CONFIDENTIAL

BM/APR 2010/ECO551/553/530

QUESTION 1
a)

Explain, with examples, what is a barter trade system and discuss three (3)
problems of this system.
(10 marks)

b)

List and explain the four (4) functions of money.

(10 marks)

QUESTION 2
A financial system consists of an intricate network of markets and participants.
a)

Describe any four (4) functions of a financial system.

(10 marks)

b)

Who are the participants in a financial system and what roles do they play?
(10 marks)

QUESTION 3
a)

Using the Bond Market analysis, explain how the market equilibrium rate of interest
is determined.
(10 marks)

b)

How will this market rate of interest be affected by the following changes?
i)

An increase in government borrowing.

(5 marks)

ii)

An increase in the expected returns on other assets.

(5 marks)

Hak Cipta Universiti Teknologi MARA

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CONFIDENTIAL

BM/APR 2010/ECO551/553/530

QUESTION 4
a)

Explain the Keynesian theory of money demand. What are the two reasons why
Keynes felt velocity could not be treated as a constant?
(10 marks)

b)

What factors determine money demand in Friedmans modern quantity theory? How
does each affect money demand? What determines velocity in Friedmans theory?
What effect do interest rates have on velocity?
(10 marks)

QUESTION 5
a)

Using demand and supply analysis, explain three (3) factors that may cause
differences in the rates of interest in an economy.
(9 marks)

b)

Define a yield curve and then illustrate the various shapes of yield curves. Discuss
any two (2) theories that explain the shapes of yield curves.
(11 marks)

QUESTION 6
Using the ISLM model, show graphically and explain :
a)

the effects of a monetary expansion combined with a fiscal contraction on the

equilibrium level of output and interest rate.
(10 arks)

b)

the effect of a fiscal expansion when the demand for money is completely insensitive to
changes in interest rate. What is this effect called?
(10 marks)

END OF QUESTION PAPER

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL