KCSE Business Studies Topical Questions and Answers

Give four positive effects of inflation in an economy

22/9/2021

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Positive effect of inflation in an economy

Debtors may pay less
Sellers may earn more
Motivation to work
Increased production
Better use of available resources

Give four positive effects of inflation in an economy

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Outline four measures that a country can take to reduce the level of inflation.

21/12/2020

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Outline four measures that a country can take to reduce the level of inflation.

Measures that a country can take to reduce the level of inflation include:

Increase income taxes to reduce the disposable income available to consumers.
Reduce government expenditure.
Introduce compulsory saving schemes like Pension Fund.
Reduce exports.
Enforce wage guidelines to control wage increase.
Control prices by legislation.
Increase interest rates on loans.
Increase imports in case of shortages.
Raising the margin requirements.
Regulate printing and minting of money.
Use of buffer stocks to stabilize prices.

Outline four measures that a country can take to reduce the level of inflation.

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Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

20/12/2020

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Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

Circumstances under which each of the following types of inflation may occur include:
(i) Creeping inflation

(a) When the general price levels rise gradually over a period of time usually at single digit.
(b) Where the value of money tends to be stable over time and the effects on the economy is not severe.

(ii) Hyper inflation

(a) Where the general price levels rise at high rate usually more than two digits.
(b) Where there is drastic loss in the value of money and the effect on the economy is very severe.

Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

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Explain the following types of inflation:

17/12/2020

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Explain the following types of inflation:

(i) Demand-Pull inflation

Refers to a progressive increase in the general level of prices brought about by an expansion in demand. There is too much money chasing very few goods.

(ii) Cost-Push inflation

A progressive increase in the general price level brought about by a general increase in the cost of production.

(iii) Imported inflation

Refers to an increase in domestic prices resulting from importation of primary goods and inputs at higher prices.

(iv) Structural inflation

Refers to a persistent rise in prices resulting from failure of the economy to meet the general increase in demand.

(i) Demand-Pull inflation Refers to a progressive increase in the general level of prices brought about by an expansion in demand. There is too much money chasing very few goods. (ii) Cost-Push inflation A progressive increase in the general price level brought about by a general increase in the cost of production. (iii) Imported inflation Refers to an increase in domestic prices resulting from importation of primary goods and inputs at higher prices. (iv) Structural inflation Refers to a persistent rise in prices resulting from failure of the economy to meet the general increase in demand.

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List four levels of inflation. (4 marks)

15/12/2020

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Levels of inflation are:

Hyper inflation/runaway.
Galloping inflation/rapid.
Stagflation.
Creeping inflation/mild/moderate.

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Describe four measures that the Government may put in place to reduce the amount of money in circulation. (8 marks)

13/12/2020

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Describe four measures that the Government may put in place to reduce the amount of money in circulation.

Measures that the Government may put in place to reduce the amount of money in circulation.

Compulsory deposits/special deposits/increase minimum reserve requirements The Central bank may require that commercial banks deposit a certain amount of their cash with the central bank.
Selective credit control/credit rationing. The government through the central bank may require that certain sectors of the economy be assisted financially.
Open market operations. The government may instruct the central bank to sell
government securities/stocks/bonds in the open marker/stock exchange.
Raise interest rates - High interest rates may be offered for savings to encourage more deposits.
Raise cash/liquidity ratio thereby leaving commercial banks with less money to lend.
Raising the bank rate leading to credit/loans becoming more expensive.
Raising margin requirement to discourage borrowing.
Moral suasion by government appealing to commercial banks to reduce lending to the public.
Reducing government expenditure by suspending sonic projects.
Raising taxes to reduce disposable income hence lower purchasing power.
Surplus budgeting by spending less than the income raised.

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Outline four measures that a government may put in place to reduce high inflation in a country. (4 marks)

13/12/2020

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Outline four measures that a government may put in place to reduce high inflation in a country.

Measures that a government may put in place to reduce high inflation in a country.

Increase interest rate to discourage borrowings.
Withdraw excess cash in circulation by issuing government bonds and treasury bills.
Institute policies that make price of commodities steady (price control).
Increase taxes on income to discourage extra income earned at expense of leisure.
Raising liquidity ratio/cash ratio of commercial banks.
Use of selective credit control measures.
Increasing commercial banks special deposits with the central bank.
Restriction of imports.
Restricting wage increases.
Raising margin requirements.
Use of buffer stocks.
Stimulation of production of goods and services

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List three levels of inflation. (3 marks)

9/12/2020

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Levels of inflation

Levels of inflation include:

Mild / moderate inflation;
Gradual / creeping inflation;
Galloping / hyper inflation;
Stagflation.

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State four factors that may cause inflation in an economy.(4mks)

8/12/2020

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Factors that may cause inflation in an economy.

Increase money supply unaccompanied by proportionate increase in the output of goods and services.
Increase in government expenditure.
Abnormal speculation and hoarding goods to create artificial shortages hence raising prices of goods.
Uncontrolled increase in costs of productions.
Increase in profit margin.
Reduction in subsidy.

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State two situations in which each of the following types of inflation may occur.

3/12/2020

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State two situations in which each of the following types of inflation may occur.

creeping inflation ….... (2 marks)
Hyperinflation ......... (2 marks)

Creeping inflation (2 marks)
When the general price levels rise gradually/ single digit over a period of time usually at single digit. Where the value of money tends to be stable over time the effects on the economy is n o t severe.
Hyperinflation 2 marks)
Where the general price rise at high rate/ usually more than two digits. Where there is drastic loss in the value of money effect on the economy is very severe

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The table below shows general price changes over a period of five years:

27/11/2020

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The table below shows general price changes over a period of five years:

Using year 2010 as the base year, determine the Consumer price index for years 2011, 2012, 2013 and 2014. (4 marks)

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KCSE BASED BUSINESS STUDIES Q & A

Give four positive effects of inflation in an economy

Outline four measures that a country can take to reduce the level of inflation.

Outline four measures that a country can take to reduce the level of inflation.

Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

Explain the following types of inflation:

Explain the following types of inflation:

List four levels of inflation. (4 marks)

Describe four measures that the Government may put in place to reduce the amount of money in circulation. (8 marks)

Describe four measures that the Government may put in place to reduce the amount of money in circulation.

Outline four measures that a government may put in place to reduce high inflation in a country. (4 marks)

Outline four measures that a government may put in place to reduce high inflation in a country.

List three levels of inflation. (3 marks)

Levels of inflation

State four factors that may cause inflation in an economy.(4mks)

Factors that may cause inflation in an economy.

State two situations in which each of the following types of inflation may occur.

The table below shows general price changes over a period of five years:

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