Economics Paper 2, Nov/Dec. 2019


  1. Explain any four causes of demand-pull inflation.

(b ) Outline any four undesirable effects of inflation.


This question was not popular among the candidates. The few who attempted the question performed poorly. Candidates were expected to explain four causes of demand-pull inflation and outline any four undesirable effects of inflation in the (a) and (b) parts of the question respectively. Most candidates who attempted this question could not expatiate on their points raised in the (a) and (b) parts of the question and this made them score below average marks in this question.
The candidates were expected to answer thus:

(a)(i)    Excessive deficit financing resulting in increased government expenditure.
(ii)    Excessive bank lending for unproductive activities.
(iii)   Increase in wages and salaries of workers not matched by increased productivity.
(iv)   War time expenditure on arms and ammunition not accompanied by increase in the supply of goods.
(v)    Increase in population which results in increase in demand without a corresponding increase in supply.
(vi)   Increase in money supply due to special events e.g. election.
(vii)  Excessive printing of currency by the central bank will increase money supply.

(viii) Reduction in personal income tax thereby leading to increased disposable income and   demand.


(b)(i)    There is transfer of real earnings from creditors to debtors. Creditors lose as they are repaid with money that has fallen in value.

(ii)    Inflation redistributes income. Fixed income earners such as pensioners and civil servants suffer.

(iii)   Adverse balance of payments may occur. Rising prices of exports discourage  exportation and may lead to an adverse balance of payments.

(iv)    Savings is discouraged leading to low capital formation and investment.

(v)     Loss of confidence in money as money loses its value.

(vi)   Fall in the standard of living due to a fall in the real earnings of workers.

(c)(i)    The seasonal nature of some jobs e.g. farmers become unemployed during the dry season and masons during the wet season.

(ii)   Inadequate education and skills due to termination of education after the basic level and   non – acquisition of skills, make people unable to enter certain professions.
(iii)  If plants and machinery installed are under – utilized due to inadequate raw materials, poor power supply and limited market, unemployment will arise.

(iv)  Urbanisation: a drift of people from the rural to urban centres due to neglect of      agriculture creates unemployment.
(v)    Advancement in technology can lead to unemployment if the skills of labour are not upgraded.


   (vi)    If population grows rapidly, surplus labour which cannot be absorbed by the economy will be unemployed.
(vii)   If people lack information about the job market, they will be unemployed because they    may not be aware of job opportunities elsewhere.

(viii)  Government policies like retrenchment, privatization of state enterprises and poor development plans can lead to unemployment.
(ix)    If the level of government expenditure increases but is not geared towards investment,   there will still be unemployment.

(x)     Adoption of labour-saving devices or capital- intensive method of production can lead to unemployment.

(xi)    Inappropriate educational curriculum resulting in the non-acquisition of relevant skills for  the labour market leads to unemployment.