Consider the Kenyan economy with a Kenya Shilling (KSH) as the domestic currency. Using well-labelled diagrams, of demand and supply of foreign currency, describe the effect of following events on the KSH and Balance of Payment of the Kenya's economy. (Use a different diagram for each event)

1.Reduction of income tax rate from 30% to 25% which causes the average income to raise in Kenya relative to average income in Rwanda, ceteris paribus.

2.Due to COVID-19 pandemic, Kenyans expect a high exchange rate against the US dollar, ceteris paribus.

THREE

The following data is from country XYZ. The figures are in millions of KSH:

Million Kshs.

Income accruing to the public sector 30.0

Retained business earnings 70.2

Gross domestic product at market prices - 1665.5

Export of goods and services - 272.0

Income payments to foreigners - 20.9

Direct taxes -350.4

Transfer payments - 20.9

Public sector consumption expenditure 495.0

Indirect taxes -290.5

Capital consumption allowance 10.2

Factor payments from abroad 9.8

Subsidies 18.6

Gross domestic capital formation 50.7

Import of goods and services 300.3

Required:

Derive the following for country XYZ showing all calculations:

1.National Income

2.Net Investment

3.Personal Income

4.Disposable Personal Income. (12 Marks)