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Mei 508 Monetary Economics Question Paper

Mei 508 Monetary Economics

Course:Master Of Business Administration In Corporate Management

Institution: Kca University question papers

Exam Year:2014

UNIVERSITY EXAMINATIONS: 2013/2014
EXAMINATION FOR THE MASTERS OF BUSINESS ADMINISTRATION
(MBA) CORPORATE MANAGEMENT
MEI 508 MONETARY ECONOMICS
KITENGELA CAMPUS
DATE: AUGUST, 2014
TIME: 3 HOURS
INSTRUCTIONS: Answer Question One and Any Other Three Questions
QUESTION ONE (31 MARKS)
a)
Explain how open market operations and the discount rate are used by the central bank to
influence the economy. What are their weaknesses?
b)
(12 Marks)
How would the aggregate demand for money look like in the no risk case? Explain.
(6 Marks)
c)
Explain the determinants of money supply, clearly demonstrating the fact that money supply is
currency held by public plus demand deposits held by the public in the commercial banking
system.
d)
(6 Marks)
Given that the central bank has set the minimum reserve requirement ratio at 11 percent and the
public desires to hold 14 percent of the money it receives. Use the concept of complex money
multiplier to determine the amount of credit created from an initial deposit of 650 million
shillings.
(7 Marks)
QUESTION TWO (23 MARKS)
a) What is the difference between the different measures of money?
b) With the aid of well labeled diagrams and equations, derive the individual and aggregate
demand for money function using the Regressive expectations model.
(9 Marks)
(14 Marks)
1
QUESTION THREE (23 MARKS)
a)
Explain in detail the three motives of holding money according to the Keynesian liquidity
preference theory.
b)
(10 Marks)
The Central bank needs to develop an optimal monetary policy. How would the monetary
authorities go about establishing this policy?
c)
(6 Marks)
Explain the term monetization of public debt. (7 Marks)
QUESTION FOUR (23 MARKS)
What are the functions of a central bank and what limits its operations in developing countries. Use
examples where necessary.
QUESTION FIVE (23 MARKS)
a) What attributes should a commodity have in order for it to serve as money? (13 Marks)
b) Highlight the negative and the positive effects of inflation. Use examples. (10 Marks)
QUESTION SIX (23 MARKS)
a)
“Increases in money supply have different effects on the macroeconomics variables in the
Keynesian and in the classical models” Do you agree? Illustrate and explain.
b)
(10 Marks)
Calculate the total increase in money supply given the manager of the CBK Open Market
account buys back KES 1000,000,000 worth of T bills, which are deposited into an account in
the bank. The reserve ratio is 10 percent.
c)
(6 Marks)
Outline the importance of money by comparing a barter system and a system where money is
used to transact economic activities.
(7 Marks)
2

Mei 508 Monetary Economics Question Paper

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