Programme Cohort

BSc (Hons) Banking and BBIF/08/FT

International Finance BBIF/08/PT

RESIT/SPECIAL Examinations for 2010 - 2011

Semester I / 2010 Semester II

MODULE: MONETARY ECONOMICS

MODULE CODE: ECON 2201

Duration: 2 Hours

Instructions to Candidates:

1. This question paper consists of Section A and Section B.

2. Section A is compulsory.
3. Answer any two questions from Section B.
4. Always start a new question on a fresh page.
5. Total Marks: 100.

This question paper contains 4 questions and 3 pages.

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 SECTION A: COMPULSORY

QUESTION 1: (40 MARKS)

(a) State whether the following statements are TRUE or FALSE. Justify
briefly your answer.

(i) Money is the most liquid medium to store value. (5 marks)

(ii) An increase in money in circulation leads to a proportionate increase

in the general level of prices. (5 marks)

(iii) There is no relationship between the demand for money and

interest rate. (5 marks)

(b) American and European monetary authorities implemented

expansionary monetary policies to fight recession in 2008 and 2009.

(i) Use the model of money supply to justify the relevance of an

expansionary monetary policy during periods of recession. (10 marks)

(ii) Analyse the transmission mechanism of the above monetary

policy to the real economy and discuss its efficiency. (15 marks)

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 SECTION B: ANSWER ANY TWO QUESTIONS

QUESTION 2: (30 MARKS)

(a) Analyse the equity price channel for transmission of monetary policy. (15 marks)

(b) Discuss which channel(s) for transmission of monetary policy is (are)

likely to be important for a developing open economy like Mauritius. (15 marks)

QUESTION 3: (30 MARKS)

(a) Analyse the activist and non activist debate, regarding the choice
between the policy rule and the discretionary monetary policy for a
policymaker. (15 marks)

(b) Explain why the policy rule is not credible and discuss the solutions to
overcome the credibility problem (15 marks)

QUESTION 4: (30 MARKS)

Write short notes on any three of the following:

(a) Causes of Inflation. (10 marks)

(b) Stability of money demand function. (10 marks)

(c) Inflation Targeting. (10 marks)

(d) Velocity of circulation of money
(10 marks)

***END OF QUESTION PAPER****

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