
19.3
i) State the marginal productivity theory.
ii) What are the limitations of the marginal productivity theory of distribution?
iii) Explain the marginal productivity theory of wages.
iv) To what extent is the marginal productivity theory of wages relevant to your
country?
i) Marginal Productivity theory of distribution states that “a factor of production is
paid a reward which is equal to the value of its marginal product.
OR
Profit maximization requires that a producer will not pay a factor of production higher
than the Marginal Revenue (MR) of that factor that is the value of its marginal physical
product.
ii)
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Limitations of the marginal productivity theory of distribution;
Government usually intervenes in fixing factor prices.
Factor prices can be bargained.
Factors of production are not homogenous, even one factor’s productivity varies
with time.
Factors of production cannot be wholly substituted.
Factors tend to be immobile.
The law of diminishing returns does not hold; there may be increasing returns.
Employers usually use subsistence level as a measure of factor prices, which may
be above or below the value of the marginal product of the factor / revenue are
determined by the cost of living.
It is difficult to measure the marginal product of a factor in some sectors e.g. the
service sector.
It ignores the historical factors e.g. inherited salary structure.
It does not take in account the exploitation of labourers by capitalists.
 Education and training may differ.
 Influence of trade unions in bargaining for wages differ.
iii) Marginal Productivity theory of wages states that “a worker is paid a wage
which is equal to the value of his output, i.e.Wage = MRP”.
OR
It states that “the extra unit of output produced should be in position to fetch
extra revenue which must be paid to the extra worker that has produced it”.
OR
“Profit maximization requires that a producer will not pay a wage higher than the
Marginal Revenue Product of the worker i.e. value of his marginal physical product
where MRP=MFC=Wage”.
Diagrammatic illustration
MRP is the Marginal Revenue Product
MFC is the Marginal Factor Cost.
The theory works on the following assumptions;
 Perfectly competitive labour market i.e. no government interference, perfect
mobility of labour and labour homogeneity.
 Labourers and employers can calculate the marginal product of labour.
 All factors of production are substitutable.
 Output can be quantified in measurable units.
 Law of diminishing returns operates.
 Profit maximization is the main goal of the firm.
Note; in most cases, this is the only theory where assumptions are required when the
question is about “Explain” but not to state the theory.
iv) To a smaller extent, the theory is relevant (applicable) to my country in that;
 Marginal physical product of labour can be measured for physical work e.g. brick
making, digging etc.
 Some employers demand for labour only when it is to make profits for the
assumption of profit maximization as the main goal.
 Labour at times is paid according to the value of marginal product in case of piece
rate system, which applies today in my country.
 It assumes government non-interference in wage determination, which may be
true especially for the private sector.
To a larger extent, the theory is not applicable for the following reasons;
 It ignores government intervention in fixing wages i.e. the minimum wage
legislation.
 Labour is not homogenous at all and even one’s labourers at all and even one
labourer’s productivity varies overtime.
 Wages are sometimes bargained between the employer and the worker without
considering the marginal product of the worker.
 Employers sometimes base on the cost of living prevailing to fix a wage i.e. the
sliding scale system of wage payment.
 Factors cannot be wholly substituted as the theory assumes.
 Factors of production especially labour is not perfectly mobile either between
occupations or geographical areas.
 It is difficult to measure marginal product of workers in some sectors, and
especially in the service sector.
 It ignores the factor of the level of education and training which is considered
when employing labour plus fixing the wages.
 Sometimes wages in certain firms (industries) are determined by historical factors
i.e. inherited salary structure in fixing wages within a certain enterprises.
 Labour is sometimes exploited by the capitalist employers who aim at maximizing
profit level while under paying the worker a wage rate which is too low the
marginal revenue product.
 It ignores the elasticity of supply of labour which tend to cause wage differentials.
 The theory ignores the pressure of trade unions on the employer so as to increase
wages for the labourers.
 The law of diminishing returns does not hold wholly since sometimes there can be
increasing returns after labour attaining efficiency plus use of better technology.
19.4
i) State the Iron Law of Wages
ii) Explain the Iron Law of Wages
iii) To what extent is the Iron Law of Wages applicable in the determination of
wages in your country?
i) The Iron Law of Wages (also known as the Subsistence theory of wages) states
that workers should be paid wages to enable them meet their bare subsistence
needs (so that they can work harder after experiencing hardships like hunger).
ii) the Iron Law of Wages; also known as the subsistence theory of wages was
developed by French economist who had been greatly influenced by writings of
Malthus and it states that workers should be paid the bare minimum (i.e.
subsistence wage) so that they can work harder after experiencing hardships like
hunger.
It emphasizes that the wage level should correspond with the subsistence level of
living at which people could just maintain existing population.
Above this wage, population increases and below it standards of living would be
too low that people may die thus reducing population and taking the wage back to
that subsistence level.
This theory was used to justify payment of low wages to labourers during
industrial revolution.
iii) To a smaller extent, the Iron Law of Wages is applicable in determination of
wages in my country in that;
 Casual workers or unskilled labourers are paid basing on the level of their
subsistence needs.
 In the subsistence sector of my country, rewards to workers is based on basic
need, hence applicability of the law.
 Employers in abide to retain cheap labour tend to pay workers’ wages which are
just enough to carter for their subsistence needs.
 Entrepreneurs due to profit maximization goal pay workers’ wages which are just
enough to meet their subsistence needs only.
 Employers due to high level of unemployment are willing to accept low wage
rates as long as it covers their subsistence needs.
However, to a larger extent the Iron law of Wages is not applicable in
determination of wages in my country for the following reasons;
 The Law (Theory) approaches the problem of wage determination entirely from
supply side; it ignores the demand for labour entirely, thus difficulty in using it.
 The theory relates wage rates to birth rates or population growth rate which is not
the case in my country’s labour market.
 According to the theory, all workers should receive the same wage rate which is
not the case in my country where wages differ.
 The theory does not consider the fact that the bare minimum need(s) varies from
time to time depending on price levels, economic conditions etc.
 The theory is only applicable to the subsistence sector (i.e. in subsistence level of
living) but not to the commercialized sectors of my country’s economy which use
other considerations in wage determination.
 Trade union influence in wage determination is not taken into consideration by the
theory.
 Contrary to (assertion of) the Law, employees work harder when paid higher
wages, that is do not work harder when paid (very) low wages.
19.5
i) State the Keynesian theory of unemployment.
ii) Explain the Keynesian theory of unemployment
iii) What are the limitations of the Keynesian theory of unemployment in
developing counties/
iv) To what extent is the Keynesian theory of unemployment relevant to
developing countries?
i) The Keynesian theory of unemployment states that unemployment arises due to
deficiency in aggregate/ effective demand for final goods and services in an
economy especially in times of economic recession/depression.
ii) Due to a fall in aggregate demand (low demand) for final goods and
services/products, firms reduce output levels, income levels falls and investment is
discouraged thus less labour and capital are employed.
The major remedy\solution according to Keynes is increasing aggregate demand
for goods and services; and this can be through;
− Increasing government expenditure
− Reducing direct taxes\ Taxes on income
− Subsidization of consumers.
− Use of expansionary monetary policy
− Increasing wages.
− Encouraging private investment.
iii) Limitations of the Keynesian theory of unemployment in developing
countries.
 It is mainly concerned with demand yet unemployment in developing countries is
mainly from the supply side.
 The solutions to reduce unemployment suggested by Keynes to increase aggregate
demand are inflationary in nature.
 The theory is applicable under conditions of full employment yet resources are
highly underutilized in developing countries.
 The theory is based on highly monetized economy yet the economies of
developing countries are basically subsistence.
 In developing countries firms do not respond effectively to changes in demand
due to structural difficulties/ problems.
 The theory is based on the existence of a strong private sector yet in developing
countries, the private sector is small and weak.
 The product factor and money markets in developing countries are not as
functional as those in developed countries.
 The theory is applicable in highly industrialized economies yet most developing
countries are agro-based economies.
 The Keynesian theory of unemployment is based on a closed economy yet
developing countries are open economies.
 The theory puts more emphasis on the investment multiplier as a contributor to
employment, yet in most developing countries, it is the export multiplier.
 There is high marginal propensity to import in developing countries which
reduces the multiplier effect thus causing unemployment.
To a larger (greater) extent, the Keynesian theory of unemployment is irrelevant to
developing countries; reasons being that;
 It is mainly concerned with demand yet unemployment in developing countries is
mainly from the supply side.
 The solutions to reduce unemployment suggested by Keynes to increase aggregate
demand are inflationary in nature.
 The theory is applicable under conditions of full employment yet resources are
highly underutilized in developing countries.
 The theory is based on highly monetized economy yet the economies of
developing countries are basically subsistence.
 In developing countries firms do not respond effectively to changes in demand
due to structural difficulties/ problems.
 The theory is based on the existence of a strong private sector yet in developing
countries, the private sector is small and weak.
 The product factor and money markets in developing countries are not as
functional as those in developed countries.
 The theory is applicable in highly industrialized economies yet most developing
countries are agro-based economies.
 The Keynesian theory of unemployment is based on a closed economy yet
developing countries are open economies.
 The theory puts more emphasis on the investment multiplier as a contributor to
employment, yet in most developing countries, it is the export multiplier.
 There is high marginal propensity to import in developing countries which
reduces the multiplier effect thus causing unemployment.
To a smaller (lesser/minor) extent, the Keynesian theory of unemployment is
relevant (applicable) to developing countries for the following reasons;
 At times, unemployment in developing countries results due to fall in demand,
both domestic and abroad.
 In developing countries, there is an element, there is an element of
industrialization, hence the theory maybe applicable to the industrial sector.
 In the long run, as supply of cooperating factors for labour increase, the theory
becomes relevant.
 Investment climate affects employment level and therefore promotion of
investments in developing countries will expand employment as stated by Keynes.
 Measures to stabilize export earnings through IMF compensatory arrangements to
ensure stable export markets affect employment problem by reducing rate of
unemployment.
 Use of expansionary monetary policies to increase purchasing power in most
developing countries have tended to increase employment levels and this is a
policy put forward by Keynes, thus the applicability to developing countries.
What are the assumptions underlying the Keynesian theory of unemployment?
19.6
i) State the comparative cost advantage theory.
ii) What are the assumptions underlying the law\theory\ principle of
comparative cost advantage?
iii) What are the limitations of the comparative cost advantages theory in
international trade?
iv) To what extent is the comparative cost advantage theory applicable to
developing countries?
i) The comparative Cost Advantage theory states that “a country should specialize
in the production of a commodity in which it has the least opportunity cost in
comparison with another”.
Comparative Cost Advantage exists when given two countries and two
commodities with a given amount of resources, one country can produce one
commodity more cheaply (at least opportunity cost) than the other.
ii)
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Assumption’s underlying the principle of comparative Cost Advantage;
There are only two countries, say A and B
They produce the same two commodities, X and Y
Tastes are similar in both countries.
Labour is the only factor of production.
All labour units are homogenous.
The prices of the two commodities are determined by the labour costs.
Commodities are produced under the law of constant cost (Returns)
Trade between the two countries takes place on the basis of barter trade.
Technological knowledge is unchanged i.e. constant technology.
Factors of production are perfectly mobile within each country but perfectly
immobile between the two countries.
It ignores the possibility of absolute cost advantage.
It wrongly assumes the possibility of full employment.
It assumes that demand is elastic, yet the demand for agricultural products in
elastic.
It assumes homogeneity of factors of production, yet they are not.
It ignores the existence of diminishing returns.
It ignores the need for self-reliance by countries.
It assumes barter trade, yet there is monetary exchange.
There can be international mobility of factors of production.
It ignores the existence of different currencies.
It ignores the possibility of changes in comparative advantage.
There is free trade between the two countries i.e. there being no trade barriers/
restrictions in the movement of commodities.
 The demand for the two commodities is elastic
 All factors of production are fully employed in both countries i.e. no existence of
unemployment.
 Existence of constant comparative advantage in both countries.
iii) Limitations of the comparative cost advantage;
 Its simplicity of considering only two countries
 The assumption of only two commodities is unrealistic as a multitude (a number)
of commodities can be produced in a country.
 It assumes free trade, yet in reality there are trade barriers.
 The theory ignores transport costs which normally cause differences in costs of
production.
 It does not take into account changes in technology.
 Poor countries would become poorer\ poor terms of trade.
iv) To a smaller extent the comparative advantage theory is relevant
(applicable)to developing countries due to the following;
 Developing countries have tended to specialize in agriculture where they have the
lowest comparative advantage.
 In LDCs there are barter trade arrangements, thus qualifying the theory to be right.
 In some cases, there is free trade among LDCs in case of economic cooperation.
 There is some degree of mobility of factors of production within individual
countries.
 Developing countries continue to import manufactured goods where they have a
lesser comparative advantage.
 In LDCs there is use of labour intensive techniques which in abundant i.e.
technology is yet to changes.
However to a larger extent, the comparative Advantage theory is in applicable to
LDCs due to the following;
 Its simplicity of considering only two countries.
 The assumption of only two commodities in unrealistic as a multitude of
commodities can be produced in a country.
 It assumes free trade and yet in reality there are trade restrictions.
 The theory ignored transport costs which normally cause differences in costs of
production.
 It ignores the possibility of absolute cost advantage.
 It wrongly assumes the possibility of full employment.
 It assumes that demand in elastic, yet demand for agricultural products is inelastic.
 It assumes homogeneity of factors of production, yet they are not.
 It ignores the existence of diminishing returns.
 It ignores the need for self – reliance by countries.
 There can be international mobility of factors of production.
 It assumes barter trade only, yet there in monetary exchange.
 It ignores the existence of different currencies used.
 It ignores the possibility of changes in comparative advantage.
 It does not take into account changes in technology.
 Poor countries would become poorer / poor terms of trade.
19.7
i) State Irving Fishers equation of exchange
ii) Explain the Quantity Theory of Money.
iii) What are the assumptions underlying the Quantity Theory of money?
iv) Explain the ways in which the Quantity Theory of Money is relevant to
developing countries.
v) What are the limitations of Irving Fisher’s Quantity Theory of money?
vi) To what extent is the Quantity Theory of Money relevant to developing countries?
i) Irving Fisher’s equation of exchange;
MV= PT
Or
P = MV
T
Where;
−
−
−
−
M is the amount of money in circulation
V is the velocity of circulation of money
P is the general price level / average price
T is the level of transactions / volume of production.
ii) The Quantity theory of money states that “the general price level is determined
by the quantity of money in circulation, assuming that the velocity of circulation
(V) and the level of transactions(T) and constant”
The theory is expressed in terms of equation of exchange as;
MV= PT or P= MV
T
Where M= Amount of money in circulation
V= velocity of circulation of money
P= general price level/ average price
T= level of transactions/ volume of production
Or
The quantity theory of money is a theory predicting that the price level and the
quantity of money vary in direct proportion to each other.
P∞M
Or P= ƦM
Where P is general price level
M is the quantity of money in circulation
Ʀ is a constant
iii) Assumptions underlying the quantity theory of money;
 The stock (amount) of money is fixed i.e. M remains constant
 The velocity of circulation of money (V) is assumed to be constant and is
independent of changes in M
 The level (volume) of transactions (T) also remains constant and is independent of
other variables such as M and V
 The economy should be highly monetized.
 Existence of full employment in the economy.
 The theory is applicable in the long-run.
iv) Ways in which the quantity theory of money is relevant to developing
countries
 Prices in most economies of LDCs change according to changes in the quantity of
money as stated by the theory.
 Velocity of circulation of money (V) tends to be constant especially in LDCS
because of rigidity in consumption and liquidity preference.
 The volume of transactions tend to be constant in LDCs due to low levels of
production, low purchasing power, limited entrepreneurship and the like.
 An increase in money supply in an economy where marginal propensity to save
(MPS) is very low, implies that Marginal Propensity to Consume. Will be high,
which leads to an increase in prices and this applies in LDCs.
 Absence of restrictions on the expenditure especially in the private sector, makes
the transaction motive to be high, a situation which happens in LDCs.
v) Limitations of the quantity theory of money;
 It only attempts to explainchanges in the value of money but not how value of
money is determined.
 There is no general price level but rather a series of price levels.
 It ignores the influence of the rate of interest.
 It does not take into account the demand for money, that is, it only looks at money
supply.
 An increase in money supply may result into higher savings if the MPs is high,
this reduces the velocity of circulation of money and prices may fall.
 If a country has many unemployed resources, the increase in money supply leads
to increase in money supply leads to increase in output of goods and services
which makes prices fall or not change at all.
 Haggling between buyers and sellers to reach an agreeable price is not taken into
account.
 Government control of prices is not covered by the theory.
 It does not take into account other causes of prices increases (inflation), for
instance cost push and demand pull.
 It is just atriums which merely shows that M, V, P and T are related.
 The theory ignores barter trade.
 It considers only the transactions motive for holding money and ignores the
precautionary and speculative motives.
 The four variables M, V, P and T are not independent of one another, because a
change in one induces change in others.
vi) To smaller extent, the quantity theory of money is relevant to developing
countries; reasons being that;
 Prices in most economies of LDCs change according to changes in the quantity of
money as stated by the theory.
 Velocity of circulation of money (V) tends to be constant especially in LDCS
because of rigidity in consumption and liquidity preference.
 The volume of transactions tend to be constant in LDCs due to low levels of
production, low purchasing power, limited entrepreneurship and the like.
 An increase in money supply in an economy where marginal propensity to save
(MPS) is very low, implies that Marginal Propensity to Consume. Will be high,
which leads to an increase in prices and this applies in LDCs.
 Absence of restrictions on the expenditure especially in the private sector, makes
the transaction motive to be high, a situation which happens in LDCs.
To a larger extent, the quantity theory of money is irrelevant to developing
countries for the following reasons;
 It only attempts to explain changes in the value of money but not how value of
money is determined.
 There is no general price level but rather a series of price levels.
 It ignores the influence of the rate of interest.
 It does not take into account the demand for money, that is, it only looks at money
supply.
 An increase in money supply may result into higher savings if the MPs is high,
this reduces the velocity of circulation of money and prices may fall.
 If a country has many unemployed resources, the increase in money supply leads
to increase in money supply leads to increase in output of goods and services
which makes prices fall or not change at all.
 Haggling between buyers and sellers to reach an agreeable price is not taken into
account.
 Government control of prices is not covered by the theory.
 It does not take into account other causes of prices increases (inflation), for
instance cost push and demand pull.
 It is just atriums which merely shows that M, V, P and T are related.
 The theory ignores barter trade.
 It considers only the transactions motive for holding money and ignores the
precautionary and speculative motives.
 The four variables M, V, P and T are not independent of one another, because a
change in one induces change in others.
20.0
“Comparative\advantage over” type of questions.
 The message and requirement of such questions is for one to make a
comparative analysis by giving reasons in form of merits\ advantages of say X
(economic theme) over the demerits\ disadvantages of Y.
 The merit of X has to be in comparison with the demerit of Y in the same
paragraph.
 Phrase words like while, whereas, unlike, other than, compared to etc. should
be used during comparison.
 It is incorrect(wrong) to consider the merits of X first separately and then
followed up by the demerits of Y
20.1
Why may a government rely more on debt financing than taxation
financing?
A government may rely more on debt financing than taxation financing for the
following reasons;
 Debt financing does not have negative political effects compared to taxes that
may cost the government political popularity.
 It is easier to borrow money more to tax
 Debt financing helps to realize a lump sum of money compared to taxation
which is slow in bringing in money.
 Debt financing makes use of both local and foreign sources of revenue
compared to taxation which is only internal.
 Debt financing does not have adverse effects on consumption unlike taxation
that reduces the disposable income of people.
 Debt financing does not involve costly methods of collection compared to
taxation.
 Debt financing does not discourage production by increasing cost of
production unlike taxation which increases the cost of production.
 Debt financing does not discourage savings and investment compared to
taxation.
 Debt financing increases foreign reserves of the country and encourages
foreign investment compared to taxation which discourage potential foreign
investors.
 The burden of borrowing can be postponed to the future generations unlike
taxation whose burden is felt by the present generation.
 Borrowing can be used to fight inflation, especially of demand pull type in
case of internal borrowing compared to taxation that leads to inflation (of cost
push type) in case of indirect taxes.
 Borrowing adds on revenue compared to that from taxation that tends to be
inadequate because of the low taxable capacity in LDCs
20.2
i) Present the advantages of debt financing over taxation financing in an economy.
ii) Why do developing countries depend more on indirect taxes than direct taxes?
21.0
“Argumentative ” type of questions
 The common command word is “To what extent” though others like how far,
justify or discuss may be used.
 Such questions test and assess the ability of one to analyze and understand
before explaining the idea.
 They require and emphasize the presentation of facts and reasons in support of
a given position as opposed to the other side.
 Question are set relating to causes, factors reasons, objectives, problemsor
applicability of the given theory (ies).
 Approach and answering the question is based on its message and requirements
as analyzed below;
a) Argumentative approach; requiring to give reasons /causes/factors in support of
the question (handling exhaustively what is asked in the question) and then
consider what is not contained in the question.
The approach should be;
The extent to which……… (Handling the required part in support of a given
position); then, afterwards change to the other side with; However …
 It should be noted that such type of questions do not involve taking “a stand” by
the way of either “To a greater extent” or “to a lesser extent”because the
message and requirement of the question is to consider first what is being asked
but “not to weigh”.
21.1
To what extent is inflation in your country a result of increasing costs
of production?
The extent to which inflation in my country is a result of increasing costs of
production is explained by the following.







