Question 2

Explain how the quantity theory of money reaches the conclusion that the normal effect of an increase in the money stock is a proportional increase in price level. Use the quantity theory equation to support your analysis. [5 marks]

Question 3

Institutions constitute the social, political, legal and economic system of a state. Deliberate the roles of formal and informal institutions in economic growth. In your discussion, make reference to Pacific island economies where possible. [8 marks]

Question 4

A. In light of the negative impact of Corona virus on global travel and trade, deteriorating consumer and business confidence, the Reserve Bank of Fiji has eased monetary policy by reducing its Overnight Policy Rate (OPR) from 0.5% to 0.25%. With the support of an IS-LM diagram discuss the policy change is supposed to stimulate the domestic economy. [6 marks]

B. Discuss two limitations of monetary policy transmission mechanism faced by Pacific Island countries. [4 marks]

Question 5

Monetary policy acts as the ultimate limit on money creation. Discus one way in which the central bank limits money creation process. Discuss the role commercial banks play in the money creation process. [8 marks]

Question 6

A. Can fiscal policy by itself produce inflation? Justify your answer. [5 marks]

B. What role does monetary policy play in a cost-push inflation? [5 marks]