Exam 12: Monetary Policy

Refer to Table 12.2 for the following questions. Table 12.2 -Consider the hypothetical information in Table 12.2 for potential GDP, real GDP and the price level in 2016 and in 2017 if the Reserve Bank of Australia (RBA)does not use monetary policy. If the RBA wants to keep real GDP at its potential level in 2017, it should:

Suppose the following table illustrates the values of real and potential GDP if the Reserve Bank of Australia (RBA)does not change its current monetary 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? How should it conduct open market operations to achieve its goal? _____________________________________________________________________________________________ _____________________________________________________________________________________________

'Monetary policy' targets the:

The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.

Briefly discuss the effect of a fall in the cash rate on consumption. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If the Reserve Bank of Australia buys bonds and securities in the open market, this is likely to lead to a ______ in interest rates and a(n)_______ of the Australian dollar.

Lowering the interest rate will normally:

Inflation targeting is a framework for carrying out monetary policy whereby the central bank:

The effect of monetary policy on long-term interest rates is usually:

If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to a ______ in interest rates and a(n)_______ of the Australian dollar.

Refer to Figure 12.4 for the following question. Figure 12.4 -Refer to Figure 12.4. In this figure, if the economy in Year 1 is at point A and expected in Year 2 to be at point B, then the appropriate monetary policy by the Reserve Bank of Australia would be to:

Refer to Figure 12.1 for the following question. Figure 12.1 -Refer to Figure 12.1. In this figure, the money demand curve would move from Money demand₁ to Money demand₂ if:

A rise in interest rates will lead to a negative income effect for households that are net borrowers.

During economic contractions and recessions of 2008-2009 that followed the global financial crisis (GFC), what form of monetary policy did affected countries use? Why was monetary policy not effective in moving all countries out of recessions? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The money demand curve is downward sloping because lower interest rates:

The main goal of monetary policy in Australia is a low inflation rate.

According to the Reserve Bank of Australia, inflation targeting refers to monetary policy that aims to:

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

If the Reserve Bank of Australia sells financial instruments in the open market, net exports are likely to decrease.

A decrease in interest rates will usually: