Ordinary level 2026 North West mock Economics guide

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PAPER TWO (2)

1. (a)

• (i) Creeping inflation is a slow and continuous increase in the general price level at a very low rate, usually between 1% and 3% per annum while hyperinflation is a situation where there is an extremely rapid and an uncontrollable increase in the general price level leading to total loss of confidence in the currency. (3mks with a conjunction)

• (ii) A commercial bank is a bank that accepts deposits from the public and grants loans to them to make profits while the central bank is the bank that issues currency and controls the supply of money without directly dealing with the public. (Any other distinction accepted. 3 mks with a conjunction) Note: ignore the numbering.

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(b)

• (i) Transactions motives: (Firms keeping money to buy raw material, Money held to pay transport fares. 1+1 = 2mks)

• (ii) Speculative motives: (Keeping money to buy bonds when interest rates rise. 1 mk)

• (iii) Precautionary motives: (Keeping cash to meet medical emergencies. 1 mk)

• Total = 4 marks

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(c)

• Lowering the bank rate or minimum lending rate.

• Buying of securities in the open market.

• Reducing liquidity or cash reserve ratio.

• Selective credit controls by relaxing credit terms to priority sectors.

• Funding, demand for less special deposits by central bank.

• Issuing more currency.

• Moral suasion when central bank persuades commercial banks to increase to expand lending etc.

• (2×3) = 6mks

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(d)

• Creates employment.

• Provides liquidity through the buying and selling of securities.

• Mobilisation of savings.

• Determines prices of shares.

• Raises capital for firms and governments.

• Encourages efficiency of companies etc.

• (1×4 = 4 mks)