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Economics Of Money And Banking Question Paper

Economics Of Money And Banking

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ECONOMICS.
EAE 310: ECONOMICS OF MONEY AND BANKING.
DATE: MONDAY 26TH MARCH 2012 TIME: 4:30- 6:30
ANSWER QUESTION ONE AND ANY OTHER TWO
QUESTION ONE
(a) Explain four functions of money (8mks)
(b) Given an initial monetary base injection of 250 million shillings and further that the central bank places a 15% minimum reserve requirement ration on commercial banks while the public deserves to hold 25% of the money it receives
(i) Calculate the total money that will be in circulation after the full money multiplier (6 mks)
(ii) Out of this amount how much will be in cheques? (5 mks)
(c) (i) In the Baumol inventory approach, money demand is a positive function of income and an inverse function of interest rate”. Prove the validity of this statement (6 mks)
(ii) How different is the Keynesian transaction demand for money from baumols specification (5 mks)

QUESTION 2.
(a) With well labeled diagrams, explain the causes of movements along and shifts of money demand curves. (10 mks)
(b) Explain the term ‘velocity of money’ and outline any four determinants that determine It.
(10 mks)
QUESTION 3.
(a) Explain Friedman money demand theory. (10mks)
(b) Illustrate the consequences of a sale of government bonds and bills by the central bank when an economy is experiencing a liquidity trap. (10mks)
QUESTION 4.
(a) Distinguish between M1and M2 measures of money (4 mks)
(b) Explain any attributes that a commodity posses in order to serve as money (10 mks)
(c) According to classical economists, money is ‘neutral’ explain this phenomenon. (6mks)
QUESTION 5.
(a) Why do you think commercial banking system in Kenya may be termed as a monopolistic competitive market? (10 mks)
(b) Explain both the minimum reserve requirement ratio and a bank rate as money supply control tools. What limits their effectiveness in developing economies? (10mks)

Economics Of Money And Banking Question Paper

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