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ECF410 2017 Semester 1 Final Exam

fourth year

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Mapalo Mwewa
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0% found this document useful (0 votes)
13 views4 pages

ECF410 2017 Semester 1 Final Exam

fourth year

Uploaded by

Mapalo Mwewa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

ECF 410: PUBLIC FINANCE AND TAXATION


END OF SEMESTER FINAL EXAMINATION
WEDNESDAY 21ST JUNE, 2017.
09:00- 12:00 HOURS
Time allowed: 3 HOURS plus 5minutes reading time

Instructions to Candidates:

1. Read instructions very carefully.


2. Check that you have the correct examination paper in front of you.
3. There are TWO (2) sections in this paper. Answer all the questions in
Section A and any TWO (2) questions from Section B.
4. All the questions must be answered in the answer booklet provided only.
5. Write down the number of questions that you have answered on the cover
of the examination answer booklet provided only.
6. Begin answering each question on a new page.
7. Non-Programmable Scientific Calculators are permitted for this
examination.
8. Clarity and neatness of presentation will earn you an extra mark
9. There shall be NO communication among students during the examination.
Any students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

1
SECTION A (COMPULSORY)

QUESTION ONE

American suburbs are expanding to more rural areas at the same time as pig farms are
expanding in size. The smell emanating from the massive amounts of pig manure
adversely affect property values.

Tasks:

a) Define negative externalities? [5 marks]


b) Identify the externality in the statement above and indicate whether the
externality is positive or negative? [5 marks]
c) Explain the measures that must be taken to ensure that pig farms keep an
efficient number of pigs. [5 marks]
d) Is attainment of zero pollution a realistic goal for society to aim for? Explain.
[5 marks]
e) Can positive externalities lead to market failure? Explain. [5 marks]

[Total: 25 marks]

QUESTION TWO

Below are excerpts from Zambia’s 2017 national budget speech:

“Mr. Speaker, in coming up with the proposed revenue measures, I have sought to
increase the level of domestically raised resources while at the same time ensuring that
the burden of taxation is borne equitably. The proposed domestic revenue measures
are expected to raise a total of K42.9 billion, representing 18.4% of GDP”…
“…stakeholders have implored the Government to take measures to ensure that the tax
base is broadened, made fairer and... In this regard, I propose the following measures:”

One of the measures proposed: “increase the Advance Income Tax rate paid at
importation of goods from 6 percent to 15 percent…. Advance Income Tax is not a final
tax. It is refundable at the end of the year upon proof of a person being a compliant
taxpayer…”

2
Tasks:

a) Define what is meant by equity in taxation? [5 marks]


b) From the excerpts above, what is the government’s conceptual meaning of
fairness in taxation? Explain. [5 marks]
c) From the information given above, calculate the projected value of Gross
Domestic Product (GDP)? [5 marks]
d) What would be the consequences for private sector credit allocation by the
domestic financial sector if the projected GDP is too optimistic, coupled with
expenditures that are accurately projected? [5 marks]
e) Define an ad valorem tax? [5 marks]
[Total: 25 marks]

SECTION B (ANSWER ANY TWO (2) QUESTIONS)

QUESTION THREE

a) Explain what is meant by government budget deficit? [5 marks]


b) Explain why governments are more likely to incur budget deficits and not budget
surpluses? [5 marks]
c) Explain what is meant by Public Debt? [5 marks]
d) Explain the behaviour of citizens that mitigates against crowding out of credit
allocation to the private sector when there is excessive government borrowing
from the domestic financial sector? [5 marks]
e) Is present external borrowing whose full repayments are due in a generation’s
time always disadvantageous to that generation of citizens? Explain.[5 marks]
[Total: 25 marks]

Question Four

a) Explain why the presence of public goods is a likely cause of market failure?
[5 marks]
b) Give five examples of public goods, clearly accounting for the attributes that
render them to be public goods? [5 marks]

3
c) Indicate whether each of the following statements is true, false, or uncertain, and
justify your answer.
i) Efficient provision of a public good occurs at the level at which each
member of society places the same value on the last unit. [5 marks]
ii) If a good is non-rival and excludable, it will never be produced by the
private sector. [5 marks]
iii) Large communities tend to consume greater quantities of non-rival goods
than smaller communities. [5 marks]
[Total: 25 marks]

QUESTION FIVE

a) Explain the First Fundamental Theorem of Welfare Economics. [5 marks]


b) Explain the Second Fundamental Theorem of Welfare Economics. [5 marks]
c) Explain the importance of well-defined property rights in a market economy.
[5 marks]
d) Explain why government intervention in a market economy may further
deteriorate the prevailing conditions? [5 marks]
e) Explain why not all citizens inhabiting a Pareto efficient economy will enjoy
highest possible level of utility. [5 marks]
[Total: 25 marks]

END OF EXAMINATION PAPER

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