Exam 12: Monetary Policy

Refer to Figure 12.5 for the following question. Figure 12.5 -Refer to Figure 12.5. In this figure, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Reserve Bank of Australia use to move the economy to point C?

A contractionary monetary policy would be more effective if it caused:

The Australian share market:

How does the Reserve Bank of Australia affect the supply of cash? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Explain why the 'money demand curve' is downward sloping. _____________________________________________________________________________________________ _____________________________________________________________________________________________

When the RBA uses contractionary policy:

What is the function of 'exchange settlement accounts'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The Reserve Bank of Australia manages the supply of cash on a daily basis to:

The Reserve Bank of Australia can increase the cash rate by:

Suppose the following table illustrates the values of real and potential GDP and the price level, if the Reserve Bank of Australia (RBA)does not change its current policy to be more contractionary or expansionary. If the RBA wants to keep real GDP at its potential level in 2018, should the RBA use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Not all households are net borrowers. For households that are net lenders, an increase in interest rates will:

Falling interest rates can:

From an initial long-run macroeconomic equilibrium, if the Reserve Bank of Australia anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the RBA would most likely:

Which of the following characterises the ability of the Reserve Bank of Australia (RBA)to prevent recessions?

A 'liquidity trap' is a situation in which:

A rise in the rate of interest on financial securities will lead to a movement downward along the money demand curve.

The Reserve Bank of Australia:

Which of the following is not an argument against inflation targeting?

Open market operations occur when the Reserve Bank of Australia:

Present two arguments as to why the Reserve Bank of Australia should adopt inflation targeting as a framework for monetary policy. _____________________________________________________________________________________________ _____________________________________________________________________________________________