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Aec 313: Economics Of Money And Banking Question Paper

Aec 313: Economics Of Money And Banking

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2010/2011
INSTITUTIONAL BASED PROGRAMME (IBP) AUGUST 2010 SESSION
EXAMINATION FOR THE DEGREE OF BACHELOR OF ECONOMICS
AEC 313: ECONOMICS OF MONEY AND BANKING
DATE: TUESDAY, 28TH DECEMBER 2010 TIME: 11.00 A.M. - 1.00 P.M.
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INSTRUCTIONS:
Answer question one and any other two questions.
QUESTION ONE
(a) (i) What do you understand by Central Bank’s bank rate? (4 marks)
(ii) Explain how the Central Bank uses its bank rate to influence the economic growth of a country. (6 marks)
(b) What do you understand by a liquidity trap? Illustrate and explain how an increase in money supply through a purchase in open market operations affects the rate of interest.
(10 marks)
(c) What are the advantages of using money in any exchange over the barter system of trade? (10 marks)
QUESTION TWO
Write short explanatory notes on the following concepts:-
(i) Fiat money (5 marks)
(ii) Velocity of money (5 marks)
(iii) Minimum reserve requirement (5 marks)
(iv) Gresham’s Law (5 marks)
QUESTION THREE
(a) Using the monetarists theory of money, show and explain how a change in money supply causes inflation. (10 marks)
(b) What role do non-financial institutions play in economic development? (10 marks)
QUESTION FOUR
(a) Explain the three motives of holding money as stipulated in the Keynesian theory. (12 marks)
(b) What are the primary features that a commodity should posses to serve efficiently as money? (8 marks)
QUESTION FIVE
(a) Distinguish between simple and complex money supply. (6 marks)
(b) Given that the minimum reserve requirement ratio of a nation equals 15% and the public desires to hold 25% of their wealth in money form, determine how much will be created by commercial banks system from an initial money deposit of 850 million shillings? Out of these money created, how much of it will be in cheques form? (8 marks)
(c) Explain the neutrality and super-neutrality of money. (6 marks)
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Aec 313: Economics Of Money And Banking Question Paper

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