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Monetary Theory And Policy Question Paper

Monetary Theory And Policy

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
MONETARY THEORY AND POLICY
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
a) Discuss how money is different form other liquid assets? (5 Marks)
b) Between Bank Rate and Open Market operations, which is more effective as an instrument of credit
control? Give reasons. (5 Marks)
c) ‘’Money alone matters’’. Discuss this statement critically. (5 Marks)
d) Discuss the economic consequences of inflation in developing country (5 Marks)
e) Comment on the following statement?
i) The Quantity theory of money is theory of demand for money (5 Marks)
ii) The quantity of money is a theory of income determinations (5 Marks)
Question Two
a) Discuss the determinants of supply of money. Should time deposits be included under money
supply? (8 Marks)
b) Explain what is collateral and why it is important to debt contracts (4 Marks)
c) Discuss the mechanism of credit creation? What are the limitations on the power of banks to cerate
credit? (8 Marks)
2
Question Three
a) Discuss the role Central Bank of Kenya Plays as a custodian and management of foreign exchange
reserves (6 Marks)
b) Fishers cash transactions equation is a truism. By itself it cannot throw any light on the casual
factors of economic change’’. Discuss this statement fully. (8 Marks)
c) With the support of a diagram, explain how demand for money is interest elastic (6 Marks)
Question Four
a) Speculation in the country has caused fear and panic among the public concerning the shrinking in
the value of the local currency. This is severely felt in terms of the prices of the basic commodities.
You have been approached as an expert to advice the public on;
i) Short term measures to curb the rising price levels (5 Marks)
ii) Long term measures to stabilize the value of the Shilling (5 Marks)
iii) Consequences that might arise if the trend is not tamed (5 Marks)
b) Briefly explain the meaning of credit risk and discuss two possible ways for banks to manage it
(5 Marks)
Question Five
a) Citing recent and specific actions/move made by commercial banks, explain how they fast-track the
process of developing Kenyan economy (10 Marks)
b) Cambridge version to the Quantity theory of money emphasizes on the real balance as a determinant
of value of money and not the level of income. Discuss this statement. (10 Marks)

Monetary Theory And Policy Question Paper

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