KCSE Business Studies Topical Questions and Answers

Discuss four factors that determine the level of a country’s national income

8/11/2021

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Discuss four factors that determine the level of a country’s national income (10mks)

Four factors that determine the level of a country’s national income.

The quality and quantity of factors of production e.g labour supply, capital available and size of natural resources.
Level of technology i.e. advanced technology lead to production of high quality goods and vice versa.
Size of population - high population leads to a high national income since most resources will be exploited.
Political stability - creates a conducive environment for the exploitation of resources.
Attitude of the people towards work- a country whose people have a culture of liking work attain a high level of national income.

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Describe the importance of the structure for economic growth

25/9/2021

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Importance of age structure for economic growth

Individuals do not contribute equally to production
Supply of labour depends on the proportion of the workforce
Economically active in population depend on the age structure
Age structure assist the government in planning
The proportion of dependants influence the pace of economic growth

Describe the importance of the structure for economic growth

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Explain five disadvantages of progressive taxes

25/9/2021

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Disadvantages of progressive taxes

This taxes are difficult to understand
They are also difficult to measure utility
It’s a way of punishment to hard ward
It breeds corruption for it can be evaded
It hampers social welfare
It can lead to scope of tax evasion
It doesn’t encourage capital formation

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State four uses of national income statistics

21/9/2021

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Use of Natural income statistics

Indicators of the standards of living
Comparing standards of living in different countries
Assessing the performance of the economy over time
Assisting the government to plan the economy
Investment decision

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uses-of-national-income-statistics-to-a-country.html

State four uses of national income statistics

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Outline five characteristics of an efficient tax system.

21/12/2020

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Outline five characteristics of an efficient tax system.

Characteristics of an efficient tax system are:

Equity - the tax should be fair and just/people should be taxed according to their income.
Economical - it should be cheap and easy to administer/cost effective/cost of collecting should be lower than the revenue.
Convenient - method of payment should be convenient to the tax payer/favourable to tax payer.
Certainty - tax payer/collector should know what, when and how to pay/collect.
Flexibility - where tax is used as an instrument of national policy, it should be adaptable to all circumstances.
Simplicity - it should be easily understood.
Elasticity - proceeds from taxation should be capable of expanding/contracting in line with changes in income/population.
Diversity/wide base. There should be wide range/variety of taxes/should net many tax payers.
Difficult to evade. Should not create loopholes for people to avoid.
Should regulate the economy.

Outline five characteristics of an efficient tax system.

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Highlight four circumstances under which the capital of a business may change.

21/12/2020

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Highlight four circumstances under which the capital of a business may change.

Circumstances under which the capital of a business may change are:

When the business makes profit.
When the business makes losses.
When the owner draws cash/goods for personal use/drawings.
When the owner makes additional investment into the business/additional capital.

Highlight four circumstances under which the capital of a business may change.

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The following information relates to Karibu traders for the year ended 31 December 2008.

21/12/2020

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The following information relates to Karibu traders for the year ended 31 December 2008.

Determine owner’s capital using the information given above. (4 marks)

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Explain five merits of direct taxes to the government.

20/12/2020

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Explain five merits of direct taxes to the government.

Merits of direct taxes to the government include:

Economical to collect - it provides higher revenue at lower costs of administration since collection is executed at the source e.g. PAYE.
Certainty - the government knows the amount of tax, the manner and time of payment, hence budget and plan for it. It is also difficult to evade.
Convenience - it is collected from the source at regular intervals making it easy and very convenient.
Price stability - it is a useful tool for maintaining stable prices by affecting disposable income and consequently influencing aggregate demand.
Equity - the progressive nature of direct taxes distributes tax burden equitably, thus the government is able to redistribute wealth by heavily taxing those who earn more as opposed to those earning little.
Simple to determine - Every wage level falls into predictable tax brackets.
Easy to administer - it is very difficult to evade hence very easy to administer as the collection points are also fewer as opposed to collecting tax directly from individuals.
It is elastic - it expands with increased income and population.

Explain five merits of direct taxes to the government.

