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Aec 411: Monetary Theory And Policy  Question Paper

Aec 411: Monetary Theory And Policy  

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2011



KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2010/2011
INSTITUTE OF OPEN LEARNING (IOL)
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
AEC 411:
MONETARY THEORY AND POLICY
DATE: Friday, 8th July, 2011


TIME: 4.30 p.m. – 6.30 p.m.
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
Answer question ONE and any other TWO.
1.
a)
Discuss the effects of an expansionary monetary policy in a liquidity trap
scenario. Illustrate.




(10 marks)

b)
Explain any three monetary policy instruments.

(10 marks)

c)
What are the objectives of monetary policy?

(10 marks)

2.
How does an expansionary monetary policy lead to an inflationary pressure? Use
the Fisher’s equation of exchange to demonstrate your answer.
(20 marks)

3.
Explain the factors that explain the ineffectiveness of monetary policy in
developing economies.





(20 marks)

4.
How does an expansionary policy stimulate economic growth according to
Keynesian economists? Illustrate your answer.


(20 marks)

5.
a)
Distinguish between monetary theory and monetary policy.










(6 marks)


b)
Explain how through price, income and interest rate paths monetary policy
affects exchange rate.




(15 marks)
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