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10 marksMonetary Theory and Policy

CAPE Economics Unit 2 · 2007 · Paper 2 · Question 3(a)

Question 3 addresses money creation, the money multiplier, functions and characteristics of money, and monetary policy tools.

Explain how commercial banks 'create' money.

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Other parts of this question

  1. 3(b)State what the money multiplier is and how it is calculated.[5 marks]
  2. 3(c)(i)What is 'fiat money'?[2 marks]
  3. 3(c)(ii)List the three main functions of money.[3 marks]
  4. 3(c)(iii)List three desirable characteristics of money.[2 marks]
  5. 3(c)(iv)State three reasons why people hold money.[3 marks]
  6. 3(d)Identify four main instruments of monetary control used by Central Banks and explain why each of these may not always be effective in the context of the…[15 marks]
  7. 3(e)Discuss why residents in many Caribbean countries choose to save in US currency rather than that of their own country.[10 marks]

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