Money and banking – Questions and Answers

Subject Title: Economics Revision Kit

TOPIC: Money and banking

QUESTION 1
April 2022 Question Six B
Summarise four impacts of expansionary monetary policy in an economy. (4 marks)

QUESTION 2
December 2021 Question Three A and B
(a) Summarise four effects of expansionary fiscal policy in an economy. (4 marks)
(b) Describe six qualities of money as a medium of exchange. (6 marks)

QUESTION 3
December 2021 Question Five C
Explain four limitations of the loanable funds theory of interest rates. (8 marks)

QUESTION 4
August 2021 Question Three C
Analyse three factors that may limit independence of the central bank in carrying out its mandate in an economy. (6 marks)

QUESTION 5
August 2021 Question Seven A
(a) (i) Explain the term “credit creation”. (2 marks)
(ii) Evaluate four factors that limit the effectiveness of credit creation by commercial banks. (8 marks)

QUESTION 6
May 2021 Question Two A
Highlight the effects of removing interest rate capping in an economy. (5 marks)

QUESTION 7
May 2021 Question Four A
Examine six causes of a deflationary gap in an economy. (6 marks)

QUESTION 8
May 2021 Question Four B
(i) Define the term “monetary policy”. (2 marks)
(ii) Explain five objectives of monetary policy in an economy. (5 marks)

QUESTION 9
May 2021 Question seven A
Enumerate seven roles of commercial banks in an economy (7 marks)

QUESTION 10
November 2020 Question Five A
Enumerate four factors that determine the velocity of money in circulation.
(4 marks)
QUESTION 11
November 2020 Question Six A
Justify five reasons for differential interest rates in an economy. (5 marks)

QUESTION 12
November 2020 Question Six B
With the aid of a diagram, describe the concept of liquidity trap . (4 marks)

QUESTION 13
November 2020 Question Six C
Using suitable examples, provide three reasons for interest rate decontrol in an economy.
(6 marks)
QUESTION 14
November 2020 Question Six D
Summarise five reasons that make it possible for commercial banks to create credit.
(5 marks)
QUESTION 15
November 2019 Question Five A
Examine four benefits of a contractionary monetary policy to an economy. (4 marks)

QUESTION 16
May 2019 Question One A
(i) Explain the Keynesian liquidity preference theory of demand for money. (1 mark)
(ii) Outline five criticisms of the theory in (a) (i) above. (5 marks)

QUESTION 17
May 2019 Question Six D
Analyse five functions of non-banking financial institutions in an economy. (5 marks)

QUESTION 18
May 2019 Question seven C
The following information relates to the commodity and money markets of a certain closed economy in millions of shillings:

Commodity market
C = 200 + 0.4y
I=1,900-12r

Money market
MDT = 0.5y
MDS = 100-l0r
MS=1,500

Where:
C = Consumption function
Y = National income
I = Investment function
R = Rate of interest
MDT = Precautionary and transactionary demand for money
MDS=Speculative demand for money
MS =Money supply

Required:
(i) The IS function. (3 marks)
(ii) The LM function. (3 marks)
(iii) The equilibrium level of interest rate. (2 marks)
(iv) The equilibrium level of national income. (2 marks)

QUESTION 19
November 2018 Question Five A
Explain five negative effects of a contractionary monetary policy in an economy.
(5 marks)
QUESTION 20
May 2018 Question Two A
Examine four determinants of’ money supply in an economy. (8 marks)

QUESTION 21
May 2018 Question Five B
Suggest three methods that the government of a country might adopt to strengthen its currency. (3 marks)

QUESTION 22
May 2018 Question Five C
Explain five differences between the “quantity theory of money” and the “liquidity preference theory of money”. (10 marks)

QUESTION 23
November 2017 Question One C
Describe four functions of money in an economy. (4 marks)

QUESTION 24
November 2017 Question Two A
Analyse the relevance of interest rates in an economy. (5 marks)

QUESTION 25
November 2017 Question Seven B
Suggest four contractionary monetary policy measures that could be used to combat high level of inflation in a developing country (4 marks)

QUESTION 26
May 2017 Question Five A
Explain the monetarists view on the quantity theory of money. (2 marks)

QUESTION 27
May 2017 Question Five C
Recently, there have been deliberate attempts to control the rate of interest in some of the developing countries.
In view of the above statement, explain five advantages of interest rate decontrols in an economy. (5 marks)

QUESTION 28
November 2016 Question Six A
Outline five factors that determine the rate of exchange of a country’s currency.
(5 marks)

QUESTION 29
November 2016 Question Six B
Enumerate five roles of the central bank in an economy. (5 marks)

QUESTION 30
November 2016 Question seven B
State six advantages of a floating exchange rate system in an economy. (6 marks)

QUESTION 31
May 2016 Question Two A (II)
Differentiate between the following sets of terms as used in economics:
(ii) “Narrow money” and “broad money”. (2 marks)

QUESTION 32
May 2016 Question Four C
Outline eight roles of commercial banks in boosting the economic development of a country. (8 marks)

QUESTION 33
May 2016 Question Six C
Examine six roles of non-banking financial institutions in an economy. (6 marks)

QUESTION 34
May 2016 Question Six D
Describe three ways in which a government could use fiscal policy to stimulate economic growth. (6 marks)

QUESTION 35
November 2015 Question Five A
Describe five instruments of monetary policy that could be used to control the level of money supply in an economy. (10 marks)

QUESTION 36
November 2015 Question Five B
Discuss five factors that limit the effectiveness of monetary policies in developing countries. (10 marks)

QUESTION 37
November 2015 Question seven A
Highlight five determinants of money supply in an economy. (5 marks)

QUESTION 38
November 2015 Question seven B
Describe five differences between commercial banks and non-banking financial institutions. (10 marks)

QUESTION 39
September 2015 Question C
Briefly explain five functions of money. (5 marks)

QUESTION 40
September 2015 Question A
One of the main functions of a central bank is the effective implementation of the monetary policies.

Discuss the main instruments of monetary policies. (10 marks)

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