Raising wages
Raising interest rates on capital borrowed.
Increasing costs of fuel\energy
Increasing costs of sales promotion/ advertising costs.
Rising costs of raw materials
Rising tax rates
Rising prices of machines and spare parts
However, inflation in my country is also a result (being caused by) of the following;





Natural hazards
Break-down of infrastructures
Political instability in some parts of the country
Importation of essential goods from countries experiencing inflation
Increased (excessive) inflow of income from abroad







Greed for profits by traders
Speculation by traders/ businessmen
Excessive issuance of currency
Excessive government expenditure
Declining value of the local currency
Excessive /uncontrolled credit creation
Excessive borrowing from the central bank by government.
21.2
To what extent is the agricultural price fluctuations a result of low
elasticity of supply?
b) Argumentative approach; where the message of the question requires one to
take “a stand” (i.e. by way of weighing), whether one side dominates the other in
the course of arguments.
The approach should be;
To a smaller extent ……………; and then change to the other side by stating;
however, to a larger extent……………… (First); and then to a smaller extent…...
depending on the message of the question(s)
 All questions relating to the applicability of theories should be answered with this
format of approach. (See “theory” type of questions).
21.3
To what extent have trade unions in your country achieved their
objectives?
To greater extent Trade unions have failed to achieve their objectives in my country
due the following;
 Failure to improve wages and fringe benefits to desired levels.
 Failure to protect all members against unfair treatment e.g. unfair dismissal of
workers.
 Failure to improve the skills of members through training because of high costs,
corruption, lack of commitment etc.
 Negligence of unions to advise government on development basis e.g.
employment policy, man power planning, wage policy etc.
 Failure to improve on the working conditions i.e. no lunch, no transport, harsh
treatment of workers by the bosses, long hours of work etc.
 Trade unions have failed to maintain consistent membership plus failure to forge
unity among their members.
To a lesser extent. Trade unions in my country have managed to achieve the
following;