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Outline four challenges that may be encountered when measuring national income using the output approach.

20/12/2020

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Outline four challenges that may be encountered when measuring national income using the output approach.

Challenges that may be encountered in measuring national income using the output approach include:

Deciding on what goods and services to include in measuring national income.
Inadequate output data.
Some activities earning income are considered illegal and not included in the measurement of national income.
Determining the value of national output.
How to value output in the subsistence sector.
Deciding on the price to use for the goods that have been kept as stock.
Problem of valuing government input as they are not factored at market rates.

Outline four challenges that may be encountered when measuring national income using the output approach.

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Explain five guidelines that should be followed by the government in its expenditure. (10 marks)

17/12/2020

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Guidelines that should be followed by the government in its expenditure

Guidelines that should be followed by the government in its expenditure include:

Maximum social benefit/optimal benefit.
Government spending should benefit as many people as possible.
Flexibility.
Should be elastic enough to accommodate changing circumstances.
Economy.
Should be capable of being changed to accommodate prevailing economic circumstances.
Equity.
Should aim at distributing incomes fairly.
Sanction.
Government spending must be approved by the relevant authority to enhance accountability.
Accounting.
Proper accounting records should be kept to facilitate good financial management
Productivity.
A larger proportion of the national income should be spent on development projects.
Surplus.
Expenditure should be less than the total revenue collected.
Elasticity.
Should be capable to being expanded/contracted depending on the size of the economy.

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Outline four ways in which households contribute to national income of a country.

17/12/2020

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Outline four ways in which households contribute to national income of a country.

Ways in which households may contribute to national income of a country include:

consumption of goods
payment of taxes
provision of factors of production
provision of savings for investment

Outline four ways in which households contribute to national income of a country.

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Discuss five problems that a country may face when measuring her national income using the output approach.

16/12/2020

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Discuss five problems that a country may face when measuring her national income using the output approach.

Problems that may be faced when measuring national income using the output approach include:

Inadequate or incomplete data — difficulties will be experienced in valuation due to unavailability or inaccuracy of output figures.
Determination of goods and services to be included — difficulties regarding which goods and services to include in the calculation of national income.
Subsistence sector — problem arises in the valuation of output of the subsistence sector since the goods are never priced.
Value of stock — There is a problem on what to assign to the stock of goods to be included in the national income, whether it should be value at cost or at market price.
Price fluctuation — prices of goods may vary from time to time hence there is a problem of deciding whether to attach historical cost or market price.
Double counting. it may be difficult to distinguish between primary and intermediate output or between intermediate and final output.
Lack of qualified personnel who may be to compute and even collect data.
Inadequate finance capital equipment and technology to be used when gathering and compiling data.

Discuss five problems that a country may face when measuring her national income using the output approach.

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The terms capital employed, working capital, owner’s equity and borrowed capital are types of capital found in a business. Match each of the statements given below with the relevant type of capital.

16/12/2020

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The terms capital employed, working capital, owner’s equity and borrowed capital are types of capital found in a business. Match each of the statements given below with the relevant type of capital.

Matching statements on capital with types of capital

Owner’s equity
Working capital
Borrowed capital

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State four factors that may influence the level of national income.

16/12/2020

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State four factors that may influence the level of national income.

Factors that may influence the level of national income include:

Availability of natural resources. .
Availability of skilled labour force.
Literacy levels of the citizens in general.
Level of country’s industrialization.
Dependency ratio on the economically active portion of the population.
Level of technology
The size and quality of the population
The entrepreneurial culture/level of investment
Infrastructure (transport, communication
Political stability
Socio-cultural factors
Security

State four factors that may influence the level of national income.

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Outline four differences between insurance and assurance.

16/12/2020

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Outline four differences between insurance and assurance.

