Neco 2025 Economics Question 8

Practice essay / theory question 8 from the 2025 Neco Economics examination. This question covers Money Supply, Reserve Requirement, Money Multiplier, Open‑Market Operations, Liquidity Preference .

Neco 2025 Economics Essay / Theory
Topics: Money Supply Reserve Requirement Money Multiplier Open‑Market Operations Liquidity Preference
Question 8 NECO • 2025 • ECONOMICS • essay

The Central Bank of Country Y has set the reserve requirement ratio at 10 %. The banking sector currently holds the following balances (all figures in ₦ billions): - Total deposits = 2,000 - Excess reserves = 200 - Required reserves are calculated on the basis of the reserve requirement. In addition, the Central Bank has recently purchased government securities worth ₦500 bn in an open‑market operation. Answer the questions that follow.

Question Parts

( a )
Calculate (i) the amount of required reserves, (ii) the money multiplier, and (iii) the current potential money supply before the open‑market purchase.
( b )
After the open‑market purchase of ₦500 bn securities, determine (i) the new monetary base, (ii) the unchanged money multiplier, and (iii) the new potential money supply.
( c )
Discuss qualitatively how lowering the reserve requirement to 8 % would affect the money supply and the equilibrium interest rate, using the liquidity‑preference framework.

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About This Question

This is Neco 2025 Economics Question 8. It is one of the essay questions from the 2025 Neco Economics examination.

The question covers Money Supply, Reserve Requirement, Money Multiplier, Open‑Market Operations, Liquidity Preference .

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