Improvement in wages
Some improvement in the working conditions
Tried to create unity among workers
Tried to seek, promote and maintain human rights.
Improvement of the skills of member workers through training
Advising the government on wage policy, man power planning etc.
22.0
“Argumentative-Block” type of questions.
 Normally such questions have ‘discuss’as the command word at the end.
 Such questions require an argumentative approach to explain the idea.
 When a single economic theme, say X is being considered (either in an economy,
developing countries or in your country), the approach should be; in support (case
for) of X and then case against X.
 In case of X rather than Y, (in an economy, developing countries or LDCs); then
the approach should be; in support of X and afterwards arguments against Y.
 In case of X rather than Y (in your country); approach should be; in support of X
rather than Y, give the merits of Xand demerits of Y; then change to the other side
by saying; however, Y may be preferred to X because of its merits and then the
demerits of X i.e. in support of Y and afterwards, arguments against X.
 Alternatively, when X rather than Y in your country is being considered; the
related merits of Xand demerits of Y; and then the related merits of Y and
demerits of X can be as it is with case of “comparative” type of questions.
 Such questions involve long essays; however, if well understood and approached
correctly, they can easily be passed.
22.1
“Developing countries should adopt the import substitution strategy of
industrial development if they are to achieve their development goal”.
Discuss.
Arguments (reasons in support) for adoption of import substitution strategy of
industrial development;















Helps to save foreign exchange
Reduces the extent of foreign dependence.
Facilitates development of local skills.
Improves on the balance of payments position
More domestic resources are exploited/promotes economic growth
Leads to expansion of the manufacturing sector i.e. promotes industrialization.
Provision or enlargement of employment opportunities in long run.
Facilitates transfer of technology / technological development.
Helps to increase government through taxes.
Increases incomes of individuals.
Facilitates the growth of infrastructure i.e. roads, power and water supply etc.
May in the long run help in earning foreign exchange through exports.
Facilitates the inflow of foreign capital.
Helps to control imported inflation.
Creates linkages in the industrial sector.
Arguments (Reasons) against adoption of import substitution strategy of
industrial development.
 Leads to capital outflow through importation of intermediate inputs hence
balance of payment problems / deficits.
 High domestic prices due to high production costs.
 Citizens usually are subjected to low quality (inferior) products due to
protectionism.
 Encourages use of capital intensive techniques which results into
unemployment.
 Tends to concentrate on production of consumer goods.
 Limited variety of goods on the market / lack of choice for consumers.
 Monopoly tendencies are promoted.
 Production at excess capacity due to limited market.
 Usually manned (owned) by foreigners leading to profit (income) repatriation.
 Problem of over protection may lead to retaliation / beggar-my neighbor
policy.
 Management contracts are usually expensive to maintain.
 Leads to rural urban migration and its adverse effects since industries tend to
be urban based.
 High social costs like pollution.
 Results in a fall in government revenue due to a decline in import duty.
 Leads to increased government expenditure on subsidies.
22.2
“Developing countries should privatize public enterprises if they are to
retain economic growth and development”. Discuss.
Arguments for privatization public enterprises;
 Increases output because privatization encourages investors to exploit the idle
resources since they are profit oriented, leading to greater output levels hence
economic growth.
 Increases government revenue since private individuals get involved in various
activities hence widening the tax base.
 Widens consumer’s choices because of a variety of goods and services being
produced and provided by the many competing private enterprises.
 Reduces expenditure by government in form of subsidization or financial
accommodation in the running of public enterprises.
 Reduces dependence on imports because of increased local production by the
import substitution industries established by private investors.
 Reduces corruption in the enterprises and instead promotes transparency and
better management because privatization encourages a high degree of
accountability in business management since it is profit oriented.
 Reduces bureaucratic tendencies such that there is quick decision making by
private owners and this leads to efficiency and smooth operation of the
enterprises.
 Increases investment by foreigners who are attracted to come and buy the
enterprises which increases capital inflow to the country.
 Increases quality output because of competition which benefits consumers as it
improves on their welfare.
 Increases innovations which promotes technology development and technology
transfer in to the country.
Arguments against privatization in developing countries;
 Increases consumer exploitation by private monopolists who have the tendency
of charging high prices.
 Unemployment results in the short run due to retrenchment and substitution of
labour with machines.
 Increases foreign control of the economy when most of the assets are acquired
by foreign investors which escalates economic dependence and importation of
economic problems.
 Irrational exploitation of resources since private individuals are profit oriented
hence leading to depletion of resources and environmental degradation.
 Reduces provision of essential or vital goods and services of low commercial
profitability to private business men.
 Increases price fluctuation as the prices are determined by the market forces
without government intervention.
 Profit and income repatriation because of the investments being in hands of
foreigners hence encouraging capital outflow and unfavorable balance of
payments; also the country is deprived of the benefits of utilizing such
repatriated resources.
 Resentment of government by the public because they consider it as
denationalization and depriving the nation of its wealth.
 Losses are incurred due to under valuation, high costs of advertising the
enterprise dealing with unscrupulous buyers etc.
 Leads to wasteful competition because of duplication of goods and services by
the many competitors joining the same business line of activities.
 Resentment of government by the public for selling the nation’s wealth and act
of denationalization.
 Losses are incurred due to undervaluation of assets, high costs of advertising
the enterprises plus dealing with unscrupulous buyers.
22.3
“Developing countries (Uganda) should mainly adopt capital intensive
techniques of production”. Discuss.
22.4
“Uganda should adopt an agricultural rather than an industrial
development strategy if it is to attain a faster rate of economic growth”.
Discuss.
In support of agriculture rather than industrialization to attain faster rate of economic
growth in Uganda, look at merits of agriculture and demerits of industrialization.
Merits of agriculture;
More employment opportunities as it is labour intensive.
Source of food
Major foreign exchange earner
Reduces income inequality
Relatively cheaper to undertake
It has quicker returns
Source of raw materials
Promotes balanced regional development
High potential source of revenue to government
As it develops surplus labour is released to other sectors.
Calls for rapid infrastructural development
Demerits of industrial development;
It is expensive
Encourages external economic dependence.
High social costs e.g. pollution, noise etc.
Encourages rural-urban migration and negative consequences.
Worsens the problem of income inequality.
Leads to over exploitation of resources.
Causes imbalance in regional development
Low employment creation especially in the short run
Returns are no immediate.
However, industrial development may be preferred to agricultural development
because of its merits and the demerits of agriculture.
Merits of industrial development;
Creates more employment in the long run.
Wider source of revenue to government
Promotes training of local labour / skills development
Engine for rapid economic transformation
Encourages technological development.
Encourages infrastructural development.
Reduces external dependence by reducing importation.
Improves terms of trade.
Provides market to other sectors due to its linkages.
Improves the balance of payments position
Prices are higher and more stable.
Demerit of agricultural development
Low tax revenue.
Subject to diminishing returns
Leads to (seasonal and disguised) unemployment
Leads to instability in prices and incomes.
Increases external dependence
May perpetuate poor terms of trade
Worsens BOP positions.
22.5
“Protectionism rather than free trade should be adopted if countries
are to benefit from international trade”. Discuss.
In support of the statement, argument for protectionism;











Protects infant industries / local industries from foreign competition.
Discourages dumping.
Improves/ corrects BOP position.
Reduces external economic dependence / promotes self-sufficiency.
Source of government revenue.
Creates employment opportunities at home.
Prevents the importation of undesirable goods.
Checks imported inflation.
Encourages use of local resources.
Improves the country’s terms of trade.
Reduces / controls political dominance.
However, protectionism has the following demerits;











It subjects nationals to highly priced goods.
Subjects nationals to poor quality goods.
Encourages inefficiency in protected firms.
Encourages monopoly tendency.
Protectionism limit variety of goods.
Protected firms have a tendency of remaining infant.
It is an expensive exercise since it calls for subsidization.
Protected firms hold government at ransom to continue reaping high profits.
Results into reduced government revenue.
Encourages retaliation hence reduced gains from trade.
Reduces market.
In disagreement with the statement, then merits of free trade over
protectionism;












Improvement in quality of goods.
Low prices of goods.
Mobilization / inflows of foreign resources.
Widens market.
Creation of more employment opportunities.
Increases foreign exchange earnings.
Encourages specialization and its advantages.
Helps to avoid expenditure on implementation of protectionism.
Discourages trade malpractices.
Increased efficiency of local firms due to competition with foreign producers.
Promotes international friendship and cooperation among trading partner states.
Discourages monopoly tendencies in an economy due to competition.











However, free trade has the following demerits;
Local industries are out competed.
Encourages dumping.
Results into increased external economic dependence.
Imported inflation may result.
Low tax revenue from imports.
BOP problem worsens.
Low level of exploitation of local resources.
Importation of undesirable goods with adverse effects on nationals.
May lead to unemployment.
Worsens the country’s terms of trade.
Results into political dominance.
PART III
Topical self- test paper questions
INTRODUCTORY TOPIC
P220 ECONOMICS
TOPICAL CONTENT COVERAGE




Definition, nature and scope
Fundamental economic problems
Production possibility Frontiers (PPF)
Economic systems of organisation
Test, Assess and evaluate yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1. a)(i) Define the term “Opportunity cost”.
(01Mk)
(ii) State any three circumstances under which the opportunity cost principle can be
applied in economics.
b)(i) What is meant by a transformation curve?
(03Mks)
(02Mks)
(ii) Mention any two factors that may cause a transformation to shift outwards.
(02Mks)
c)(i) Distinguish between inferior goods and complementary goods.
(ii) Give two examples of complementary goods.
(02Mks)
(02Mks)
d) State any four reasons why education is considered as an economic good. (04Mks)
e)(i) What is meant by “merit goods”.
(ii) Mention any three examples of merit goods in your country.
(01Mk)
(03Mks)
SECTION B (80MARKS)
Answer any four questions from this section
2. (a) What are the assumptions underlying the production possibility frontier (PPF)?
(10Mks)
(b) Explain the importance of the concept of production possibility Frontier (PPF) as
applied in economics.
3. (a) What are public goods?
(10Mks)
(02Mks)
(b) Examine the challenges faced by your country when providing public goods.(18Mks)
4. (a) Describe the features of a laissez – faire economy.
(b) Explain the merits and demerits of a laissez-faire economy.
5. (a) Outline the characteristics of a planned economy.
(b) Examine the advantages and disadvantages of a planned economy.
6. (a) What is meant by a laissez –faire economy?
(06Mks)
(14Mks)
(04Mks)
(16Mks)
(04Mks)
(b) Why may the government intervene in the allocation of recourse in a laissez-faire
economy?
7. (a) What is a mixed economy?
(16Mks)
(02Mks)
(b) What makes your country to qualify as a mixed economy?
(08Mks)
(c) Explain the advantages of a mixed economy.
(10Mks)
END
PRICE THEORY
P220 ECONOMICS
SET ONE:
TOPICAL CONTENT COVERAGE:







