1a) Using appropriate diagram(s) illustrate and explain the determination of
interest rates in a money market. [14marks]
b) What do you understand by FIAT money? [6marks]
2. a) To what extent does increases in money supply affect the domestic exchange rate. [10marks]
b) Does mergers of non-financial institutions always lead to increased efficiency in banking sector? [10marks]
3. a) Explain the demand for money according to Keynesian liquidity
preference theory. [12marks]
b) Illustrate and explain the implications of a reduction of money supply when an economy is experiencing a liquidity trap. [8marks]
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