Eae 401 : Monetary Theory And Policy Question Paper
Eae 401 : Monetary Theory And Policy
Course:Bachelor Of Economics And Statistics
Institution: Kenyatta University question papers
Exam Year:2016
INSTRUCTIONS:
ANSWER QUESTION ONE AND ANY OTHER TWO
1.(a) Differentiate between monetary theory and monetary policy . (4marks)
(b) Given that households desire to keep D amount of their total income Y while interest rates on saving rates on saving deposits and brokerage fees on any transaction equal b respectively,
(I) Derive the Baumol’s square root in the transaction demand for money theory.(6marks)
(ii) Give an interpretation, of the function derived in (i) above (2marks)
(c) Explain any five obstacles faced by Central Banks in emerging economies in pursuit of implementing monetary policies. (10 marks)
(d) Outline the primary arguments upon which Tobin’s portfolio approach to money demand is based.
(8 marks)
2(a) Describe any four channels of monetary policy transmission mechanism. (12 marks)
(b) Define and explain the determinants of velocity of money. (8 marks)
3. (a) (i) State the assumption of the quality theory of money. (4 marks)
(ii) Derive the friendman ’s demand for money function from Fishers equation of exchange .(8marks)
(b) Discuss the primary objectives of conducting monetary policy. (8marks)
4. (a) To what extent do Non-bank financial institution influence the conduct of monetary policy?
(10 marks)
(b) Describe the role of monetary policy committees that have been formed in many Central Banks. (4marks)
(c) Illustrate and explain the effects of an expansionary monetary policy when an economy experiences a liquidity trap. (6marks)
5. (a) Describe the chief instruments of monetary policy available to central bank. (9marks)
(b) Explain how these instruments are used in order to:
(i)Expand bank credit with existing reserves. (3 marks)
(ii) Supply bank and the public with a temporary increase of currency during Christmas the year high spending period. (3marks)
(d) Explain how Central Bank may find it conflicting to achieve a stable rate of interest and control inflation simultaneously (5marks)
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