QUESTIONS AND
ANSWERS
For assistance contact
Email:gabrielmusyoka940@gmail.com
,SUGGESTED SOLUTIONS FOR 2015 MAY/JUNE
Question A1
Gross domestic expenditure
Plus exports of goods and services
Less imports of goods and services
Equals Expenditure on gross domestic product (GDP @ market prices)
The diifference between basic prices, factor cost and market prices can be ascribed to:
These three sets of prices that can be used to calculate GDP.
However market price are used to calculate GDP according to the expenditure method
while basic prices are used when production (value added) method is applied. Lastly
factor cost is used when the income method id followed.
NB** These three methods of calculating GDP will yeild the same result merely if the same set
of prices is used in all the calculations.
Question A2
a)
442 169 − 435 389
× 100 = 0.38%
1 782 061
Shows an increase of 0.38%
b)
1 782 061 − 1 814 521
× 100 − 1.79%
1 814 521
The negative sign represents a decline in the annual real GDP from 2013 to 2014.
Question A3
, a) Real interest rate = Nominal interest rate – Inflation
6.5% - 5% = 1%
b) % point change is simply the difference between the final and initial values
5% - 10% = - 5% negative sign represents the decline thus a decrease of 5% point
c) % change is the difference between the final and initial values divided by the initial value
6−5
× 100 = 20%
5
d) NB** 100 Basis points = 1%
9.15 − 8.65
× 100 = 5.78%
8.65
Therefore 5.78% to basis points = 578
Question A4
1. SAVING
Refers to the amount left over when the cost of a person's consumer expenditure
is subtracted from the amount of disposable income that he or she earns in a
given period of time
Also to the difference between income and expenditure.
2. The trend
Indicates the general direction in which the indexes that were used in the
business cycle, move.
The trend line usually has a positive slope because the production capacity of a
country increases over time.
3. Business Cycle
Refer to successive periods of increasing (expansion/upswing) or decreasing
(contraction/downswing) economic activities.
Also known as successive periods of economic fluctuations and relate to
changes in business conditions
4. REFERENCE CYCLE
refers to a full cycle in aggregate economy activity
In this case that is when people want to know whether the economy is in an
expansionary or in a recession
, In short they are inquiring into the position of the economy in terms of the reference
cycle.
5. PRIMARY SECTOR
The primary sector is concerned with the extraction of raw materials. It includes
fishing, farming agriculture, forestry, mining etc
The sector of the economy concerned with or relating to primary industry.
Question A5
ECONOMICALLY ACTIVE POPULATION
EAP depends on factor such as:
a) The age distribution of the population – the greater the portion of the population in the
15-64 age group the greater the labour force.
b) Retirement rules and the availability of social security
c) Social, cultural, religious and other conventions about the role of woman in society
d) The availability of household appliances, childcare centres and other institutions
e) The level of development and the structure of the economy
Question A6
FIVE BASIC STEPS IN CONSTRUCTING A PRICE INDEX
BASKET SELECTION
o The choice of items or components
BASE YEAR SELECTION
o The choice of a base period
WEIGHTING
o The assigning of weights to the different items or components
PRICE COLLECTION
o The systematic gathering of information on prices usually on a monthly basis ie
collection of data
CALCULATION OF PRICE INDEX NUMBER
o The CPI and PPI are calculated according to Laspeyres using fixed weights for
the different items.
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