ECO 09 Solved Assignment 2023-24
Money, Banking and Financial Institutions
ECO 09 Solved
Assignment 2023-24 : All assignments are in PDF format which would be send
on email/WhatsApp (9958676204) just after payment.
Assignment Code: ASST/ ECO 09/2023-24
Marks: 100
Attempt all the questions.
Q1. Why is money
demanded? How is the Keynesian approach different from the classical approach
in this regard?
Money is
demanded for various reasons in an economy, and the demand for money is
influenced by both the Keynesian and classical economic perspectives.
In general,
people hold money for three main reasons:
Transaction
Demand: People hold money to facilitate their everyday transactions. This
includes buying goods and services, paying bills, and other routine financial
activities.
Precautionary
Demand: Individuals also hold money as a precautionary measure to meet
unexpected expenses or emergencies. This acts as a financial buffer to cover
unforeseen circumstances.
Speculative
Demand: Money is also held for speculative purposes, such as making
investments. When individuals expect interest rates to fall, they may prefer to
hold more money rather than invest it, anticipating better investment
opportunities in the future.
Now, the
Keynesian and classical approaches have different views on how the demand for
money behaves, particularly concerning interest rates.
Keynesian
Approach:
Interest
Sensitivity: Keynesians argue that the demand for money is highly sensitive to
changes in interest rates. In other words, as interest rates rise, the demand
for money falls, and as interest rates fall, the demand for money rises.
Liquidity
Preference: Keynes introduced the concept of liquidity preference, suggesting
that people prefer liquidity (holding money) over less liquid assets. This
preference for liquidity is influenced by uncertainty about the future and the
desire to have readily available funds.
Classical
Approach:
Interest
Insensitivity: Classical economists, in contrast, believe that the demand for
money is relatively insensitive to changes in interest rates. They argue that
individuals hold money mainly for transaction purposes and that the speculative
demand for money is minimal.
Equilibrium
Interest Rates: The classical approach posits that markets, including the money
market, tend to reach equilibrium naturally without the need for government
intervention. Interest rates are determined by the supply and demand for money,
with any deviations being temporary.
In summary, the
key difference lies in the sensitivity of the demand for money to changes in
interest rates. Keynesians emphasize the importance of liquidity preference and
argue for the potential inefficiencies in markets, requiring government
intervention, while classical economists believe in the self-adjusting nature
of markets and the limited role of government in economic affairs.
Q2. Explain the
concept of 'unit banking'. What are the merits and demerits of unit banking
system? Suggest measures to overcome the demerits of unit banking system.
Q3. What is a Central
Bank? Discuss its functions. What makes a Central Bank different from
Commercial Bank?
Q4. Distinguish
between the spot and forward foreign exchange markets. Why are transactions in
forward foreign exchange markets done?
Q5. Write short notes on the following:
a) Money market
b) Objectives of the
International Monetary Fund
c) The Velocity of
Money
d) Creation of credit
ECO 09 Solved
Assignment 2023-24 : All assignments are in PDF format which would be send
on email/WhatsApp (9958676204) just after payment.
ECO 09 Solved
Assignment 2023-24, ECO 09 Solved Assignment 2023-24, ECO 09 Solved Assignment
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