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Monetary Theory And Policy Question Paper

Monetary Theory And Policy

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR STAGE I EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 302: MONETARY THEORY AND POLICY - SUNDAY
DATE: DECEMBER 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) The starting point of modern monetary theory is that “Money is inherently unstable”. Elucidate
this statement and contrast it with the classical analysis (5 Marks)
b) If money supply in a given economy equals 500 while the velocity and price equals 8 and 2
respectively, determine the level of real and nominal output (5 Marks)
c) Explain why money is considered as an unmixed blessing (5 Marks)
d) Comment on how commercial banks aim at resolving conflict between liquidity and
profitability (5 Marks)
e) Discuss the motives for acquiring cash balance (5 Marks)
f) Discuss how global financial problems are likely to affect Kenyan economy (5 Marks)
(TOTAL: 30 MARKS)
QUESTION TWO
a) What are the different sources of the funds of a commercial bank (6 Marks)
b) Is the Central Bank really necessary for the banking system of the country? (7 Marks)
c) Discuss the important functions of a modern commercial bank in developing countries (7 Marks)
(TOTAL: 20 MARKS)
2
QUESTION THREE
a) “Changes in value of money is not caused by a change in quantity of money. It is rather a
consequence of a change in the level of income, expenditure and supply of goods and
services”. Discuss (8 Marks)
b) Explain the cash balance approach to the problem of the value of money (7 Marks)
c) How far is the cash balance approach superior to the cash transaction approach to the value of
money? (5 Marks)
(TOTAL: 20 MARKS)
QUESTION FOUR
a) Discuss the objectives of monetary policy management in developing economy (10 Marks)
b) “Interest is price of loanable funds as determined by the demand for and supply of loanable
fund”. Discuss . (5 Marks)
c) Why does Keynesian give so much importance in to liquidity preference in determining the
rate of interest. (5 Marks)
(TOTAL: 20 MARKS)
QUESTION FIVE
Write short notes on the following:
a) Explain how banking system create money
b) Liquidity trap
c) Discuss critically Milton Friedman’s version of the Quantity Theory of money
d) Why cheques and credit card not considered as money
(TOTAL: 20 MARKS)

Monetary Theory And Policy Question Paper

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