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Ch. 9 Money Creation by Topic Past Paper Marking Scheme

This document contains past paper questions and answers from the Hong Kong Diploma of Secondary Education (HKDSE) regarding money supply and money creation. It includes multiple choice and long question answers from 2012 to 2019 with topics like monetary base, reserve requirement ratio, money multiplier, excess reserves, and how changes in these factors impact money supply.

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120 views

Ch. 9 Money Creation by Topic Past Paper Marking Scheme

This document contains past paper questions and answers from the Hong Kong Diploma of Secondary Education (HKDSE) regarding money supply and money creation. It includes multiple choice and long question answers from 2012 to 2019 with topics like monetary base, reserve requirement ratio, money multiplier, excess reserves, and how changes in these factors impact money supply.

Uploaded by

yanaa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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HKDSE Past Paper (Money Creation)

Ch. 9 Money Supply & Money Creation – HKDSE Past Paper (MC) (Answers)

1. C 2. B 3. B 4. C 5. D
6. A 7. D 8. A 9. B 10. C
11. C 12. D 13. B 14. D

Ch. 9 Money Supply & Money Creation – HKDSE Past Paper (LQ) (Answers)

2012 (13)

2013 (12)

2015 (6)
(a) (i) Legal Reserve ratio = $ 1 000 million/ $5 000 million = 0.2 (1)
(i) Money supply = $150 million + $5 000 million = $5 150 million (2)
(b) New monetary base = $150 million + $1 050 million = $1 200 million (2)
(c) New money supply = $150 million + $1 050 million/ 0.2 = $5 400 million (3)

1
HKDSE Past Paper (Money Creation)

2016 (8)
8. (a) Monetary base = $500 million + $1000 million = $1500 million (1)
Money supply + $500 million + $4000 millions = $4500 million (1)

(b) Change in monetary base = $1500 million - $1500 million = 0 (2)

Change in money supply (2)


=New money supply –Original money supply
=($500 million+$4000million)=-$2000 million

or or
Change in money supply (2)
=Change in cash held by non-bank public + Change in deposits
=0+($1000 million x2 - $4000million)=-$2000million

(c)
(i) Under a fractional reserve banking system, banks are required to (3)
keep only a fraction of the their deposits as reserves. They can
create credit by lending out the remaining fraction in the form of
loans to businesses and private individuals, which would eventually
find their way back into the banking system in the form of deposits,
resulting in a multiple increase in deposits/a banking multiplier
larger than unity.

(ii) If the reserve ratio is 100% (RRR=1) or if all of the banks (1)
decide not to lend out their excess reserves even when RRR<1 (e.g.
during financial crisis, when default rates are high), the money
supply will be equal to the monetary base.

2017 (8)
(a) RRR= ($1000-$250)/$3000 = 0.25 (1)

(b) The change in deposits = $250 x 1/0.25= $1000 (2)

2018 (7)
(a) (i) New M0=$500 million+ $100million+ $40 million= $640 million (2)
(ii) Banks do not hold excess reserves/ there is sufficient demand for loans.
There is no cash leakage. (2)

2
HKDSE Past Paper (Money Creation)

(iii) Old MS = $2000million+ $100 million= $2100 million (1)

RRR= ($500 million - $100 million)/ $2000 million * 100% = 20% (1)
New MS =$100 million +(500million + $40 million)/20% = $2800 million (1)
∴ MS increases by $700 million (=2800 million-2100 million). (1)

2019 (7)
(a) Excess reserves = $300 million - $1000 million x 20% = $100 million (1)

(b) Old money supply = $1000 million + $200 million = $1200 million (4)
New money supply = ($300 million + $200 million) x 1/20% + $0 million
= $2500 million
Maximum possible change in the money supply = $2500 million - $1200 million
= $1300 million

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