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Using a diagram, explain the circular flow of income in a two sector economy

15/12/2020

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Using a diagram, explain the circular flow of income in a two sector economy

a)using a diagram, explain the circular flow of income in a two sector economy.
House holds supply their resources (factors of provision) to various types of businesses and receive payment on the form of rent, wages and profit
On the other hand, businesses sell finished products to household and households pay for the goods and services received

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Outline four reasons why an increase in per capital income may not necessarily lead to a rise in the standard of living of the citizens

14/12/2020

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Outline four reasons why an increase in per capital income may not necessarily lead to a rise in the standard of living of the citizens

Reasons why an increase in per capita income may not lead to a rise in standard of living include:

Per capita income is an average and hence a mere statistics
Per capita figures may be high but income may be unevenly distributed.
Those not involved in the generation of the national income are also included in the calculation
Generation rise in the price of commodities/inflation may affect the purchasing power of the citizen.
High taxes may erode the real value of per capita income
May be obtained through a strain on people’s health
Expenditure pattern by the government/individual serving debts.

Outline four reasons why an increase in per capital income may not necessarily lead to a rise in the standard of living of the citizens

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The following diagram represents the circular flow of income in a two sector closed economy.

14/12/2020

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The following diagram represents the circular flow of income in a two sector closed economy.

Identify two factors represented by each of the arrows labelled a and b. (4 marks)

Expected Response

Factors represented by the arrows labelled a and b are:

(a)
- (i) Payment for goods and services.
- (ii) Factor services / inputs / factors of production.
(b)
- (i) Payment for factor inputs.
- (ii) Goods and services.

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State four items that usually appear the credit side of the current account of a country

14/12/2020

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State four items that usually appear the credit side of the current account of a country

Items that may appear on the credit side of the current account of a country

Receipts from export of goods/visible export
Receipt from export of services/invisible exports
Receipt from investment abroad
Deficit balance.

State four items that usually appear the credit side of the current account of a country

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The economy of a country X has grown at the rate of 10% per annum for the last two years. However, the standard of living among the citizens has not changed. Outline four reasons that may have contributed to this trend. (4 marks)

13/12/2020

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The economy of a country X has grown at the rate of 10% per annum for the last two years. However, the standard of living among the citizens has not changed. Outline four reasons that may have contributed to this trend.

Vertical Divider

Reasons that may have contributed to this trend.

Inequitable distribution of income.
Projects undertaken by the government could be of long-term nature.
The cost of living may have gone up thus eroding additional income earned.
Income earned could have been used in ways that do not benefit the people directly.
High population growth.
Economic growth may have been obtained through a strain on people’s health.
Unequal regional development/expenditure pattern of the government.

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Uses of National income statistics to a country.

10/12/2020

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Uses of National Income Statistics to a country

Uses of National income statistics to a country.

Indicator/measure of standard of living - an improvement/increase of national income indicates/improved welfare/improved standard of living I vice versa.
Comparison of standard of living between countries - countries with high national income are deemed to have high standard of living and vice versa.
Assessing performance of the economy over time - the period with high national income is considered to be better off.
Economic Planning - comparing performance in different sectors and regions helps the government in planning for better! efficient allocation/use of resources.
For investment decision - Data obtained can be used by entrepreneurs to make decision on the sector, when and amount of capital to invest.
Provide information on distribution/contribution of income - this helps the government to address income/production disparities eg. through subsidies and tax relief.
To attract foreign aid/donor funding, when a country shows strong economic growth/when experiencing challenges to finance its development/for budgetary support.
Calculate/determine per capita income - by dividing national income by the population.
Compare standards of living in a country between different years/periods. The year/period the NY is high is said to have a high standard of living/vice versa.

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Explain five factors that may influence the level of national income of a country. (10 marks)

9/12/2020

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Factors that may influence the level of national income of a country.

