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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: 2009/2010
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 302-F: MONETARY THEORY AND POLICY
DATE: AUGUST 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
(a) To what extent would it be possible to design a cashless economy? What would be the
associated problems? (6 Marks)
(b) Derive an LM curve and explain the nature of its slope. (8 Marks)
(c) Citing speficic examples of money Market participants, explain their role in the performance of
economy? (6 Marks)
(d) Discuss how the monetary policies are used to influence the performance of a developing
economy? (6 Marks)
e) If the money supply in a given economy equals 700 while the velocity and the price equals 5 and
2 respectively, calculate the level of real and nominal output.
(4 Marks)
QUESTION TWO
a) Commercial Banks are in the race to reduce their lending rates, signaling growth in the
economy. The move came after months of cajolling by central Bank which had for a full
year unsuccessfully used its Central Bank Rate (CBR) to have banks lower base rates.
Discuss how this stimulus race impacts the process of economic development.
(10 Marks)
2
b) Money which is a source of so many blessings to mankind becomes evil unless controlled, a
source of peril and confusion. Discuss. (10 Marks)
QUESTION THREE
(a) Critically examine the Fisher’s quantity theory of money (equation of exchange). (10 Marks)
(b) East African currencies fell against the dollar after the Euros slump to a four year-low against
the US currency debt, concerns dented investors appetite for riskier assets. The Kenyan
shilling was quoted by banks as low as 78.75 against the dollar, its weakest since April 30th,
2009. Discuss the above in the context of the global financial risk aversion. (10 Marks)
QUESTION FOUR
(a) With a suitable illustration, explain the effect of an increase in the money supply in the
Keynesian view. (10 Marks)
(b) Discuss the role commercial banks play in the development of the Kenyan economy.
(10 Marks)
QUESTION FIVE
a). “Loans create deposits and deposits create loans”. Explain. (10 Marks)
b). What do you understand by the word crowding out? when would you expect it to occur? In the
face of substantial crowding out, what will be the more successful fiscal or monetary policy?
(5 Marks)
c). Discuss the economic consequences of inflation in Kenya? (5 Marks)

Monetary Theory And Policy Question Paper

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