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:2014
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATION 2013/2014
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ECONOMICS
EAE 401: MONETARY THEORY AND POLICY
DATE : THURSDAY 3RD APRIL ,2014 TIME :4:30 P.M -6:30 P.M
INSTRUCTION
Answer question one and any other two questions .
QUESTION ONE
a) The gold standard was the dominant system in the first ,second and third generation in central banking. Explain how trade deficit affected reserves and how this reserve position was corrected by gold standard system. (10marks)
b) Discuss the Baumol theory of money demand and highlight the assumption of the models.(7 marks)
c) Distinguish between the following pair terms .use examples where necessary.(8marks)
(i) Nominal inflation and real inflation.
(ii) High powered money and money supply.
(iii) Time deposits and Checkable deposits.
(iv) Monetary Policy and Monetary Theory.
d) Kenya has experienced a depressed economic performance since 2008.Explain how the Central Bank of Kenya (CBK) can pull the economy out of this trough (5marks)
QUESTION TWO
a) In developing economies, credit inflation has been a major source of price instability. How does Central Bank use monetary policy to solve the problem? (10marks)
b) Discuss the determinants of money supply .(10 marks)
QUESTION THREE
a) Illustrate and explain the effects of sale of government bond in an economy whose money demand function is perfectly elastic.(10 marks)
b) Discuss the functions of the central bank in developing economy.(10 marks)
QUESTION FOUR
a) Explain the Tobin’s portfolio Approach to Money Demand and show how it overcomes some weakness of Keynesian thought.(10marks)
b) Explain how a current account deficit problem can be addressed by monetary policy.
QUESTION FIVE
a) Is the central bank involved in the credit creation process? Explain your answer (5marks)
b) Using the Keynesian theory, explain how an increase in money supply affects prices in the economy. (10 marks)
c) Explain how the central bank can help in improving a deficit situation in the capital account .( 5
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