The concept of price
Demand analysis
Supply Analysis
The concept of equilibrium
Price Mechanism
Price control
Price Fluctuation.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by the Term Price?
(01Mark)
(ii) How is the price of a commodity determined in a laissez-faire economy?
(03Marks)
b) (i) State the law of demand.
(01Mark)
(ii) Give ant three reasons why a consumer buys less of a commodity when its price
falls.
(03Marks)
c) (i) Define the term Consumer’s surplus.
(01Mark)
(ii) Study the table below showing the price and quantity purchased of commodity X
and calculate the consumer’s surplus if 4 units of the commodity were purchased
at shs.1500.
(03Marks)
Price Consumers are willing to pay (shs)
Units Purchased
3000
1
2500
2
2000
3
1500
4
1000
5
500
6
d) State ant four merits of resale price maintenance in an economy.
(04Marks)
e) Mention any four situations where supply may not conform to the law of supply.
(04Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Explain the law of demand.
b) Apply the concept of price elasticity of demand to subsidies.
(10Marks)
(10Marks)
3. a) Differentiate between a change in demand and a change in quantity demanded.
(04Marks)
b) Explain the factors that cause a change in demand for a commodity.
(16Marks)
4. a) Given that the supply of commodity M increased from 20,000 t0 30,000 units as a
result of a decrease in price for commodity N from shs 8000 to shs 6000 per unit.
(i) Calculate the elasticity of supply for commodity M
(02Marks)
State the relationship between commodities M and N.
(02Marks)
b) Examine the factors that influence the elasticity of supply of a commodity.
(16 Marks)
5. a) Define the term Price mechanism.
(04Marks)
b) Explain the role of price mechanism in the allocation of resources in an economy.
(16Marks)
6. a) Distinguish between Price control and Price support.
(04 Marks)
b) What are the effects of price control in an economy?
(16 Marks)
7. a) Why is there need to stabilize prices of agricultural products in an economy?
(08Marks)
b) Suggest measures that should be adopted to stabilize prices of agricultural products
in developing countries.
(12 Marks)
END
PRICE THEORY
P220 ECONOMICS
SET TWO:
TOPICAL CONTENT COVERAGE:







The concept of price
Demand analysis
Supply Analysis
The concept of equilibrium
Price Mechanism
Price control
Price Fluctuation.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) Distinguish between the following:-
(i) Market price and normal price
(02Mks)
(ii) Resale price maintenance and reserve price
(02Mks)
b) State any four factors that influence pricing of goods in your country.
(04Mks)
c)(i) Calculate the cross elasticity of demand if the price of commodity X falls from
shs. 2,000,000 to sh. 1,600,000/= per unit and the quantity demanded of commodity
Y increases from 40,000 to 60 units.
(ii) State the relationship between commodities X and Y.
(01Mks)
d) (i) Define the term composite demand.
(01Mk)
(ii) Give three examples of composite demand in your country.
(03Mks)
e) (i) Distinguish between consumer’s Surplus and diminishing marginal utility. (02Mks)
(ii) State how the two are interrelated.
(02Mks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) How are prices determined in your country?
b) Explain the uses of prices in your country.
(10Mks)
(10Mks)
3. a) Differentiate between effective demand and delivered demand.
b) Examine the factors limiting effective demand in your country.
(04Mks)
(16Mks)
4. a) Use the supply schedule and answer the questions below:-
A
B
C
D
Price of Maize in shs/kg
10
20
30
40
Quantity of Maize supplied in Kg
50
100
150
200
(i)
Draw the supply curve.
(02Mks)
(ii)
Calculate the price elasticity of supply for the commodity from point A to D.
(02Mks)
b) Examine the factors that influence the quantity of a commodity in your country. (16Mks)
5. a) Distinguish between Competitive supply and joint supply.
(04Mks)
b) Examine the conditions that may lead to a decrease in the supply of a commodity in your
country.
(16Mks)
6. a) Explain the factors that affect the elasticity of demand in your country.
(10Mks)
b) What is the importance of price elasticity of demand in your country?
(10Mks)
7. a) Account for agricultural price fluctuations in your country.
b) Explain the effects of such price fluctuations in your country.
(10Mks)
(10Mks)
PRICE THEORY
P220 ECONOMICS
SET THREE:
TOPICAL CONTENT COVERAGE:







The concept of price
Demand analysis
Supply Analysis
The concept of equilibrium
Price Mechanism
Price control
Price Fluctuation.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1. a) (i) State the law of diminishing marginal utility.
(01Mk)
(ii) Explain the relationship between marginal utility and the demand curve. (03Mks)
b) Distinguish between the following:(i) Elasticity of demand and price elasticity of demand.
(02Mks)
(ii) Income elasticity of demand and cross elasticity of demand.
(02Mks)
c) (i) What is meant by producer’s surplus?
(01Mk)
(ii) Given that the market price of a commodity is shs.65,000. Calculate the producer’s
surplus in the table below:
(03Mks)
Price (shs)
30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000
Supply
1
2
3
4
5
6
d)(i) State the law of supply.
7
8
(01Mk)
(ii) Mention any three factors that cause a decrease in supply of goods in an economy.
(03Mks)
e) (i) Calculate the income elasticity of demand when the household’s income increased from
shs 25,000 to shs. 30,000 and the quantity demanded of commodity X decreased from
900 to 600 units.
(ii) What type of commodity is X?
(01Mk)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Distinguish between an increase in supply and an increase in quantity supplied of a
commodity.
(04Mks)
b) Explain the factors that lead to an increase in supply of a commodity.
(16Marks)
3. (a) Examine the implications of price mechanism in the allocation of resources in an
economy.
(12Mks)
(b) What are the limitations of price mechanism in allocating resources?
(08Mks)
4.(a) Distinguish between Maximum and minimum price legislation.
(04Mks)
(b) Why may the use of price controls be avoided in an economy?
(16Mks)
5. Account for the failure to stabilize the prices of:
a) Agricultural products,
(12Mks)
b) Consumer goods in your country.
(08Mks)
6.(a) Differentiate between buffer stock and stabilization fund policies.
(b) What problems are faced in administering the two policies?
7. (a) When may price mechanism fail to allocate resources efficiently?
(b) How is price mechanism interfered with in an economy?
END
THEORY OF PRODUCTION
P220 ECONOMICS
SET ONE:
TOPICAL CONTENT COVERAGE:











The concept of production
Factors (Agents) of production
Business units
Theory of a firm
The theory of costs
The concept of revenue
Markets and Market structures.
Perfect Market competition
Monopoly
Monopolistic competition
Oligopoly.
Test, Assess and Evaluate Yourself.
(04Mks)
(16Mks)
(10Mks)
(10Mks)
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) Define the term Production.
(ii) State any three agents of production in an economy.
b (i) State the law of variable proportions.
(ii) Mention any three assumptions underlying this law.
c (i) What is meant by factors mobility?
(01Mark)
(03Marks)
(01Mark)
(03Marks)
(01Marks)
(ii) State any three barriers to factors mobility in your county.
(03 Marks)
d (i) Distinguish between an operating cost and an overhead cost.
(02 Marks)
(ii) Give any two overhead cost in an economy.
e (i) Differentiate between a firm and an industry.
(02Marks)
(02Marks)
(ii) Mention any two factors that determine the growth of a firm in an economy. (02Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Distinguish between location and localization of an industry.
(04Marks)
b) Assess the impact of localization of industries in your country.
(16Marks)
3. a) Differentiate between vertical and horizontal merging of firms.
(04Marks)
b) Explain the merits and demerits of merging of firms in an economy.
(16Marks)
4.a) Account for the survival of small-scale firms alongside large-scale firms in your
country.
(12Marks)
b) What are the merits of small-scale firms in your country?
(08Marks)
5. a) Distinguish between break-even point and shut-down point of a firm. (04Marks)
b) Why may a firm continue operating even if its revenue does not cover the fixed costs?
(16Mraks)
6. a) How are profits maximized in a perfect competition market in the short-run?
(08Marks)
b) Examine the advantages and disadvantages of a perfectly competitive market. (12Marks)
7. a) What is meant by the term non-price competition?
(04Marks)
b) Explain the forms of non-price competition used by Oligopoly firms in your country.
(16Marks)
END
THEORY OF PRODUCTION
P220 ECONOMICS
SET TWO
TOPICAL CONTENT COVERAGE:











The concept of production
Factors (Agents) of production
Business units
Theory of a firm
The theory of costs
The concept of revenue
Markets and Market structures.
Perfect Market competition
Monopoly
Monopolistic competition
Oligopoly.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by factor prices?
(ii) Give any three factors prices in an economy.
b (i) What is meant by occupational mobility of Labour?
(01Mark)
(03Marks)
(01Mark)
(ii) Mention any three factors that limit occupational mobility of labour
in your country.
(03Marks)
c (i) Define the term “industrial inertia”.
(01Mark)
(ii) Why should government influence the location of an industry?
(03 Marks)
d (i) Distinguish between an normal profit and supernormal profit.
(02 Marks)
(ii) Mention any two determinants of profit in your country.
e (i) What is meant by “product differentiation”?
(ii) Give any three features of product differentiation in your country.
(02Marks)
(01Mark)
(03Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Distinguish between efficiency of lobour and mobility of labour.
b) Explain the factors that determine the efficiency of labour in an economy.
3. a) What is meant by multi-national corporations?
b) Assess the impact of multi-national corporations in your country.
4. a) Explain the reasons for the merging of firms.
b) What factors limit the merging of firms in your country?
(04Mks)
(16Mks)
(04Mks)
(16Mks)
(06Mks)
(14Mks)
5. a) Account for the rise of monopoly in an economy.
(10Mks)
b) Assess the impact of monopoly in an economy.
(10Mks)
6. a) Explain the differences between pure monopoly and monopolistic
competitive markets.
(14Mks)
b) How does the existence of monopolistic competitive markets affect producers
in your country?
(06Mks)
7. a) Describe the features of oligopolistic markets in your country.
(08Mks)
b) Explain the merits and demerits of oligopolistic markets in your country.
END
THEORY OF PRODUCTION
P220 ECONOMICS
SET THREE
TOPICAL CONTENT COVERAGE:











The concept of production
Factors (Agents) of production
Business units
Theory of a firm
The theory of costs
The concept of revenue
Markets and Market structures.
Perfect Market competition
Monopoly
Monopolistic competition
Oligopoly.
Test, Assess and Evaluate Yourself.
(12Mks)
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) Define the term “transfer earnings”
(01Mk)
(ii) Given that a factor of production receives a transfer earning of shs. 100,000 and its
economic rent is twice its transfer earnings. Calculate the factor’s actual earnings.
(03Mks)
b)(i) Distinguish between quasi rent and economic rent.
(ii) Give any two factors that influence the level of economic rent.
(02Mks)
(02Mks)
c) (i) What is meant by “interest”?
(ii) Mention ant three determinants of interest rates in your country.
(01Mk)
(03Mks)
d) (i) What is meant by price discrimination?
(01Mk)
(ii) Mention any three necessary conditions for price discrimination to succeed. (03Mks)
e)(i) Differentiate between perfect oligopoly and imperfect oligopoly.
(ii) Give any two advantages of Oligopolistic markets to the consumer.
(02Mks)
(02Mks)
SECTION B (80 MARKS)
Answer any four questions from this section
2(a) Differentiate between labour supply and labour force.
b) Explain the factors that determine labour supply in an economy.
(04Mks)
(16Mks)
3. (a) Distinguish between capital formation and capital appreciation.
(04Mks)
(b) Explain the factors that determine the level of capital formation in your country.(16Kms)
4. a) Differentiate between internal and external economies of scale.
b) Account for the continued existence of small scale firms in your country.
(04Mks)
(16Mks)
5. a) Illustrate how profits are maximized under monopoly.
(08Mks)
b) Explain the merits and demerits of monopoly in an economy.
6. a) Describe the features of monopolistic competition.
b) How does the firm under monopolistic competition maximize profits in the:(i) Short run?
(ii) Long run?
(12Mks)
(08Mks)
(06 Mks)
(06 Mks)
7. Given the table below:Out put
Total Cost
0
600
3
1650
4
1860
5
2100
6
2400
7
2800
8
3400
9
4300
10
5800
a) (i) What is the average fixed costs when output is 10?
(ii) What is the average variable when output is 4?
b) (i) What level of output represents the break-even point of the firm?
(ii) What level of out put represents the shut-down point of the firm?
(04Mks)
(04Mks)
(04Mks)
(04Mks)
(iii) If the marginal revenue is constant at 600 per unit of output, what would be the
equilibrium output of the firm?
(04Mks)
THEORY OF PRODUCTION
P220 ECONOMICS
SET FOUR
TOPICAL CONTENT COVERAGE:











