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Faculty - Business Management - 2023 - Session 1 - Degree - Eco531
Faculty - Business Management - 2023 - Session 1 - Degree - Eco531
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UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
INSTRUCTIONS TO CANDIDATES
2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the invigilator.
4. Please check to make sure that this examination pack consists of:
QUESTION 1
a) Does money cause inflation? How does money reflect the business cycle?
(5 marks)
b) With examples explain direct finance and indirect finance. Discuss two (2) advantages of
the financial system.
(10 marks)
c) Digital wallet is getting more acceptance in the payment system throughout the world.
Discuss.
(5 marks)
QUESTION 2
c) Using the bond market framework, explain the effect on the level of interest rate when;
(10 marks)
QUESTION 3
a) Show how the money market is affected if inflation continues to rise using the Liquidity
Preference Framework.
(5 marks)
b) Identify two (2) factors that determine the risk structure of interest rates.
(5 marks)
c) rn = (r^r2r3-rn)/n
The equation states that the n-period interest rates equal the average of the one-period
interest rates expected to occur over the n-period life of the bond.
Explain the Pure Expectation Theory. Differentiate between the Pure Expectation Theory
and Segmented market theory.
(10 marks)
QUESTION 4
a) The central bank is the agency responsible for promoting monetary stability and credit
situation. Describe two (2) objectives of monetary policy.
(5 marks)
c) According to Keynesian Theories of Money Demand, explain two (2) reasons behind the
demand for money.
(5 marks)
QUESTION 5
a) The expected inflation is significant to study the demand for money, especially during post
COVID-19 crisis. Explain the effect of higher expected inflation on the demand for real
money based on Friedman's modern quantity theory of money.
(5 marks)
b) Using the IS-LM model, illustrate the effect on the equilibrium interest rate and output if
there is an increase in public health spending on RT-PCR screening and vaccines.
(5 marks)
c) Using the IS-LM model, explain why Monetarists believe that monetary policy is relatively
effective while Keynesians view this policy as relatively ineffective.
(10 marks)