This question was quite popular among candidates. The candidates that attempted it were able to define supply of and demand for money, state the motives for holding money but were unable to identify the determinants of the value of money. Most candidates that attempted this question scored average marks. 

These candidates were expected to give the following answers to score good marks:

(a)(i)    The supply of money consists of currency (notes and coins) in circulation, plus demand deposits with the banks.                                                         

    (ii)    The demand for money refers to the desire to hold money in liquid form for various reasons.                                                                                   

(b)(i)    Transactions  motive – This is the desire to hold money for day - to - day activities involving the use of money.

   (ii)     Precautionary motive – This is the desire to hold money for unforeseen contingencies.

     (iii)  Speculative motive –This is the desire to hold money to take advantage of investment opportunities or changes in the interest rates.

(c)(i)    The price level – The value of money varies inversely with the price level. An increase in the price level reduces the value of money and vice versa.

(ii)   The supply of money – If there is an increase in the volume of money without a corresponding increase in the volume of goods, price level will increase and value of money will fall and vice versa.

(iii)  Volume of goods and services – Increase in the quantity of goods may bring about a fall in the price level and hence, an increase in the value of money and vice versa.

(iv)  Velocity of circulation of money – Where money changes hands rapidly, the same volume of money is made to buy more goods. This in turn may bring about increase in the stock of money, increase in the price level and a fall in the value of money and vice versa.