Answer to Question #209979 in Finance for Louis Ag

Question #209979

Question 1

a.define the teems expansionary and contractionary monetary policies (10marks)

b.discuss the key motives or damand for money according to the Keynesian theory of demand.(9marks)

c.what are the main roles of the central bank? (9marks)

d.what are the key demerits of the barter system of exchange? (6marks)

e.what are the main determinants of velocity of circulation of money? (6marks)

Question 2

a.discuss four tools used in monetary policy.what is their role and importance? (12marks)

b.what is meant by the financial system in an economy? (4marks)

c.who are the main players in the Zambian financial system? (4marks)

Question 3

a.discuss the origins of money as well as its qualities. (10marks)

b.What are the functions of money? (6marks)

c.define the meaning of real value and official value of money. (4marks)

Expert's answer

Question 1


Expansionary monetary policy refers to a policy that aims to increase aggregate demand and economic growth by decreasing interest rates to raise the money supply. Contradictory monetary policy refers to a policy that fights inflation by reducing the money supply in the economy.


Keynes argues that the money motive is a choice between holding cash and buying bonds. When interest rates are high, the price of bonds falls.


The central bank foresees the monetary system, implements specific goals like currency stability, and provides financial services.


Barter trade lacks divisibility, a common measure of value and it is difficult for deferred payments.


Determinants of money velocity are money supply and the frequency of transactions. If the money supply decreases, the velocity rises because they are inversely related. Acceleration of money increase with the increase of transactions.

Question 2


The tools of monetary policy include

Reserve requirement, which is the money bank keeps overnight.

The open market operation refers to securities bought or sold by banks.

The discount rate is the rate charged by central banks to the bank borrowers.

Interest on excess reserves.

The tools have a role in expanding or contracting economic growth.

The importance of the tools is that they help to combat economic slowdowns.


The financial system refers to a set of institutions that allow the exchange of funds, such as banks.


Prominent players in the Zambian financial system include Stanbic bank of Zambia, first alliance bank, commercial bank, and standard chatter of Zambia.

Question 3


Money originated from non-economic activities like barter. Money is of quality because it is durable, portable, uniform, and limited in supply.


Money is a medium of exchange, a unit of account, and a storage value.


The real value of money refers to the nominal value adjusted after inflation that compares the value in terms of another item. The value of money refers to purchasing power gained from it.

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