Human resources / labour / working population / manpower
A country with skilled /(highly) trained / large manpower can produce quality/quantity goods/services / can generate high income.
A country with unskilled / or untrained / small manpower can produce low quality / quantity goods / services can generate low income.
Natural resources / land ./ gifts of nature / accept gift of nature
a country endowed with natural resources can produce more good / services / can generate income.
A Country not well endowed with natural resources may produce less goods /services / can generate less income.
(Level of ) technology
High level of technology may produce low quality / quantity of goods / services / generate high income.
Low level of technology may produce low quality / quantity goods / services / generate low income.
Capital (equipment) / man – made resources / accept if manmade resources e.g. infrastructure buildings.
Availability of capital / manmade resources (goods) makes production easy / preserves production (resulting in increased natural income) / may generate high income.
Lack of capital / or makes production different / reduces production / may generate low income.
Foreign investment
Investments from abroad may increase natural income to the country / increase production of goods / services / investments abroad may increase national income.
Reduction of foreign investment may reduce production of goods / services / income.
Good governance / political stability
Production of goods / services / investments / income increase as a result of good governance / political stability creates confidence in investors.
Poor governance / political instability reduces savings / investment / damages / investment / reduce incomes / production of goods / services.
Culture / entrepreneurship
Culture that encourages hared / work / entrepreneurship reduces production of goods / services / may generate low income.
Culture that encourages hard / work / entrepreneurship reduces production of goods / services / may generate low income.

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The following diagram represents the circular flow of income in a two sector closed economy.

3/12/2020

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The following diagram represents the circular flow of income in a two sector closed economy.

Identify two factors represented by each of the arrows labelled a and b. (4 marks)

(a)
- (i) Payment for goods and services.
- (ii) Factor services / inputs / factors of production.
b)
- (i) Payment for factor inputs,
- (ii) Goods and services.

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Explain the demerits of the output approach in measuring national income. (10 marks)

29/11/2020

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Demerits of the output approach in measuring national income

It excludes crucial services that contribute to national income but not paid for like government services, and self-employment. It is difficult to make a decision about the goods and services to include in this measure.
Problem of subsistence sector/output. It is difficult to value subsistence output.
Some activities considered illegal generate a lot of income but are not included in the measure of national income. These activities inject a lot of money into the economy.
Difficulty in valuing stock at the end of the accounting year as this differs with their value at production.
Difficulty in determining the increase in value as a result of increasing volumes of output. Final price is usually affected by market forces.
Difficulty in deciding on the value to use when making records. The values keep changing in line with market forces.
It is difficult to determine the value of depreciation hence failure to record accurately the value of capital goods.
Fluctuations in prices which may cause output to appreciate.

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Highlight four items that would be included in the measurement of national income using the income approach. (4 marks)

26/11/2020

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Items that would be included in the measurement of national income using the income approach

Items that would be included ¡n the measurement of national income using the income approach include:

Salaries/wages or personal earnings by households.
Interest received for use of capital.
Profits made by public enterprises.
Dividends received by shareholders.
Rent received for the use of land.
Undistributed profits before tax on firms.
Stock appreciation.
Transfer payments e. g. grants to students.
Depreciation on capital.
Net income from abroad.

items that would be included in the measurement of national income using the income approach

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​Discuss four factors that determine the level of a country’s national income (10mks)

Outline five characteristics of an efficient tax system.

Highlight four circumstances under which the capital of a business may change.

The following information relates to Karibu traders for the year ended 31 December 2008.

Explain five merits of direct taxes to the government.

Outline four challenges that may be encountered when measuring national income using the output approach.

Guidelines that should be followed by the government in its expenditure

Outline four ways in which households contribute to national income of a country.

Discuss five problems that a country may face when measuring her national income using the output approach.

The terms capital employed, working capital, owner’s equity and borrowed capital are types of capital found in a business. Match each of the statements given below with the relevant type of capital.

State four factors that may influence the level of national income.

Outline four differences between insurance and assurance.

Using a diagram, explain the circular flow of income in a two sector economy

Outline four reasons why an increase in per capital income may not necessarily lead to a rise in the standard of living of the citizens

Expected Response

State four items that usually appear the credit side of the current account of a country

The economy of a country X has grown at the rate of 10% per annum for the last two years. However, the standard of living among the citizens has not changed. Outline four reasons that may have contributed to this trend.

Uses of National Income Statistics to a country

Factors that may influence the level of national income of a country.

Demerits of the output approach in measuring national income

Items that would be included in the measurement of national income using the income approach

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Discuss four factors that determine the level of a country’s national income (10mks)