The concept of production
Factors (Agents) of production
Business units
Theory of a firm
The theory of costs
The concept of revenue
Markets and Market structures.
Perfect Market competition
Monopoly
Monopolistic competition
Oligopoly.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) State any four reasons for the backward bending supply curve of labour.
b) (i) Distinguish between commercial rent and economic rent.
(04Mk)
(02Mks)
(ii) Given any two reasons why payments to land are always considered as economic rent.
(02Mks)
c) (i) Differentiate between lateral integration and conglomerate integration.
(02Mks)
(ii) Give any two conditions necessary for the success of lateral integration of firms.
(02Mks)
d) State any four ways of controlling monopoly power in an economy.
(04Mks)
e) (i) Define the term “excess capacity”.
(01Mks)
(ii) Mention any three causes of excess capacity in your country.
(03Mks)
SECTION B (80 MARKS)
Answer any four questions from this section
2. a) What are the barriers to mobility of labour in your country?
b) Suggest ways of increasing on mobility of labour in your country.
3. a) Explain the role of capital in the development of your country.
b) Discuss the factors that influence capital accumulation in your country.
(10Mks)
(10Mks)
(08Mks)
(12Mks)
4. a) Differentiate between marginal efficiency of capital and marginal productivity of
capital
(4Mks)
b) Examine the factors that determine marginal efficiency of capital in your country. (16Mks)
5. a) Distinguish between natural growth of a firm and a amalgamation of firms. (04Mks)
b) Examine the factors that limit the growth of firms in your country.
(16Mks)
6. a) Account for the rise of monopoly in an economy.
b) Why is there need to control monopoly power in your country?
(10Mks)
(10Mks)
7. a) How does a firm in a monopolistic competitive market determine output, price
and profits in the longrun.
(06Mks)
b) Explain the merits and demerits of monopolistic competition.
NATIONAL INCOME
P220 ECONOMICS
SET ONE
TROPICAL CONTENT COVERAGE:










The Concept of National Income
Measuring of National Income
Concepts Related to National Income
Adjustments of National Income figure
Standard of living and Cost of living
Equilibrium level of Income (Ye)
The Concept of Propensity
Consumption, Saving and Investment
Multiplier and Accelerator Principles
Distribution of Income
Test, Assess and Evaluate yourself
(14 Mks).
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) Define the term National Income .
(1Mk)
(ii) State any three contributions of factors of production to National Income. (3Mks)
b) (i) What is meant by circular flow of Income?
(1Mk)
(ii) Give any three assumptions underlying the circular flow of income model. (3Mks)
c) (i) Distinguish between nominal and real Gross Domestic Product (GDP).
(2Mks)
(ii) Given the nominal Gross Domestic Product is Shs.150,000,000,000 and the
consumer price index is 105, calculate the real Gross Domestic Product.
d) (i) What is meant by transfer payment?
(ii) State any three sources of transfer payment in an economy.
e) (i) Differentiate between multiplier and accelerator theories of investment.
(2Mks)
(1Mk)
(3Mks)
(2Mks)
(ii) Country Y had an increase in the level of investment from $20million to
$24 million which led to an increase in income from $1500 million to
$ 2250 million; calculate the investment multiplier in an economy.
(2Mks)
SECTION B (80 MARKS)
Answer any four questions from this section
2(a) Distinguish between Gross Domestic Product (GDP) and Gross National Product (GNP).
(4Mks)
b) Examine the factors that influence the level of National Income in an economy. (16Mks)
3.a) Explain the importance of computing National Income in an economy.
b) What are the problems faced while computing national income?
4 a) Differentiate between standard of living and cost of living.
b) Why may income per capita not be a good indicator of standard of living?
(10Mks)
(10Mks)
(4Mks)
(16Mks)
5. a) Describe how price indices are computed in an economy.
b) Explain the problems which are faced in the computation of Price indices.
6. a) Distinguish between an inflationary gap and a deflationary gap.
(8Mks)
(12Mks)
(4Mks)
b) Examine the policies that a country should adopt to close an inflationary gap and a
deflationary gap.
(16Mks)
7. a) What is meant by Marginal Propensity to import?
b) Explain the effects of a high marginal propensity to import in an economy.
END
NATIONAL INCOME
P220 ECONOMICS
SET TWO
TROPICAL CONTENT COVERAGE:









The Concept of National Income
Measuring of National Income
Concepts Related to National Income
Adjustments of National Income figure
Standard of living and Cost of living
Equilibrium level of Income (Ye)
The Concept of Propensity
Consumption, Saving and Investment
Multiplier and Accelerator Principles
(2Mks)
(18Mks)

Distribution of Income
Test, Assess and Evaluate yourself
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) State any four uses of national income figures in your country.
b) (i) Distinguish between injection and leakages.
(ii) Give any two examples of leakages in your country.
(04Mk)
(02Mk)
(02Mks)
c) Mention any four factors influencing the level of savings in your country.
(04Mks)
d) (i) Differentiate between nominal income and real income.
(02Mks)
(ii) State any two determinants of real income in your country.
(02Mks)
e) Mention any four factors affecting the level of aggregate demand in your country.
(04Mks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Account for the low level of national income in your country.
(10Mks)
b) Suggest measures that should be taken to increase the level of national income in your
country.
(10Mks)
3.a) Differentiate between disposable income and per capita income.
(04Mks)
b) What are the limitations of using per capita income to compare standard of living between
countries?
4. a) Account for the uneven distribution of income in your country.
(10Mks)
b) What measures have been adopted to minimize uneven distribution of income in your
country?
(10Mks)
5. a) Distinguish between saving and investment.
(4Mks)
b) Suggest measures that should be taken to enhance the level of investment in your country.
(16Mks)
6. a) Study the table below and answer the questions the follow:Commodity
P
Base Year
Prices (2015)
200
Base year
Indices
100
Prices (2016)
Weights
150
4
Q
250
100
300
1
R
150
100
240
3
S
400
100
400
5
T
300
100
450
2
Calculate the:
(i)
(ii)
(iii)
(iv)
(v)
Price relative for each commodity in 2016.
Simple price index for 2016.
Weighted index for each commodity
Weighted Index for 2016
Why it is necessary to compute price indices in your country?
(05Mks)
(02Mks)
(05Mks)
(02Mks)
(06Mks)
7. a) Differentiate between investment multiplier and consumption multipliers. (04Mks)
b) Examine the factors which limit the effective operation of the investment multiplier in
your country.
(16Mks)
NATIONAL INCOME
P220 ECONOMICS
SET THREE
TROPICAL CONTENT COVERAGE:




The Concept of National Income
Measuring of National Income
Concepts Related to National Income
Adjustments of National Income figure






Standard of living and Cost of living
Equilibrium level of Income (Ye)
The Concept of Propensity
Consumption, Saving and Investment
Multiplier and Accelerator Principles
Distribution of Income
Test, Assess and Evaluate yourself
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by the term aggregate demand?
.
(01Mk)
(ii) Sate any three components of aggregate demand in an open economy. (03Mks)
b) (i) Given gross National Product at Market price (GNPmp), what adjustments are required
to arrive at Net Domestic Product at factor cost (NDPfc).
(02Mk)
(ii) Given that GDP at market price is £200billion, calculate the GDP at factor
cost.
(02Mks)
c) Mention any four effects of an inflationary gap in an economy.
(04Mks)
d) (i) What is meant by retail price index?
(01Mk)
(ii) Give any three uses of price indices in an economy.
(03Mks)
e) (i) Define marginal propensity to save.
(01Mk)
(ii) Given that the current level of Gross Domestic product is 300 billion shillings, the
increase in national investment expenditure is 50billion shillings: the marginal
propensity to save is 0.2; Calculate the final level of national income.
(03Mks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Describe the approached used in measuring national income .
b) Why is there need to compile national income figures in your country?
3. a) Distinguish between cost of living and standard of living.
(06Mks)
(10Mks)
(04Mks)
b) Explain the factors that influence people’s standard of living in an economy. (16Mks)
4. a) Why may uneven distribution of income be desirable in developing countries? (10Mks)
b) What are the cost of income inequality in an economy?
(10Mks)
5. a) Why do people put some of their money incomes into savings?
b) Examine the factors that limit the level of savings in an economy.
(06Mks)
(14Mks)
6. a) Differentiate between real income per capita and nominal income per capita. (04Mks)
b) What are the limitations of using income per capita to compare welfare of people in a
country overtime?
(16Mks)
7. a) Explain the relationship between income investment and employment.
(06Mks)
b) What are the limitations of the Keynesian multiplier process in developing countries?
(14Mks)
STRUCTURE OF UGANDA’S ECONOMY
P220 ECONOMICS
SET ONE:
TOPICAL CONTENT COVERAGE:





Structural features of the Economy
Subsistence sector
Agricultural sector
Industrial sector
Economic Dualism




Informal sector
Economic dependence
Foreign Trade sector
Public and private sectors.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) State any four features of the economy of your country.
b) (i) What is a “dual economy”?
(ii) Mention any three features of dualism in your country.
c) (i) Define the term “Informal sector”.
(04Marks)
(01 Mark)
(04Marks)
(01Mark)
(ii) Give any three characteristics of the informal sector in your country. (03Marks)
d) (i) What is meant by the term “economic dependence”?
(01Mark)
(ii) Mention any three forms of economic dependence in your country. (03Marks)
e) State any four features of the export sector in your country.
(04Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Account for the poor performance of the agricultural sector in your country.
(10Marks)
b) Suggest measures that should be taken to improve on the performance of the agricultural
sector in your country.
(10Marks
3.a) Outline the forms of economic dualism in your country.
b) What are the advantages and disadvantages of a dual economy?
4. a) Examine the role of the informal sector in your country.
(10 Marks)
(10Marks)
(14Marks)
b) What are the problems faced by the informal sector in your country.
5. a) Describe the features of the industrial sector in your country.
b) What are the problems faced by the industrial sector in your country?
6. a) Assess the impact of economic dependence in your country.
(06Marks)
(10 Marks)
(10Marks)
(10Marks)
b) Suggest measures that should be taken to reduce economic dependence in your country.
(10Marks)
7. a) What are the features of the private sector in your country?
b) Explain the role of the private sector in the development of your country.
END
STRUCTURE OF UGANDA’S ECONOMY
P220 ECONOMICS
SET TWO:
TOPICAL CONTENT COVERAGE:









