August 2025 CPA Economics Past Paper answers

Description

QUESTION ONE
(a) Explain FOUR steps of the scientific method as applied in economic analysis. (4 marks)
(b) Explain SIX strategies that the government could implement to counter effects of climate change on agriculture.
(6 marks)
(c) (i) Explain the term “central bank” of a country. (2 marks)
(ii) State FOUR secondary functions of a central bank. (4 marks)

(d) Highlight FOUR limitations of production possibility frontier curve. (4 marks)
(Total: 20 marks)
QUESTION TWO
(a) Highlight FOUR causes of demand-pull inflation. (4 marks)
(b) Outline FOUR determinants of elasticity of supply of labour. (4 marks)

(c) Discuss SIX roles of government in an economy. (6 marks)
(d) Using a well labelled diagram, illustrate the price ceiling for a good or service. (6 marks)
(Total: 20 marks)

QUESTION THREE
(a) The demand and supply functions of a certain product are given as follows: Qd = 110 – 2P
Qs = – 40 + 3P
The government imposes a tax of Sh.5 per unit.

Required:
Determine:
(i) Equilibrium price after tax. (3 marks)

(ii) Equilibrium quantity after tax. (3 marks)

(b) Explain THREE applications of the concept of cross elasticity of demand. (6 marks)
(c) Highlight FOUR ways a country can increase foreign reserves. (4 marks)

(d) Explain FOUR causes of structural unemployment. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) The following information represents the national income statistics of a hypothetical economy in billions of shillings:

Gross national product at market price 9,630
Depreciation allowance 215
Net factor income from abroad -130
Indirect taxes 48
Subsidies 19

The population for this economy is 637 million.

Required:
(i) Net national product (NNP) at factor price. (3 marks)

(ii) Net domestic product (NDP) at market price. (3 marks)

(iii) Per capita income. (3 marks)
(b) Using indifference curve analysis, explain the derivation of the demand curve for a normal good X. (6 marks)

(c) Examine FIVE merits of adopting import-substitution strategy in developing countries. (5 marks)
(Total: 20 marks)
QUESTION FIVE
(a) Outline FIVE factors that influence production function. (5 marks)

(b) Describe FOUR characteristics of human wants. (4 marks)

(c) (i) With the aid of a diagram, illustrate the cobweb model. (2 marks)

(ii) Explain THREE limitations of the cobweb model. (3 marks)
(d) The rate of inflation in country X dropped from 9.6% in the month of January 2025 to 2.8% in the month of March 2025.

Required:
Assess SIX reasons why the standard of living of an average citizen in country X might not have changed over the past one year. (6 marks)
(Total: 20 marks)

QUESTION SIX
(a) With the aid of a diagram, explain the marginal efficiency of capital. (6 marks)

(b) Outline SIX implications of a deflationary gap in an economy. (6 marks)

(c) Explain FOUR criticisms of the liquidity preference theory of money. (8 marks)
(Total: 20 marks)

QUESTION SEVEN
(a) Explain SIX sources of monopoly power. (6 marks)
(b) State FOUR limitations of monetary policies in developing countries. (4 marks)

(c) Identify FOUR types of unemployment. (4 marks)

(d) Describe the THREE methods of measuring national income. (6 marks)