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Aec 411: Monetary Theory And Policy Question Paper

Aec 411: Monetary Theory And Policy

Course:Alternative Dispute Resolution

Institution: Kenyatta University question papers

Exam Year:2009

INSTRUCTIONS
ANSWER Questions ONE and any other Two

1 a) Distinguish between monetary theory and monetary theory.

b) With aid of a well labeled diagram illustrate and explain how purchase government
Securities can aid a country to recover from recession.

c) To what extent does elasticity of investment with respect to the rate of interest
influence the impact of an expansionary monetary policy?

d) What are the objectives of monetary policy?

2 a) Write short notes on the following concepts.
1) Monetarism
2) Velocity of money

b) What limitations do monetary policy makers encounter in less developed countries?

3 a) ’Faced by a growth in money demand, a Central Bank may let the forces of
demand/supply to adjust or attempt to keep interest rate constant but not both.”
Illustrate and explain this phenomenon.

b) To what extent do you think the recent Kenyan Central Bank Policy of reducing the
bank will affect the performance of the economy? Explain the theoretical mechanism
through which this change will work.

4 a) what are the key issues stipulated in the money approach to the balance of payments.

b) How does an expansionary monetary policy influence the exchange rule?
What is its net effect on international trade?

5 a) How does an increase in money supply lead to a ‘crowding out effect’ of private
investment?

b) Illustrate and explain the effect on the rate of interest from a contraction
monetary policy when the opportunity cost equals zero.

Aec 411: Monetary Theory And Policy Question Paper

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