1. a) Explain five factors that may influence the level of national income of a country . (10 marks)

b) Over the years southern Star has grown into a large business enterprise. Explain five diseconomies of scale which it may experience. (10 marks)

2. a) Explain four ways that a government can use to finance a budget deficit. ( 8 marks) (b) The following trial balance was extracted from the books of Fula Traders on 31st December 2005. Fula Traders Trial Balance as at 31.12. 2005 Dr. Cr. Sh. Sh. Sales 600,000 General Expenses 60,000 Rent expense 10,000 Commission Received 20,000 Motor Vehicle 600,000 Furniture 240,000 Cash 50,000 Creditors 180,000 Debtors 120,000 . Purchases 400.000 Sales Returns 20,000 Capital 700,000 1, 500,000 1,500,000 Additional information

- Stock on 31 December 2005 was valued at sh. 60,000

- Depreciation to be provided for as follows: Motor Vehicle 20% p.a on Cost Furniture 10% p.a on cost Prepare:

i) Trading, profit and Loss Account for the year ended 31 December 2005.

ii) Balance Sheet as at 31 December 2005. (12 marks)

3 a) Explain five benefits that may accrue to a community that is involved in trading activities. (10 marks)

b) Outline five benefits that a Savings and Credit Co-operative society (SACCO) provides to its members. (10 marks)

4 a) Musi Enterprises are considering to market their imported products direct to consumers. Outline five reasons that may be influencing them to make this decision.(10 marks)

b) Explain five disadvantages that a country may experience from imposing trade restrictions on trading partners. (10 marks)

5. a) Outline five factors that may limit the use of containers as a method of transporting goods in a developing country. (10 marks)

b) Using a diagram, explain how a monopolist firm determines its output. (10 marks)

6. a) Explain four functions of money. (8 marks)

b) Cheru Traders does not keep a complete set of books of accounts. The following information was extracted from her books of accounts. 1.1.05 31.12.05 Sh. Sh. Stock 920,000 1,200,000 Debtors 400,000 540,000 Creditors 800,000 950,000 During the year, cash received from debtors was sh. 1,400,000 while cash paid to creditors amounted to sh. 2,000,000. Cash sales were for Sh. 250,000 while cash purchases amounted to sh. 320,000. Carriage inwards was for sh. 46,000. Other relevant information. - Returns inwards were Sh. 42,000. .

- Cheru had taken goods amounting to sh. 50,000 for personal use.

i) Determine total sales.

ii) Determine total purchases.

iii) Prepare Trading Account for the period ended 31 December 2005.