- 20 Marks
EIB – APR 2024 – L1 – Q7 – Characteristics of Money, Functions of Money, Reserve Ratio in Inflation Control, Money Supply, Nominal vs Real Interest Rates
This question addresses characteristics and functions of money, the central bank's use of reserve ratios for inflation control, the definition of money supply, and the distinction between nominal and real interest rates
Question
(a) Money requires some characteristics to enable it function well in the Modern Economy. State any two (2) of such characteristics of money. [4 marks]
(b) The Modern Economy is preferred to the Barter System mainly due to the Functions of Money. Explain any four (4) Functions of Money in a Modern Economy. [4 marks]
(c) How does the Central Bank use Reserve Ratio to reduce Inflation? [4 marks]
(d) Define the term Money Supply. [4 marks]
(e) With examples, distinguish between Nominal Interest Rates and Real Interest Rates. [4 marks] (Total: 20 marks)
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