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Economics CPA part one section 1 revision papers with answers


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By Omosa


Description/Abstract

PAPER NO. 4 ECONOMICS


GENERAL OBJECTIVE
To equip the candidate with knoowledge of fundamental principles of economics.
4.0 SPECIFIC OBJECTIVES
A candidate who passes this paper should be able to:Explain the principles of micro and macro-economicsApply basic mathematical and graphical techniques to analyse economic relationships and interpret the resultsApply the knowledge of economics in decision makingDiscuss emerging economic issuesAnalyse economic problems and suggest possible policy related recommendationsApply knowledge of economics in international trade and finance
CONTENT
4.1 Introduction to economics

- Definition of economics
- Micro and macro economics
- The methodology of economics and its basic concepts
- Economic descriptions and analysis
- Economic goals and problems
- Scarcity, choice, opportunity cost and production possibilty frontiers and curves
- Economic systems: free economy, planned economy and mixed economy
- Specialisation and exchange
- Partial equilibriun and general equilibrium

4.2 Demand, supply and determination of equilibrium


4.21 Demand analysis

- Definition
- Factors influencing demand
- Types of demand
- Movement along and shifts of demand curves
- Individuals versus market demand
- Exceptional demand curves
4.22 Supply analysis

- Definition
- Factors influencing supply
- Movements along and shifts of supply curves
- Individual versus market supply curves
4.23 Determination of equilibrium price

- Interaction of supply and demand, equilibrium price and quantity
- Mathematical approach to equilibrium analysis
- Stable versus unstable equilibrium
- Effects of shifts in demand/supply on equilibrium
- Application of price mechanism for example price control, producer surplus, consumer surplus and susidies
4.3 Elasticity of demand and supply

- Definition of elasticity
- Factors influencing elasticity
- Measurement of elasticity; point and arc elasticity
- Types of elasticity: Price, income and cross elasticity
- Application of elasticity in management and economic policy decision making
4.4 The theory of consumer behaviour

- Approaches to the theory of consumer choice-cardinal versus ordinal approach
- Limitations of cardinal approach
- Utility analysis, marginal utility (MU), diminishing marginal utility (DMU)
- Indifference curve analysis
- Budget line and its economic interpretation
- Consumer equilibrium - effects of changes in prices and incomes on consumer equilibrium
- Substitution and income effects of price change
- Derivation of a demand curve and Engel curve
- Applications of indifference curve analysis
4.5 The theory of a firm

- Communication process and barriers
- Channels of communication
- Types of verbal and non-verbal communication
- Importance of listening skills
- Critical thinking and problem solving
4.5.1 The theory of production

- Factors of production
- Mobility of factors of production
- Production function analysis
- Short run analysis
- Total product, average and marginal products
- Stages in production and the law of variable proportions
- Long run analysis and returns to scale
- Isoquant and isocost lines
- The concept of producer equilibrium and expansion curve
- Demand and supply of factors of production
4.5.2 The theory of costs

- Short run costs analysis and size of the firm's total cost, fixed cost, average cost, variable costs and marginal cost
- Long run costs analysis and economies of scale
- Optimal size of a firm
- Mathematical approach to theory of costs
4.6 Market structures

- Definition of a market
- Necessary and sufficient conditions for profit maximisation
- Mathematical approach to profit maximisation
- Output, prices and efficiency of: perfect competition, monopoly, monopolistic competition, oligopolistic competition
- Public policy towards competition and business behaviour
4.7 National income

- Definition of national income
- Necessary and sufficient conditions for profit maximisation
- Mathematical approach to profit maximisation
- Output, prices and efficieny of: perfect competition, monopoly, monopolistic competition, oligopolistic competition
- Public policy towards competition and business behaviour
4.7 National income

- Definition of national income
- Circular flow of income
- Concepts of national income: gross domestic product (GDP), gross national product (GNP) and net national product (NNP), net national income (NNI) at market price and factor cost, disposable income
- Approaches to measuring national income
- Problems of measurement; uses of national income statistics and their limitations
- Analysis of consumption, saving and investment and their interaction in a simple economic model
- Determination of equilibrium income
- Inflationary and deflationary gaps
- A mathematical approach to national equilibrium
- The multiplier and accelerator concepts
4.8 Money and banking
4.8.1 Money

- The nature and functions of money
- Demand and supply of money
- Theories of demand for money
- The quantity theory, the Keynesian liquidity preference theory
- The monerarist perspective
4.8.2 The banking system

- Definition of commercial banks
- The role of commercial banks and non bank financial institutions in the economy
- Definition of central bank
- The role of the central bank; traditional and changing role in a liberalised economy, such as financial sector reform
- Monetary policy, definition, objectives, instruments and limitations
- Determination of interest rates and their effects on the level of investment, output, inflation and employment
- Money and capital markets
- Credit creation
- Simple IS-LM Model
4.9 Inflation

- Definition and types of inflation
- Causes of inflation: Cost push and demand pull
- Measurement of inflation: Consumer and producer price index (CPI and PPI)
- Effects of inflation
- Measures to control inflation
4.10 Labour and unemployment

- Definition
- Population size and demographic trends
- The demand and supply of labour
- Wage determination, policy and theories
- Trade unions and employer associations
- Measurement of unemployment
- Types and causes of unemployment
- Control measures of unemployment
- Relationship between unemployment and inflation
- The Phillips curve, the vertical Phillips curve
4.11 Public finance

- Introduction
- The role of the government in the economy
- The role of budgetary policy
- Public expenditure
- Budget surpluses and deficits - causes of budget deficits, implications on macro fundamentals
- Fiscal policy: Definition of taxes, types of taxes, principles of good taxation
- Budgeting and planning, fiscal reforms
- National debt management
- Harmonisation of fiscal and monetary policies: monetary/fiscal policy mix
- Economic governance and transparency
4.12 International trade and finance

- Theory of absolute advantage and comparative advantage
- World Trade Organisation (WTO) and concerns of developing countries
- Protection in international trade
- Regional integration organisations commodity agreements and the relevance of less developed countries (LDCs)
- Balance of payments: Terms of trade, exchange rates, types of foreign exchange regimes, factors influencing exchange rates, foreign exchange reserves
- International financial institutions
- Facilities of International Monetary Fund (IMF) and World Bank
- Differences between IMF and LDCs economic reform programs
- Social economic impact of economic reforms program in LDCs
4.13 Agriculture and industry

- The role of agriculture in economic development
- Problems faced by the agricultural economic developmentt
- Policies to improve the agricultural sector
- The role of industry in development
- Advantages of small scale industry in developing countries
- Obstacles to industrial development in developing countries
- Impact of substitution versus export promotion: case studies from developing countries
4.14 Economic growth, economic development and economic planning

- The differences between economic growth and economic development
- Actual and potential growth
- The benefits and costs of economic growth
- Measures of economic development
- Common characteristics of developing countries
- Obstacles to economic development
- The need for development planning
- Limitation of planning in developing countries
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