QUESTION 6 (20 Marks)

6.1 With the aid of an example, distinguish between comparative advantage and absolute advantage. (8 marks)

6.2 Discuss how each of the following measures are used by a government to protect domestic firms against foreign

competition and to control the volumes of imports entering the country:

6.2.1 Import tariffs (2 marks)

6.2.2 Import quotas (2 marks)

6.2.3 Subsidies (2 marks)

6.2.4 Non- tariff barriers (2 marks)

6.2.5 Exchange control (2 marks)

6.2.6 Exchange rate policy (2 marks)

QUESTION 1 (10 Marks)

Provide definitions for the following terms.

1.1 Market failure

1.2 Privatization

1.3 Indirect taxes

1.4 Demand-Pull Inflation

1.5 Seasonal Unemployment

QUESTION 3 (20 Marks)

State whether the following statements are True or False. Write down the question number and the word True or False

next to it. E.g. 3.11 True

3.1 If imports exceed exports the exchange rate will initially favor foreigners that export to a local country.

3.2 Households purchase goods and services in the factor market.

3.3 The expenditure method of calculating GDP adds up the value of all transactions once they have reached their

final destination.

3.4 M2 definition of money is equal to M1 plus all other short-term and medium-term deposits of the domestic private

sector with monetary institutions.

3.5 An instrument that government can use to affect economic outcomes is regulation, which refers to all laws, rules

and regulations that affect private behavior.

3.6 Marxist economists believe that human beings are motivated mainly by profit and self-interest.

3.7 Propagating factors trigger or intensify a particular inflation process.

3.8 Frictional Unemployment results from a temporary drop in aggregate demand of a country.

3.9 During the upturn, there is rapid economic growth: the economy is booming.

3.10 The Structuralist view of the business cycle the economy is inherently stable and business cycles are caused by

exogenous disturbances.

DM10

SECTION B [60 MARKS]

Answer ANY THREE (3) questions in this section.

QUESTION 4 (20 Marks)

With the aid of a diagram, discuss a simple circular flow model of income and spending in a closed economy with no

financial sector.

QUESTION 5 (20 Marks)

5.1 Define Gross National Product and explain how it is calculated. Use an example to support your explanation.

(11 marks)

5.2 Identify and explain the THREE (3) methods of calculating GDP. (9 marks)

QUESTION 6 (20 Marks)

6.1 Distinguish between nationalization and privatization. (4 marks)

6.2 Discuss the arguments for and against privatization. (16 marks)

QUESTION 7 (20 Marks)

7.1 Discuss the effects of inflation. (10 marks)

7.2 Using appropriate diagrams, illustrate the distinction between demand pull and cost push inflation. (10 marks)