Question

QUESTION 2 Match the economic concepts given in COLUMN A with its descr and the correct letter next to it. E.9.2.11A (20 Marks) oncepts given in COLUMN A with its description in COLUMN B. Write down the down the question number 2.1 COLUMNA Medium of exchange Autonomous consumption 22 23 2.4 Reserve rati Firms 2.5 Labour Force Consumption function 2.7 Ad valorem 2.8 2.9 Net domestic product Tax avoidance COLUMNB Practice of exploiting tax loopholes A tarif that is levied as a percentage of the value of the imported item. GDP net of depreciation. The total number of workers including both the employed and the unemployed. The part of consumer expenditure which is not determined by the level of income. The fraction of deposits that banks hold as reserves Function that overcomes the problem of a double coincidence of wants inherent in the barter system Spends on factors of production. When people do not pay the taxes that they are supposed to pay relationship between consumption expenditure by households and total income Countries will benefit from trade if the opportunity cost of production (or relative prices) differs between the two countries. This is the process by which the monetary authority of a country controls the supply of money for the purpose of promoting economic growth and stability One country produces more of a product than another. 2.10 Comparative Advantage SECTION B Answer ANY THREE (3) questions in this section. [60 MARKS] QUESTION 3 (20 Marks) rices produced in an economy during a specific GDP is generally defined as the total market value of final goods and services produced in an econo period of time (normally a year). 3.1 Briefly explain the significance of each of the underlined key elements of this definition 32 Discuss some of the shortcomings of GDP as a measure of the economic perform (8 marks) the economic performance of your country. (12 marks)

Answer 1

2.11--> G) Having a medium of exchange means that the double coincidence of wants is no longer necessary as in case of barter system.

2.2 --> E) Autonomous Consumption is that part of consumption which doesn't depend upon the level of income.

2.3 --> F ,L) Reserve Ratio is the fraction of deposits that the banks are supposed to keep with themselves instead of lending out . It is decided by the central bank in the economy to ensure that banks don't run out of money and also by deciding upon the reserve ratio central bank can control the level of money supply in the economy.

2.4--> H) Firms spend on factors of production.

2.5--> D) Labour Force includes the total number of workers willing to work but are not employed and those who are currently employed.

2.6--> J) A consumption function gives the relationship between the expenditure and the level of income.

2.7--> B) When a tax or a tariff is ad valorem ,it is levied in proportion of the value of the commodity it is levied upon unlike the specific taxes which are fixed per unit and are independent of the value.

2.8--> C) NDP is the NET DOMESTIC PRODUCT which is the GDP net of Depreciation.

2.9--> A) Tax avoidance is the practice of exploiting tax loopholes , unlike Tax Evasion , It is within the legal limits. Therefore answer can't be I) as it would be illegal to not pay taxes which people are supposed to pay.

2.10--> K,M) Having Comparative Advantage means being able to produce a good with lesser opportunity cost than the foreign country and exploiting gains from trade. And because countries have Comparative advantage , they can produce more of a product than the other and export it to the country having a comparative disadvantage in that particular good and in turn import the other commodity which it produces lesser.