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Money and banking

Unit: Economics

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Practice CPA Economics Money and banking questions with detailed answers and explanations.

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August 2025

 3 Questions
Question 7b
​​State FOUR limitations of monetary policies in developing countries.


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Question 6c
​​Explain FOUR criticisms of the liquidity preference theory of money.


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Question 1
​​(a) Explain FOUR steps of the scientific method as applied in economic analysis.
 
(b) Explain SIX strategies that the government could implement to counter effects of climate change on agriculture.    
 
(c) (i)  Explain the term “central bank” of a country. 
 
(ii) State FOUR secondary functions of a central bank. 
 
(d) Highlight FOUR limitations of production possibility frontier curve.     


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April 2025

 5 Questions
Question 4d
​​Summarise SIX factors that might determine the exchange rate of a country’s currency.


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Question 4b
​​Explain FOUR functions of money.


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Question 6d
​​Explain THREE conditions necessary for devaluation of a currency to be effective.


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Question 3b
​​Identify FIVE positive effects of high interest rates in an economy.


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Question 1b
​​Analyse the THREE motives of holding money as advanced by the Keynesian liquidity preference theory.


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December 2024

 2 Questions
Question 2c
​​Outline FIVE functions of financial intermediaries.


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Question 1a
​​(i) Explain the term “credit creation”. 

(ii) Describe THREE factors that limit the effectiveness of credit creation by commercial banks.


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August 2024

 3 Questions
Question 1c
​​Enumerate FOUR challenges of capping interest rates in a country.


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Question 3a
​​Outline SIX roles played by commercial banks in the economic development of a country.


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Question 6b
​​Explain FOUR determinants of money supply in an economy.


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April 2024

 2 Questions
Question 3a
​​(i) Explain the term “monetary policy”. 

 (ii) Identify FOUR objectives of fiscal policies.


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Question 5a
​​Explain FIVE disadvantages of a managed floating exchange rate.


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December 2023

 2 Questions
Question 2a
​​Highlight SIX causes of deficits in the balance of payment.


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Question 1b
​​Examine FIVE roles of the central bank in an economy.


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August 2023

 2 Questions
Question 5d
​​Identify FOUR objectives of fiscal policies.


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Question 6c
​ ​​(i) Explain the term “legal tender”. 

(ii) With the aid of a diagram, explain the concept of liquidity trap.


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April 2023

 1 Questions
Question 3a
​​Describe FOUR factors that determine the supply of money in an economy.


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December 2022

 3 Questions
Question 1b
​​Describe THREE ways that banks create credit.


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Question 4b
​​Explain THREE factors that influence the level of interest rates in an economy.


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Question 6c
​​Discuss THREE motives of holding money as advanced by the Keynesian liquidity preference theory.


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August 2022

 4 Questions
Question 1c
​​Highlight five factors that determine the transactionary and precautionary demand for money.


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Question 2b
​​Discuss five criticisms of the liquidity preference theory.


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Question 3b
​​Explain the term “money illusion”.


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Question 3c
​​Assess four ways in which inflation affects the functions of money.


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April 2022

 1 Questions
Question 7a
​​Summarise four impacts of expansionary monetary policy in an economy.


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Pilot December 2021

 2 Questions
Question 7c
​​Explain the likely challenges facing currency demonetization in your country.


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Question 4b
​ ​​Examine five factors that limit the effectiveness of the monetary policies in developing countries.


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December 2021

 3 Questions
Question 3b
​​Describe six qualities of money as a medium of exchange


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Question 5a
​​Highlight five advantages of using a free exchange rate system in an economy.


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Question 5c
​​Explain four limitations of the loanable funds theory of interest rates.


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August 2021

 4 Questions
Question 7a
​​(i) Explain the term "credit creation".
(ii) Evaluate four factors that limit the effectiveness of credit creation by commercial banks.


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Question 5a
​​Highlight five advantages of using a free exchange rate system in an economy.