Structural features of the Economy
Subsistence sector
Agricultural sector
Industrial sector
Economic Dualism
Informal sector
Economic dependence
Foreign Trade sector
Public and private sectors.
(06 Marks)
(14Marks)
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by “subsistence production”?
(ii) Give any three demerits of a large subsistence sector in your country.
(01Mks)
(03Mks)
b) State any four features of the agricultural sector in your country.
(01Mk)
c) Mention any four examples of economic dualism.
(04Mks)
d) (i) Distinguish between economic dependence and economic interdependence.(02Mks)
(ii) Give ant two demerits of economic dependence in an economy.
(02Mks)
e) (i) Differentiate between a private sectors ad a public sectors.
(02Mks)
(ii) State any two features of the private sector in your country.
(02Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) What are the structural features of the economy of your country?
(06Mks)
b) Suggest measures that should be taken to change such a structure to enhance development
in your country.
(14Mks)
3. a) Explain the causes of dualism in developing countries.
b) How can the dangers of dualism be minimized in an economy?
(06 Mks)
(14Mks)
4. a) What are the features of an informal sector?
b) Assess the contribution of the informal sector in your country.
(06Mks)
(14Mks)
5. a) Describe the different forms of economic dependence in your country.
b) What are the implications of such economic dependence?
(08Mks)
(12Mks)
6. a) Describe the structure of the export sectors in your country.
(06Mks)
b) Suggest measures that should be taken to increase the export earnings in your country.
(14Mks)
7. a) Explain the challenges being faced by the private sector in your country.
(10Mks)
b) Describe the measures being taken to promote private sector in your country? (10Mks)
DEVELOPMENT AND UNDERDEVELOPMENT
P220 ECONOMICS
TOPICAL CONTENT COVERAGE:
 Economic development
 The concept of underdevelopment
 Economic Growth
 Restow’s Theory of economic Growth
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by underdevelopment?
(ii) Give any three features of underdevelopment.
(01Mark)
(03 Marks)
b) State any four social indicators of underdevelopment in your country.
(04Marks)
c) Mention the forms of underdevelopment that exist in your country.
(04Marks)
d) State any four characteristic of Rostow’s take-off stage of economic growth. (04Marks)
e) (i) Define a development goal.
(ii) Mention any three economic development goals in your country.
(01Marks)
(03Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Explain the concept of underdevelopment.
b) Account for the low rate of economic development in your country.
(04Marks)
(16Marks)
3. a) Outline the objectives of economic development in your country.
(08Marks)
b) Explain the features of economic development in your country.
(12 Marks)
4. a) Distinguish between economic development and economic growth.
(04Marks)
b) Examine the factors that determine economic growth in an economy.
5. a) Account for the low rate of economic growth in developing countries.
(16Marks)
(10Marks)
b) Suggest measures that should be taken to increase the rate of economic growth in your
country.
(10Marks)
6.a) Explain the benefits of economic growth in your country.
(10Marks)
b) What are the costs of economic growth in your country?
(10Marks)
7. a) Describe Rostow’s stages of economic growth.
(10Marks)
b) Explain the ways in which Rostow’s theory of economic growth is relevant to
developing countries.
(10Marks)
END
ECONOMIC DEVELOPMENT STRATEGIES
P220 ECONOMICS
SET ONE
TOPICAL CONTENT COVERAGE:








Definition and scope
Industrialization strategies
Growth strategies
Choice of techniques
Economic diversification
Education
Foreign aid
Foreign direct investment.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by the term “economic development strategy”?
(01Mark)
(ii) Mention any three forms of economic development strategies.
b) (i) Define the term “Critical Minimum effort”.
(ii) State any three limitations of the balanced growth strategy.
c) (i) Distinguish between forwards linkages and backward linkages.
(ii) Give any two examples of backward linkages in your country.
d) (i) What is appropriate technology?
(03 Marks)
(01Mark)
(03 Marks)
(02Marks)
(02Marks)
(01Mark)
(ii) Give any three factors which have influenced the development of appropriate
technology in your country.
(03 Marks)
e) (i) Define the term education.
(ii) State any three features that qualify education as an investment.
(01Marks)
(03 Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Why may a country adopt an export promotion strategy of industrial development?
(04Marks)
b) Explain the limitations of the export promotion strategy of industrial development.
(16Marks)
3. “Developing countries should adopt the import substitution strategy of industrial
development if they are to achieve their development goals” Discuss.
(20 Marks)
4. a) What is meant by the balanced growth strategy of economic development. (04 Marks)
b) Examine the advantages and disadvantages of the balanced growth strategy to
developing countries.
(16 Marks)
5. a) Distinguish between Labour – saving and Capital – saving techniques of production.
(04 Marks)
b) Examine the merits and demerits of using capital-saving techniques of production in
developing countries.
(16Marks)
6. a) Explain the merits of diversification of production as an economic development strategy.
(10Marks)
b) What are the limitations of diversification of production as economic development
strategy in developing countries?
(10Marks)
7. a) What is meant by foreign direct investment.
(02Marks)
b) Assess the impact of foreign direct investment on the development of your country.
(18Marks)
END
ECONOMIC DEVELOPMENT STRATEGIES
P220 ECONOMICS
SET TWO
TOPICAL CONTENT COVERAGE:








Definition and scope
Industrialization strategies
Growth strategies
Choice of techniques
Economic diversification
Education
Foreign aid
Foreign direct investment.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) State the big – push theory of economic development.
(01Mk)
(ii) Mention any three benefits of adopting the Big-push theory in developing countries.
(03Mks)
b) (i) What is meant by an intermediate technology?
(01Mk)
(ii) Mention any three roles of intermediate technology in developing countries. (03Mks)
c) (i) What is technology transfer?
(ii) Sate any three effects of technology transfer in developing countries.
d) Distinguish between:
(i) Bi-lateral and multilateral aid
(ii) Tied and project aid
(03Mks)
(02Mks)
(02Mks)
e) Mention any two:(i) factors that have influenced the level.
(ii) benefits of foreign direct investment in your country.
(02Mks)
(02Mks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Distinguish between import substitution and export promotion strategies of industrial
development.
(04Mks)
b)
b) What are the advantages and disadvantages of adopting the export promotion strategy?
(16Marks)
3. a) Why may a country adopt the import substitution strategy of industrialization? (10Mks)
b) Explain the limitations of the import substitution strategy of industrialization in your
country.
(10Mks)
4. a) What is meant by the unbalanced growth strategy of economic development? (02Mks)
b) Explain the merits and demerits of unbalanced growth strategy in developing countries.
(18Mks)
5. “Developing countries should adopt labour-saving techniques of production”. Discuss.
(20Mks)
6. a) Define the term Foreign Aid.
b) Assess the impact of foreign aid on developing countries.
(02Mks)
(18Mks)
7. a) Explain the role of infrastructure in the economic development process of your country.
(10Mks)
b) What strategies have been taken by the government of your country to improve on the
infrastructure?
(10Mks)
AGRICULTURE VERSUS INDUSTRIALIZATION
P220 ECONOMICS
TOPICAL CONTENT COVERAGE:







Agricultural Development
Agricultural Development Strategies
Agricultural Modernization
Agricultural Mechanization
Land Tenure and Reforms
Industrial Development
Industrial development strategies
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1. a) (i) State any four factors that affect agricultural development in developing countries.
(04Mks)
b) Mention any four methods of agricultural modernization.
(03Mks)
c) State any four factors which limit agricultural mechanization in your country.
(04Mks)
d) (i) Define them “Land reform”.
(01Mk)
(ii) State any three land reform policies necessary to increase agricultural output in your
country.
(03Mks)
e) (i) What are “infant industries”?
(ii) Give any three ways of protecting infant industries in your country.
(01Mk)
(03Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) What is the role of agriculture in the development of an economy?
(10Mks)
b) Explain the problems that result from over dependence on agriculture.
(10Mks)
3. a) Why is there need t modernize the agricultural sector in your country?
(10Mks)
b) Examine the factors limiting agricultural modernization in your country. (10Mks)
4. a) Define the term “agricultural modernization”.
(02Mks)
b) Suggest measures that should be taken to increase agricultural output in
your country.
(18Mks)
5. “Developing countries should adopt an agricultural rather than an industrial
development strategies if they are to attain a faster rate of economic growth” Discuss.
(20Mks)
6. “Uganda should adopt an agricultural rather than an industrial development
strategy if it is to attain a faster rate of economic growth” Discuss.
(20Mks)
7. a) Why is there need for Industrialization in less developed countries?
(10Mks)
b) Explain the problems faced by the industrial sector in less developed countries.
(10Mks)
LABOUR ECONOMICS
P220 ECONOMICS
SET ONE
TOPICAL CONTENT COVERAGE:





Population
Labour
Wages
Trade Unions
Manpower problems and planning
Test, Assess and evaluate yourself.
SECTION A (20MARKS)
Answer all parts of this Section
1. a)(i) What is meant by Under population?
(ii) Give ant three disadvantages of under population in your country.
(01Mk)
(03Mks)
b)(i) Define the term labour force.
(01Mk)
(ii) State any three determinants of the size of labourforce in your country. (03Mks)
c)(i) Distinguish between nominal wage and real wage.
(ii) Give ant two methods of paying wages in your country.
(02Mks)
(02Mks)
d) State any four features of trade unions in developing countries.
(04Mks)
e) Mention any four factors that determine the strength of a trade Union.
(04Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) State the Malthusian population theory.
(04Mks)
b) Explain the ways in which the Malthusian population theory is relevant to developing
countries.
c) State the limitations of the theory.
3. a) What is meant by the term Optimum population?
(10Mks)
(06Mks)
(04Mks)
b) Examine the implications of a high population growth rate in your country. (16Mks)
4. a) Distinguish between piece rate and time rate methods of wage payment.
b) Explain the merits and demerits of piece rate methods of wage payment.
5. a) Differentiate between a minimum wage and a living wage.
b) Examine the merits and demerits of setting a high minimum wage.
(04Mks)
(16Mks)
(04Mks)
(16Mks)
6. a) Explain the marginal productivity theory of wages.
b) What are the limitations of the marginal productivity theory of wages.
7. a) What is meant by a trade Union?
(06 Mks)
(14Mks)
(02Mks)
b) Explain the challenges faced by trade Unions in your country.
(18Mks)
END
LABOUR ECONOMICS
P220 ECONOMICS
SET TWO
TOPICAL CONTENT COVERAGE:





Population
Labour
Wages
Trade Unions
Manpower problems and planning
Test, Assess and evaluate yourself.
SECTION A (20MARKS)
Answer all parts of this Section
1. a)(i) Define the Term Over population.
(ii) Give ant three effects of overpopulation in an economy.
(01Mk)
(03Mks)
b)(i) What is meant by the term labour productivity.
(01Mk)
(ii) Mention any three ways of increasing on labour productivity in your country.
( 03Mks)
c) (i) What is meant by demand for labour?
(01Mk)
(ii) Give any three factors which determine the demand for labour in an economy.
(03Mks)
d) (i) State the marginal productivity theory of distribution.
(ii) Give any three limitations of this theory.
e) State any four objectives of trade unions in your country.
(01Mks)
(03Mks)
(12Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Describe the population structure of your country.
b) Examine the economic implications of such a population structure.
3. a) Explain the Malthusian theory.
(08Mks)
(12Mks)
(06Mks)
b) To what extent is the Malthusian population theory relevant to
developing countries?
4. a) Explain the factors that determine the level of wages in an economy.
b) Account for the wage differentials in an economy.
5. a) State the Iron law of Wages
(14Mks)
(10Mks)
(10Mks)
(10Mks)
b) To what extent is the Iron Law of wages applicable in the determination of wages in
your country?
(16Mks)
6. a) What is meant by “collective bargaining”?
b) When are trade Unions justified to demand for wage increases?
(04Mks)
(16Mks)
7. a) What are the methods used by trade Unions to obtain wage increase for
their members?
(08Mks)
b) Explain the factors that limit the ability of trade unions to raise wages
in your country.
(12Mks)
UNEMPLOYMENT
P220 ECONOMICS
TOPICAL CONTENT COVERAGE:






