(a). Negative effect of inflation to an economy.

(1). Reduction in profits: -Rise in prices may lead to reduced sales volume for a firm as many customers may not afford. This in turn reduces firm’s profits.

(2). Wastage of time: -Individuals waste a lot of time shopping for reasonable prices.

(3). Conflicts between employer and employees:

-During inflation, firms are usually pressured by employees and trade unions to raise employees wages and salaries to cope with inflation.

(4). Decline in standards of living:

-During inflation the purchasing power of consumers decreases especially fixed income earners.

(5). Loss of creditors: - creditors lend out when the value of money is high. During inflation the creditors receive less in real money terms since the money value has been eroded by inflation.

(6). Retardation of economic growth: - inflation may create a situation where business people are not willing to either take risks, in new ventures expand production or hire more workers.

(7). Adverse effects on the balance of payments:-Inflation is high in the domestic economy, exports become more expensive leading to a fall in their demand. On the other hand, imports from a country not experiencing inflation become relatively cheap thus increasing their demand.

(8). Loss of confidence in the monetory system:-Inflation leads to loss of confidence in money both as a medium of exchange and store of value.

(9). Discourages savings:-During inflation people tend to spend most of their earnings leaving nothing or little to save.

1 (b). Functions performed by intermediaries.

i. Reducing transactions between producers and consumers.

ii. Breaking the bulk by buying in great quantities and selling in small quantities as desired by customers.

iii. Accumulating the bulk –they buy in small quantities from small producers and they offer the large amount gathered to buyers who may want to buy in large quantities.

iv. Risk taking – they take possession of goods from producers; they assume all risks associated with the movement of such products to the consumer.

v. Provide finance to the producer-they pass information from producers to the consumers.

vi. Conduct product promotion-provide transport and storage of goods in their ware house.

vii. Provide variety of goods to consumers.

viii. Availing goods to consumers/accessible to consumers.

(a). Types of partners

i. Active

ii. Dormant/sleeping/passive/silent

iii. General partners

iv. Limited partners

v. Minor

vi. Major

vii. Real

viii. Nominal/quasi

Note: –award a tick for folio columns if the lagers and pages) are all correctly identified.

-Award a tick for rec no. column cash receipts formed only if the numbers are consecutive.

(a). (i). Free trade area-in terms of abolished tariffs, quotas and any other trade barriers among member countries.

(ii). Member countries to have co-operation in trade areas such as customs union favouring both internal frude and external trade e.g. East African Customs Union.(E.A.C.U)

(iii). Common market –member countries to have favourable conditions for internal trade and common barrier to trade with non- member country.

(iv). Economic union –member countries to have conducive condition for internal trade and common external barriers and factor mobility.

(b). Importance of a well developed transport system in Kenya.

• Linking consumers to producers.
• Creation of employment.
• Promotion of specialization and division of labour.
• Moving goods and services for where they are produced to where they are required for consumption improving people’s standard of living by giving consumers varieties of goods and services.
• Availing a wider market for products.
• Increasing production.
• Avoiding wastage as surplus goods are disposed off.
• Promoting development of industries and service industries such as tourism.

(b). Disadvantage of division of labour.

i. Monitoring of work –that results to boredom.

ii. Hinders creativity –since people work mechanically/like machines/without much thinking.

iii. Overdependence on a skill/job/trade –leading to unemployment when the skill lacks demand.

iv. Creates unemployment due to use of machines.

v. Overdepending on other countries leading to manipulation by other countries.

vi. Leads to social problems due to encouraging many people to move from e.g of social problem as naming.

vii. Lack of price in final product since its as result of many people’s efforts.

viii. Stoppage of working (by a section of people) leads to breakdown of the whole production process. 1 mark maintains/2 marks otherwise.

• Diversifying economic activities/introduce variety of economic activities to combat seasonal unemployment.
• Increase government expenditure/projects that create more jobs.
• Encourage employment creation in the private sector by creating enabling environment.
• Encouraging use of labour intensive method of production.
• Adopt relevant education system that is equipped with skills required by labour market.
• Rural development by giving incentives to investors to create more employment opportunities.

• Population control e.g. through family planning.

• Encourage direct foreign investment by creating conducive environment/in areas that create more jobs.

• Export labour to relieve the country of the burden of excess labour.

(b). Functions of micro financial institutions.

• Mobilizes savings to create a pool of frauds for investment.
• Offer investment advice/training in business management.
• Offer loans for investment to small scale and medium scale traders.
• Create employment opportunities hence help solve unemployment problems.
• Supervises and monitor people they have given loans to ensure loans are used wisely.

(a). Ways in which raw materials influences location of a business.

-Where raw material is heavy to reduce transport cost when transporting them over long distance.

-If the raw material is bulky it is located near source of raw material to reduce transport cost.

-If the raw material is perishable it is located near the source to reduce wastage/spoilage.

-It may be located near the source to ensure that there is constant supply of raw material.

-When the raw material is fragile hence can easily break when transported over long distance.

-When it is a government policy to locate firm near sources of raw materials.

(b). Benefits of shopping in a hypermarket.

i. Enough /for free/ample parcking –for customer’s vehicles/since they are way from town centres.

ii. Can do all shopping in one building since its composed of a variety of shops /types of goods/services.

iii. Commitment for late shopping since they open for long hours.

iv. Provide credit facilities by rumpting credit cards.

v. Offer goods at lower prices since they buy goods in large quantities /direct from manufacturers.

vi. Offer good quality services since they can afford to employ skilled women.

vii. Prestigious/comfortable to share in since they are modern/offer overtime fracture to customers. 1 mark maintain/2 marks otherwise.