Distinguish between simple and complex money supply

a) (i) What do you understand by Central Bank’s bank rate? (4 marks)
(ii) Explain how the Central Bank uses its bank rate to influence the economic growth of a country. (6 marks)
(b) What do you understand by a liquidity trap? Illustrate and explain how an increase in money supply through a purchase in open market operations affects the rate of interest.
(10 marks)
(c) What are the advantages of using money in any exchange over the barter system of trade? (10 marks)
QUESTION TWO
Write short explanatory notes on the following concepts:-
(i) Fiat money (5 marks)
(ii) Velocity of money (5 marks)
(iii) Minimum reserve requirement (5 marks)
(iv) Gresham’s Law (5 marks)
QUESTION THREE
(a) Using the monetarists theory of money, show and explain how a change in money supply causes inflation. (10 marks)
(b) What role do non-financial institutions play in economic development? (10 marks)

 

 

 

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