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Cfm 302: Monetary Theory And Policy (Evening Class) Question Paper

Cfm 302: Monetary Theory And Policy (Evening Class)

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2009

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UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 302: MONETARY THEORY AND POLICY (EVENING CLASS)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ONE and Any other TWO Questions
QUESTION ONE
a) Consider an economy in which there is no currency drain, banks hold no excess
reserves, and banks issue a single type of deposit, which is a transaction deposit. If the
quantity of transaction deposits is Sh 200,000 and the quantity of bank reserves is
Sh 20,000. Calculate the required reserve ratio for the transaction deposit. (3 Marks)
b) Assume in the above example that the public decides to hold 10% of the transaction deposits
instead of spending. How much deposit will be created when all banks are
fully loaned up. (2 Marks)
c) Financial intermediaries play a key role in economic development of any economy.
Highlight five such roles. (10 Marks)
d) Explain five features that distinguish money from all other commodities (10 Marks)
e) Illustrate the determination of interest according to Keynes (5 Marks)
QUESTION TWO
a) Keynesians believe that the best way to increase aggregate demand is by raising
government spending. Explain (8 Marks)
b) Outline four monetary policy time lags (8 Marks)
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c) Highlight four functions of commercial banks (4 Marks)
QUESTION THREE
a) Describe monetary rules (2 Marks)
b) Explain the effectiveness of open market operations and bank rate as monetary
tools in Kenya (12 Marks)
c) Describe three determinants of demand for money according to Friedman (6 Marks)
QUESTION FOUR
Write short notes on:
a) Liquidity effect
b) Interest elasticity of demand
c) Rational expectation hypothesis
d) Legal reserves (20 Marks)
QUESTION FIVE
a) Describe five reasons for the popularity of credit money (10 Marks)
b) Outline five objectives of monetary policies (10 Marks)

Cfm 302: Monetary Theory And Policy (Evening Class) Question Paper

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