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Aec 313: Economics Of Money And Banking Question Paper

Aec 313: Economics Of Money And Banking

Course:Bachelor Of Education Arts

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING (IOL)
UNIVERSITY EXAMINATIONS 2008/2009
EXAMINATION FOR THE DEGREE OF BACHELOR OF EDUCATION, ARTS AND ECONOMICS
AEC 313: ECONOMICS OF MONEY AND BANKING
DATE: Friday, 9th January, 2009 TIME: 10.00 a.m. – 12.00 p.m.
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INSTRUCTIONS:
Answer question ONE and any other TWO.
1. a) Explain why money is useful in any economy? (8 marks)
b) Given that the Central Bank’s minimum reserve requirement ratio equals
22% and the public desires to keep 10% of the money received, determine the complex money multiplier and use it to evaluate the total money created in the banking sector from an initial deposit of 180 million shillings. (8 marks)
c) What is meant by the liquidity trap? Illustrate (6 marks)
d) Using the Keynesian macroeconomics framework, explain how changes in
money supply affects the economy. (8 marks)
2. a) Distinguish between M1 and M2 measures of money: (5 marks)
b) Explain the three motives of holding money according to Keynesian
economics (15 marks)
3. a) What is the weakness of using the barter system of trade? (14 marks)
2
b) Define ‘Fiat’ money and give an example (6 marks)
4. a) What is the relationship between the amount of money in circulation and
inflation? (8 marks)
b) What attributes should a commodity have in order to serve as money?
(12 marks)
5. a) Discuss any three tools of central bank credit control highlighting both
their strength and weakness. (12 marks)
b) Do non-bank financial institutions have any role to play in an economy?
(8 marks)

Aec 313: Economics Of Money And Banking Question Paper

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