ECONOMICS REVISION QUESTIONS

1. VISION INSTITUTE OF
PROFESSIONALS
CPA SECTION 2 ECONOMICS BLOCK RELEASE QUESTIONS-SET 1
Q1. Consider the following IS-LM model:
C = 200 + 0:25YD
I = 150 + 0:25Y -1000i
G = 250; T = 200
Md= 2Y -8000i
Ms= 1600
a. Derive the IS function.
b. Derive the LM function.
c. Solve for equilibrium income and interest rate
d. Solve for the equilibrium values of C and I and verify the value you obtained
for Y by
adding up C, I and G.
f. Now suppose that the money supply increases to Ms= 1840: Solve for Y;
i;Cand I
Q2. Suppose a hypothetical economy is characterized by the following behavioral
equations:
C = 160 + 0:6YD
I = 150
G = 150
T = 100
Solve for:
a. Equilibrium GDP (Y)
b. Disposable Income (YD)
c. Consumption Spending (C
d. Explain the factors that stimulate investments in an economy
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2. Q3.A monopolist has the cost function TC = 200q + 15q2 and faces the demand function
given by p = 1200 - 10q.
i. What output maximizes its profit
ii. What is the profit-maximizing price?
iii. What is its maximal profit?
iv. Calculate the breakeven points
v. Explain the conditions for price discrimination to be possible and profitable
Q4. Consider the following demand and supply functions for good X:
PQd 501000 −=
PQs 50200 +−=
i. Calculate the equilibrium price and quantity traded of the commodity
ii. Calculate the price elasticity of demand and supply at the equilibrium
iii. Calculate the consumer and producer surplus at the equilibrium
iv. Explain the factors that determine price elasticity of demand
Q5. a) Define inflation (2 mks)
b) Explain the causes of inflation (8 mks)
c) Differentiate between inflationary and deflationary gap, using an appropriate
diagram (6 mks)
d) Explain the policies available for controlling inflation (4 mks)
Q6. a) Explain the meaning of economic integration (2 mks)
b) What are the main forms of economic integration? (5 mks)
c) Discuss the benefits of economic integration to the economies involved(8 mks)
d) What are the main weaknesses of the theory of comparative advantage as used in
international trade? (5 mks)
Q7. a) Explain the meaning of economic growth (2 mks)
b) Differentiate between economic growth and economic development (4 mks)
c) What are the main factors that determine/stimulate economic growth?(8 mks)
d) explain the negative consequences of economic growth( 6 mks)
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