Definition and state
Types
Causes
Effects
Solutions / policy measures
Keynesian theory of unemployment.
Test, Assess and Evaluate yourself.
SECTION A (20MARKS)
Answer all parts of this Section
2. a) distinguish between:-
(i) Underemployment and disguised unemployment.
(02Mks)
(ii) Casual and residual Unemployment.
(02Mks)
b) Give any four causes of underemployment in an economy.
(04Mks)
c) (i) Differentiate between Structural and technological unemployment. (02Mks)
(ii) Mention any two solutions to structural unemployment.
d) (i) Distinguish between frictional and seasonal unemployment.
(ii) Give any two causes of seasonal unemployment.
e) (i) Define the term cyclical unemployment.
(02Mks)
(02Mks)
(02Mks)
(01Mk)
(ii) Suggest ant three measures that should be taken to minimize cyclic
unemployment in an economy.
(03Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Distinguish between voluntary and involuntary unemployment.
b) Explain the causes of voluntary unemployment.
3. a) Explain the causes of unemployment in your country.
b) What are the effects of unemployment in an economy?
4. a) What is meant by the term full employment?
b) Why is it difficult to attain full employment in an economy?
5. a) What are the causes of disguised unemployment in your country?
(04Mks)
(16Mks)
(10Mks)
(10Mks)
(02Mks)
(18Mks)
(06Mks)
b) Suggest measures that should be taken to solve unemployment problem in your
country.
6. a) Explain the causes of open urban unemployment in your country?
(14Mks)
(10Mks)
b) What are the measures being taken to minimize open urban unemployment in your
country?
(10Mks)
7. a) Explain the Keynesian theory of unemployment.
(06Mks)
b) To what extent is the Keynesian theory of unemployment relevant to developing
countries?
(14Mks)
END
INFLATION
P220 ECONOMICS
TOPICAL CONTENT COVERAGE:







Definition and related Concepts
State of inflation
Theories (Types) of inflation
Causes
Effects
Policy Measures
Linked Topics
Test, Assess and evaluate yourself.
SECTION A (20MARKS)
Answer all parts of this Section
1. a)(i) Distinguish between creeping and galloping inflation.
(ii) State any two effects of creeping inflation in an economy.
(02Mks)
(03Mks)
b) Mention any four theories of inflation.
(04Mks)
c)(i) Differentiate between deflation and reflation
(02Mks)
(ii) Mention any two instruments of reflationary policy.
d) (i) Distinguish between cost –push and bottleneck inflation
(ii) State any two causes of bottleneck inflation in your country.
e) (i) What is meant by stagflation?
(ii) Give any three causes of stagflation in an economy.
(02Mks)
(02Mks)
(02Mks)
(01Mk)
(03Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Explain the causes of inflation in your country.
(10Mks)
b) Suggest measures that should be taken to reduce inflation in your country. (10Mks)
3. a) Distinguish between imported inflation and speculative inflation.
b) Explain the effects of inflation in an economy.
4. a) What is meant by the term inflationary spiral?
(04Mks)
(16Mks)
(04Mks)
b) To what extent is inflation in your country a result of increasing costs of
production?
(16Mks)
5. a) Differentiate between suppressed inflation and repressed inflation.
b) Why may a low rate of inflation be desirable in an economy?
6. a) What are the costs of stagflation in an economy?
(04Mks)
(16Mks)
(10Mks)
b) What are the measures that can be taken to reduce stagflation in an economy? (10Mks)
7. a) Define “demand – pull inflation”.
(02Mks)
b) Explain why an increase in money supply may not necessary lead to inflation
in an economy.
(18Mks)
END
INTERNATIONAL TRADE
P220 ECONOMICS
SET ONE
TOPICAL CONTENT COVERAGE:









Nature, pattern and benefits
Basis of international trade
Free trade and protectionism
Terms of trade
Balance of payments
Balance of payments policies
Exchange rates
Foreign exchange reserves
Economic integration.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) State the principle of comparative advantage.
(01Mark)
(ii) Mention any three assumptions underlying the principle of comparative advantage.
(03 Marks)
b) (i) Define the term “Commercial policy”.
(01Mark)
(ii) State any three instruments of commercial policy in your country.
(03Marks)
c) (i) What is meant by Terms of trade?
(ii) Give any three effects of deteriorating terms of trade on an economy.
d) (i) Distinguish between currency devaluation and currency depreciation.
(ii) State any two effects of currency depreciation in your country.
e) (i) What is meant by economic integration.
(ii) State ant three merits of economic integration.
(01Marks)
(03 Marks)
(02Marks)
(02Marks)
(01Mark)
(03Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) What is meant by vent for surplus theory as used in international trade?
(02Marks)
b) Assess the role of international trade in the development of your country.
(18Marks)
3 a) Study the table below showing output levels of two countries in two commodities given
the same units of labour and answer the questions which follow:Country
X
Y
(i)
(ii)
(iii)
Commodities
Generators
400
100
Coffees
600
300
State the country with absolute advantage in the production of both commodities.
(02 Marks)
Calculate the opportunity cost of producing each commodity in each country.
(04Marks)
In which commodity should each country specialize?
(02Marks)
b) What are the limitations of the comparative cost advantage theory of international
trade?
(12Marks)
4. a) Explain the methods of protectionism.
b) Examine the implications of protectionism in an economy.
5. a) Account for the existence of unfavourable terms of trade in your country.
b) Suggest ways of improving terms of trade in your country.
(06Marks)
(14Marks)
(10Marks)
(10Marks)
6. a) Distinguish between a managed exchange rate and a free exchange rate.
(04Marks)
b) Explain the factors which determine the exchange rate in a money market.
(16Marks)
7. a) Differentiate between a customs union and a common market.
(04Marks)
b) Explain the factors which limit regional economic integration among developing
countries.
(16Marks)
INTERNATIONAL TRADE
P220 ECONOMICS
SET TWO
TOPICAL CONTENT COVERAGE:









Nature, pattern and benefits
Basis of international trade
Free trade and protectionism
Terms of trade
Balance of payments
Balance of payments policies
Exchange rates
Foreign exchange reserves
Economic integration.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by the term Protectionism?
(01Mk)
(ii) Give any three reasons why there is need for protectionism in your country.
(03 Mks)
b) (i) Given that the exchange rate is 1£= 4,000Ug. shs; calculate the new exchange rate after
devaluation of the shilling by 20%.
(ii) State any two effects of devaluation in an economy.
c) (i) What is meant by foreign exchange rate control?
(02Mks)
(02Mks)
(01Mk)
(ii) Mention any three objectives of foreign exchange rate control.
(03Mks)
d) Give any four effects of foreign exchange shortages on an economy.
(04Mks)
e) State any four features of an economic union.
(04Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Distinguish between comparative cost advantage and absolute cost advantage as used in
international trade.
(04Mks)
b) To what extent is the comparative cost theory applicable to developing countries?
(16Mks)
3. “Protectionism rather than free trade should be adopted if countries are to benefit from
international trade”. Discuss.
(20Mks)
4. a) Account for the persistent balance of payments deficits in your country.
(10Mks)
b) Suggest measures that should be taken to reduce balance of payments deficits
in your country.
(10Mks)
5. a) Explain the factors that determine the demand and supply of foreign exchange
in your country.
(14Mks)
b) What is the importance of foreign exchange in your country?
(06Mks)
6. a) What is meant by the term a managed floating exchange rate?
(04Mks)
b) Examine the merits and demerits of a managed floating exchange rate
in an economy.
7. a) Explain the benefits of economic integration.
b) What are the costs of economic integration?
END
INTERNATIONAL TRADE
P220 ECONOMICS
SET THREE
TOPICAL CONTENT COVERAGE:









Nature, pattern and benefits
Basis of international trade
Free trade and protectionism
Terms of trade
Balance of payments
Balance of payments policies
Exchange rates
Foreign exchange reserves
Economic integration.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
(16Mks)
(12Mks)
(08Mks)
1.a) Study the figure below showing two Production Possibility Frontiers (PPF) for countries
P and Q; and answer the questions that follow:-
(i) What principle of cost in international trade is illustrated by the frontiers?
(ii) In which commodity should country P specialize? Illustrate your answer.
(01 Mk)
(03Mks)
b) (i) What is a tariff?
(ii) Give any three non-tariff barriers in an economy.
(01Mk)
(03Mks)
c)(i) Distinguish between currency revaluation and currency under valuation.
(ii) State any two effects of currency under-valuation.
(02Mks)
(02Mks)
d) Mention any four methods of foreign exchange control in an economy.
(04Mks)
e)(i) Differentiate between trade diversion and trade creation.
(ii) Give any two effects of trade diversion in an economy.
(02Mks)
(02Mks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Why do countries still practice barter trade?
b) What are the problems associated with barter trade?
(10Mks)
(10Mks)
3. a) Distinguish between balance of payments and balance of trade.
b) Explain the effects of balance of payments deficit on an economy.
(04Mks)
(16Mks)
4. a) Differentiate between a floating exchange rate and a fixed exchange rate.
(04Mks)
b) Explain the merits and demerits of foreign exchange control in an economy. (16Mks)
5. a) Why may government adopt the policy of devaluation?
b) Account for the failure of devaluation policy to improve the balance of
payments in an economy.
(10Mks)
(10Mks)
6. a) Account for the persistent shortage of foreign exchange in your country.
(10Mks)
b) Suggest measures that should be taken to reduce shortage of foreign exchange
in your country.
(10Mks)
7. a) Describe the forms of regional economic integration.
b) Examine the conditions necessary for the formation of regional economic
integration.
(10Mks)
(10Mks)
MONEY AND BANKING
P220 ECONOMICS
SET ONE:
TOPICAL CONTENT COVERAGE:









Money: definition, functions and qualities
Money supply
Demand for money
Value of money
Banking financial institutions
Credit Creation
Non-banking financial institutions
Money and capital markets
Central Bank and monetary policy
Test, Assess and Evaluate Yourself.
SECTION A (20Marks)
Answer all parts of this section
1 a) (i) Distinguish between money supply and money demand.
(02Marks)
(ii) State any two determinants of money supply in an economy.
(02Marks)
b) (i) What is meant by liquidity preference?
(01Mark)
(ii) Mention any three factors that influence liquidity preference in your country.
(03Marks)
c) (i) Define the term credit multiplier.
(01Mark)
(ii) Mention any three determinants of the credit multiplier in your country.
(03Marks)
d) (i) Differentiate between money market and capital market.
(02Marks)
(ii) Give any two functions of capital markets in your country.
(02Marks)
e) (i) What is meant by the term monetary policy?
(01Mark)
(ii) State any three tools of monetary policy in your country.
(03Marks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Explain the quantity Theory of money.
(06Marks)
b) What are the limitations of Irving Fisher’s quantity theory of money? (14Marks)
3. a) Distinguish between banking financial institutions and non-banking financial
institutions.
(04Marks)
b) Explain the functions of banking financial institutions in your country. (16Marks)
4. a) Describe the process of credit Creation by commercial banks.
(10Marks)
b) What factors limits the ability of commercial banks to create credit in an economy?
(10Marks)
5. a) What are the assets and liabilities of a commercial bank?
(06Marks)
b) How are commercial banks able to achieve both the objective of liquidity and
profitability?
(14Marks)
6. a) Explain the functions of a Central bank.
(08Marks)
b) How does a Central bank control Credit Creation in a Multi-bank system?
(12Marks)
7. a) What are the objectives of the monetary policy in your country?
(06Marks)
b) Explain the factors which limit the effective operation of the monetary policy in
your country.
(14Marks)
END
MONEY AND BANKING
P220 ECONOMICS
SET TWO:
TOPICAL CONTENT COVERAGE:









