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6 marksMonetary Theory and Policy

CAPE Economics Unit 2 · 2010 · Paper 2 · Question 3(b)(ii)

Starting with an initial deposit of $100 and given a required reserve ratio of 10 per cent, explain how commercial banks use this system to create money.

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Other parts of this question

  1. 3(a)(i)Define 'money'.[1 mark]
  2. 3(a)(ii)Outline THREE functions of money.[6 marks]
  3. 3(b)(i)Explain what is meant by a 'fractional reserve banking system'.[3 marks]
  4. 3(c)(i)Explain how a shortening of the pay period for workers affects the transactions demand for money and the equilibrium interest rate.[3 marks]
  5. 3(c)(ii)Explain how an increase in the nominal gross domestic product affects the transactions demand for money and the equilibrium interest rate.[3 marks]
  6. 3(c)(iii)Explain how an increase in the number of automated teller machines throughout the country affects the transactions demand for money and the equilibrium…[3 marks]

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