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Question 3c
​​Analyse three factors that may limit independence of the central bank in carrying out its mandate in an economy.


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Question 5d
​​Discuss three roles played by the International Monetary Fund (IMF) in the world economy.


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May 2021

 3 Questions
Question 2a
​​Highlight the effects of removing interest rate capping in an economy.


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Question 4b
​​(i) Define the term "monetary policy".
(ii) Explain five objectives of monetary policy in an economy.


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Question 7a
​​Enumerate seven roles of commercial banks in an economy


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November 2020

 5 Questions
Question 6a
Justify five reasons for differential interest rates in an economy. ​​


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Question 5a
​​Enumerate four factors that determine the velocity of money in circulation


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Question 6b
​​With the aid of a diagram, describe the concept of liquidity trap. 


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Question 6c
​​Using suitable examples, provide three reasons for interest rate decontrol in an economy.


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Question 6d
​​Summarise five reasons that make it possible for commercial banks to create credit. 


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November 2019

 4 Questions
Question 7d
​​Highlight six possible effects of demonetisation of the currency.


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Question 5a
​​Examine four benefits of a contractionary monetary policy to an economy. 


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Question 5c
​​The value of money varies inversely with the level of prices.
With reference to the above statement, justify six positive economic effects of a prolonged fall in the value of money in an economy.


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Question 7c
​​Distinguish between "depreciation of a currency" and "demonetisation of the currency". 


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May 2019

 4 Questions
Question 1a
(i) Explain the Keynesian liquidity preference theory of demand for money.
(ii) Outline criticisms of the theory in (a) (i) above.


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Question 6d
​​Analyse functions of non-banking financial institutions in an economy.


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Question 6a
​​Examine roles of foreign exchange reserves in an economy.


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Question 5b
​​Enumerate effects of inflation on the functions of money.


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November 2018

 1 Questions
Question 5a
Explain negative effects of a contractionary monetary policy in an economy.


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May 2018

 4 Questions
Question 5c
​​ Explain five differences between the "quantity theory of money" and the "liquidity preference theory of money"


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Question 5b
Suggest three methods that the government of a country might adopt to strengthen its currency


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Question 2c
Analyse three roles of International Monetary Fund (IMF) to member countries.


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Question 2a
Examine four determinants of money supply in an economy


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November 2017

 3 Questions
Question 2a
Analyse the relevance of interest rates in an economy.


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Question 7b
Suggest four contractionary monetary policy measures that could be used to combat high level of inflation in a developing country.


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Question 1c
Describe four functions of money in an economy.


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May 2017

 2 Questions
Question 5c
Recently, there have been deliberate attempts to control the rate of interest in some of the developing countries
In view of the above statement, explain five advantages of interest rate decontrols in an economy


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Question 5a
Explain the monetarists view on the quantity theory of money.


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November 2016

 4 Questions
Question 6a
Outline five factors that determine the rate of exchange of a country's currency.


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Question 6b
Enumerate five roles of the central bank in an economy


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Question 7a
Explain the relationship between money supply and the level of inflation in an economy


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Question 7b
State six advantages of a floating exchange rate system in an economy.


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May 2016

 2 Questions
Question 6c
​​ Examine six roles of non-banking financial institutions in an economy.


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Question 4c
​​Outline eight roles of commercial banks in boosting the economic development of a country.


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November 2015

 4 Questions
Question 7a
​​ Highlight five determinants of money supply in an economy.


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Question 5b
​​Discuss five factors that limit the effectiveness of monetary policies in developing countries.


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Question 5a
​​Describe five instruments of monetary policy that could be used to control the level of money supply in an economy.


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Question 7b
​​Describe five differences between commercial banks and non-banking financial institutions.


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Pilot September 2015

 2 Questions
Question 4a
​​One of the main functions of a central bank is the effective implementation of the monetary policies.

Discuss the main instruments of monetary policies.


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Question 1c
​​ Briefly explain five functions of money.


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