Money: definition, functions and qualities
Money supply
Demand for money
Value of money
Banking financial institutions
Credit Creation
Non-banking financial institutions
Money and capital markets
Central Bank and monetary policy
Test, Assess and Evaluate Yourself.
SECTION A (20Marks)
Answer all parts of this section
1 a) (i) Distinguish between fiat money and fiduciary issue.
(02Marks)
(ii) Mention any two functions of money in an economy.
(02Marks)
b) (i) What is meant by the term value of money?
(01 Mark)
(ii) State any three factors that influence the value of money.
c) (i) Differentiate between liquidity ratio and liquidity preference.
(03 Marks)
(02Marks)
(ii) Give any two reasons for the high liquidity preference in developing countries.
(02Marks)
d) Given that the volume of money in an economy is £20billion, total level of
transactions is £250million and the transactions velocity of money is 20; Calculate
the general price level in the economy.
(04Marks)
e) (i) What is meant by stock exchange?
(ii) State any three functions of stock exchange in your country.
(01Mark)
(03marks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2. a) Describe the features of the banking financial institutions in your country.
(06Marks)
b) What are the challenges faced by banking financial institutions in yours country?
(14Marks)
3. a) What is meant by credit creation?
b) Examine the role of banking financial institutions in your country.
(04Marks)
(16Marks)
4. a) Given that a micro-finance bank has initial deposits of shs.1,000,000 and the
required cash ratio is 25%, calculate;
(i) Credit multiplier,
(02Marks)
(ii) Total deposits that will be created in a multi-bank system.
(02Marks)
b) Explain the factors that influence the process of credit creation in an economy.
(16Marks)
5. a) What is meant by credit control?
(04Marks)
b) Explain the methods used by the central bank to regulate money supply in your
country.
(16Marks)
6. a) What is a central bank?
(04Marks)
b) Explain the role of the central Bank in the development of an economy. (16Marks)
7. a) Define the term “monetary policy”.
(04Marks)
b) Explain the tools of monetary policy used in your country.
(16Marks)
END
ECONOMIC DEVELOPMENT PLANNING
P220 ECONOMICS
TOPICAL CONTENT COVERAGE:





Introduction
Rationale for planning
Nature of planning
Forms of planning
Success, failure and Measures.
Test, Assess and Evaluate Yourself.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) What is meant by “economic development planning”?
(01Mark)
(ii) State any three constraints to economic development planning in your country.
(03 Marks)
b) Distinguish between the following:(i) Micro planning and Macro planning
(ii) Sectoral Planning and Project planning
(02Marks)
(02Marks)
c) (i) Define the term Partial planning.
(ii) Mention any three demerits of partial planning in an economy.
d) (i) What is meant by a comprehensive plan?
(ii) Give any three merits of a comprehensive plan.
e) (i) Define the term Perspective planning.
(ii) State any three problems faced in formulating a perspective plan.
(01Mark)
(03 Marks)
(01 Mark)
(03 Marks)
(01 Mark)
(03 Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Describe the features of a good economic development plan.
b) Examine the roles of economic development planning in an economy.
3. a) Why is economic development planning necessary in an economy?
(06Marks)
(14 Marks)
(10Marks)
b) Explain the pre-requisites for successful economic development planning in an economy.
(10Marks)
4. a) What is meant by Indicative planning?
(04 Marks)
b) Explain the factors that influence the implementation of development plans in your
country.
(16 Marks)
5. a) Define the term decentralized planning.
b) What are the merits and demerits of decentralized planning?
6. a) What is meant by centralized planning?
b) Explain the rational for centralized planning in an economy.
(04 Marks)
(16Marks)
(04Marks)
(16Marks)
7. a) Explain the challenges faced during the implementation of economic development plans
in your country.
(10Marks)
b) Suggest measures that should be adopted to improve economic development planning in
your country.
(10Marks)
END
PUBLIC FINANCE
P220 ECONOMICS
SET ONE
TROPICAL CONTENT COVERAGE:








Definition and its Scope
Taxation
Nature of Taxation
Incidence of Taxation
Taxable Capacity
Public Debts
Public Budget
Fiscal Policy
Test, Assess and Evaluate yourself
SECTION A (20 MARKS)
Answer all parts of this question.
1a) (i) Define the term public revenue.
(ii) Give any three sources of public revenue in your country.
b (i) What is meant by Value Added Tax (VAT)?
(ii) State any three advantages of VAT in your country.
c (i) Distinguish between a progressive tax and a proportional tax.
(01 Marks)
(03 Marks)
(01 Marks)
(03 Marks)
(02 Marks)
(ii) Mention any two advantages of a progressive tax over the proportional tax. (02 Marks)
d (i) Differentiate between a national debt and a public debt.
(ii) Mention any two reasons for incurring a public debt in an economy.
(02 Marks)
(02Marks)
e (i) What is meant by the term fiscal policy?
(ii) Give any three instruments of fiscal policy used in your country.
(01 Marks)
(03 Marks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2.a) Describe the features of a good tax system.
b) Why is it necessary to levy taxes in your country?
(08 Marks)
(12 Marks)
3 a) Distinguish between direct taxes and indirect taxes.
(04 Marks)
b) Assess the impact of direct taxes on an economy.
(16 Marks)
4 a) Explain the incidence of tax when supply is elastic and demand is:(i) Inelastic,
(04 Marks)
(ii) Perfectly elastic
(04Marks)
b) What are the advantages of levying indirect taxes?
5 a) Differentiate between taxation financing and debt financing.
(12 marks)
(04 Marks)
b) Why may a government rely more on debt financing than taxation financing. (16 Marks)
6 a) How does a government finance a deficit budget?
b) Why may a government deliberately plan for a deficit budget?
7 a) What is meant by Public finance?
(10Marks)
(10 Marks)
(04Marks)
b) Explain the role of public finance in your country.
END
(16 Marks)
PUBLIC FINANCE
P220 ECONOMICS
SET TWO
TROPICAL CONTENT COVERAGE:








Definition and its Scope
Taxation
Nature of Taxation
Incidence of Taxation
Taxable Capacity
Public Debts
Public Budget
Fiscal Policy
Test, Assess and Evaluate yourself
SECTION A (20 MARKS)
Answer all parts of this question.
1a) (i) Distinguish between tax evasion and tax avoidance.
(02 Marks)
(ii) State any two reasons why people evade paying taxes in your country. (02 Marks)
b) (i) Define the term regressive tax.
(ii) Give any three effects of regressive taxes in an economy.
c) (i) Differentiate between taxable income and taxable capacity.
(ii) Mention any two principles of taxation.
(01 Mark)
(03 Marks)
(02 Marks)
(02 Marks)
d) (i) Distinguish between a domestic debt and an external debt
(ii) State any two problems associated with external debts.
(02 Marks)
(02 Marks)
e) (i) Differentiate between a recurrent budget and a development budget. (02 Marks)
(ii) Give any two sources from which government may finance its budget.
(02 Marks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2.a) Explain the importance of taxes in your country.
b) Discuss the demerits of imposing taxes in your country.
3. a) What are the problems faced by tax authorities in your country?
(08 Marks)
(12 Marks)
(10 Marks)
b) Suggest ways of how the current taxation system can be improved in your country.
(10 Marks)
4. a) Why do countries incur public debts?
(06 Marks)
b) Explain the methods used to reduce the burden of public debts in your country. (14
Marks)
5. a) Distinguish between a reproductive debt and a dead weight debt.
(04Marks)
b) Assess the effects of government borrowing in the development of your country.
(16Marks)
6. a) Differentiate between a surplus budget and a deficit budget.
(04 Marks)
b) Explain the significance of a national budget in your country.
(16Marks)
7. a) Account for the persistent budget deficit in your country.
(10Marks)
b) Suggest measures that should be taken to minimize the budget deficits in your country.
(10Marks)
END
PUBLIC FINANCE
P220 ECONOMICS
SET THREE
TROPICAL CONTENT COVERAGE:








Definition and its Scope
Taxation
Nature of Taxation
Incidence of Taxation
Taxable Capacity
Public Debts
Public Budget
Fiscal Policy
Test, Assess and Evaluate yourself
SECTION A (20 MARKS)
Answer all parts of this question.
1a) (i) Distinguish between Capital gains tax and corporation tax
(02 Marks)
(ii) State any two demerits of corporation tax in your country.
(02 Marks)
b (i) Differentiate between progressive tax and regressive tax.
(02 Marks)
(ii) Mention any two reasons for imposing progressive taxes in your country. (02 Marks)
c (i) Distinguish between a floating debt and a funded debt.
(ii) State any two ways of managing a public debts.
d (i) What is meant by public debt management?
(ii) Mention any three objectives of public debt management.
e (i) What is meant by a government budget?
(ii) State any three objectives of a government budget.
(02Marks)
(02Marks)
(01 Mark)
(03 Marks)
(01 Mark)
(03 Marks)
SECTION B (80 MARKS)
Answer any four questions from this section.
2.a) Distinguish between a tax and a fee.
b) Assess the impact of taxation in an economy.
3. a) Differentiate between income tax and consumption tax
b) Why is it necessary to levy different forms of taxes in an economy?
4. a) Distinguish between taxable capacity and tax base.
b) Account for the narrow tax base in your country.
(04Marks)
(16Marks)
(04 Marks)
(16Marks)
(04 Marks)
(16Marks)
5. a) “Developing countries should rely more on borrowing rather than on taxation”.
Discuss.
(20Marks)
6. a) Differentiate between government recurrent expenditure and development
expenditure.
(04Marks)
b) Account for the increase in public expenditure in your country.
7 a) What is fiscal policy?
(16Marks)
(04Marks)
b) Explain the objectives of fiscal policy in an economy.
(16 Marks)
END
NAMUGONGO SECONDARY AND VOCATIONAL SCHOOL
PUBLIC ENTERPRISES AND PARASTATALS
P220 ECONOMICS
Instructions:
Answer five questions only
Section A is compulsory
Answer four questions from section B
All questions in Section B carry equal marks.
SECTION A (20 MARKS)
Answer all parts of this question.
1.a) (i) Distinguish between a private enterprise and a public enterprise.
(02Mark)
(ii) State any two reasons for the establishment of public enterprises in your country.
(02 Marks)
b) Give any four causes of poor performance of public enterprises in your country.
(04 Marks)
c) State any four forms of structural Adjustment programmes (SAPs) that have been
implemented in your country.
d) Give any four ways by which public enterprises are privatized.
(04Marks)
(04 Marks)
e) Mention any four problems encountered in the divesture of public enterprises in your
country.
(04 Marks)
SECTION B (80MARKS)
Answer any four questions from this section.
2. a) Explain the contributions of public enterprises to the development of your country.
(10Marks)
b) What are the problems faced by public enterprises in your country?
3.a) What is a public corporation?
b) Assess the role of public corporations in an economy.
4. a) What is meant by nationalization of enterprises?
(10 Marks)
(04 Marks)
(16Marks)
(04Marks)
b) Explain the merits and demerits of nationalization of enterprises in an economy.
(16 Marks)
5. a) What is privatization?
(02 Marks)
b) Account for the privatization of public enterprises in your country.
6. a) What is meant by the term Trade liberalization?
b) Examine the merits and demerits of trade liberalization in your country.
7. Assess the impacts of privatization of public enterprises in your country.
END
(18 Marks)
(02 Marks)
(18 Marks)
(20 Marks)