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Monetary Theory And Policy Question Paper

Monetary Theory And Policy

Course:Bachelor Of Arts In Economics

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF ARTS, COMMERCE
AND EDUCATION

AEC 411:
MONETARY THEORY AND POLICY

=================================================================
DATE: WEDNESDAY 23RD DECEMBER 2009 TIME: 11.00 A.M. ? 1.00 P.M.

INSTRUCTIONS

Answer Questions ONE and any other Two.

1. a) Distinguish
between
monetary theory and monetary policy.

b)
With aid of a well labeled diagram illustrate and explain how a purchase of

government securities can aid a country to recover from a 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.
i)
Monetarism
ii)
Velocity
of
money

b)
What limitations do monetary policy makers encounter in less developed
countries?
Page 1 of 2

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 key issues stipulated in the money approach to the balance of
payments.

b)
How does an expansionary monetary policy influence the exchange rate?

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 contractionary

monetary policy when the opportunity cost equals zero.

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Monetary Theory And Policy Question Paper

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