Question 1

If the Reserve Bank of Australia lowers the interest rate,this will ________ inflation and ________ the rate of growth of real GDP in the short run.

Accepted Answer

A)  reduce; lower 
B)  reduce; raise 
C)  increase; lower 
D)  increase; raise 
A)  reduce; lower 
B)  reduce; raise 
C)  increase; lower 
D)  increase; raise

Question 2

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.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Potential GDP } \
\text { (dollars) }
\end{array} & \text { Real GDP (dollars) } & \text { Price level } \
\hline 2017 & 1.50 \text { trillion } & 1.50 \text { trillion } & 150 \
\hline 2018 & 1.56 \text { trillion } & 1.53 \text { trillion } & 153 \
\hline
\end{array}$$ 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?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The information in the table indicates t

Question 3

An increase in the supply of cash on the overnight money market will lead to a(n)____________ in interest rates and a(n)_________ in investment expenditure.

Accepted Answer

A)  decrease; decrease 
B)  increase; decrease 
C)  decrease; increase 
D)  increase; increase 
A)  decrease; decrease 
B)  increase; decrease 
C)  decrease; increase 
D)  increase; increase

Question 4

A government could use control of a central bank to further its political interests by

Accepted Answer

A)  decreasing the cash rate before an election to decrease production and employment. 
B)  decreasing the cash rate before an election to increase production and employment. 
C)  decreasing the cash rate before an election to decrease inflation. 
D)  increasing the cash rate before an election to increase inflation. 
A)  decreasing the cash rate before an election to decrease production and employment. 
B)  decreasing the cash rate before an election to increase production and employment. 
C)  decreasing the cash rate before an election to decrease inflation. 
D)  increasing the cash rate before an election to increase inflation.

Question 5

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

Accepted Answer

A fall in the cash rate will lead to a r

Question 6

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.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Potential GDP } \
\text { (dollars) }
\end{array} & \text { Real GDP (dollars) } & \text { Price level } \
\hline 2017 & 1.51 \text { trillion } & 1.51 \text { trillion } & 150 \
\hline 2018 & 1.54 \text { trillion } & 1.56 \text { trillion } & 155 \
\hline
\end{array}$$ 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?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The information in the table indicates t

Question 7

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

Accepted Answer

Households and firms have a choice betwe

Question 8

Rising prices erode the value of money as a ________ and a ________.

Accepted Answer

A)  unit of barter; unit of account 
B)  store of value; unit of liquidity 
C)  medium of exchange; store of value 
D)  store of value; unit of barter 
A)  unit of barter; unit of account 
B)  store of value; unit of liquidity 
C)  medium of exchange; store of value 
D)  store of value; unit of barter

Question 9

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 their current policy to be more contractionary or expansionary.Suppose that the RBA uses an appropriate policy and is successful in keeping real GDP at its potential level in 2018.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Potential GDP } \
\text { (dollars) }
\end{array} & \text { Real GDP (dollars) } & \text { Price level } \
\hline 2017 & 1.44 \text { trillion } & 1.44 \text { trillion } & 144 \
\hline 2018 & 1.47 \text { trillion } & 1.45 \text { trillion } & 146 \
\hline
\end{array}$$ State whether each of the following will be higher or lower than if the RBA had taken no action:
a.Real GDP
b.Potential GDP
c.The price level
d.The unemployment rate
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.If the RBA's policy was successful,rea

Question 10

If the Reserve Bank of Australia pursues expansionary monetary policy,ceteris paribus,aggregate demand will

Accepted Answer

A)  rise by more than it otherwise would have and the price level will rise by more than it otherwise would have. 
B)  fall by more than it otherwise would have and the price level will fall by more than it otherwise would have. 
C)  rise by less than it otherwise would have and the price level will rise by less than it otherwise would have. 
D)  fall by less than it otherwise would have and the price level will rise by less than it otherwise would have. 
A)  rise by more than it otherwise would have and the price level will rise by more than it otherwise would have. 
B)  fall by more than it otherwise would have and the price level will fall by more than it otherwise would have. 
C)  rise by less than it otherwise would have and the price level will rise by less than it otherwise would have. 
D)  fall by less than it otherwise would have and the price level will rise by less than it otherwise would have.

Question 11

Money demand will increase if the price level ________ or if real GDP ________.

Accepted Answer

A)  increases; decreases 
B)  decreases; decreases 
C)  increases; increases 
D)  decreases; increases 
A)  increases; decreases 
B)  decreases; decreases 
C)  increases; increases 
D)  decreases; increases

Question 12

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

Accepted Answer

Exchange settlement accounts are account

Question 13

The Reserve Bank of Australia can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

The Reserve Bank of Australia is able to use monetary policy to keep real GDP exactly at its potential level.

Accepted Answer

A) True 
 B)False

Question 15

If the overnight cash rate falls,then ceteris paribus:

Accepted Answer

A)  interest rates will fall and share prices will rise. 
B)  interest rates will rise and share prices will rise. 
C)  interest rates will fall and share prices fall. 
D)  interest rates will rise and share prices will fall. 
A)  interest rates will fall and share prices will rise. 
B)  interest rates will rise and share prices will rise. 
C)  interest rates will fall and share prices fall. 
D)  interest rates will rise and share prices will fall.

Question 16

A 'liquidity trap' is a situation in which

Accepted Answer

A)  interest rates are raised, cutting off liquidity in the economy. 
B)  contractionary monetary policy ceases to be effective. 
C)  increased liquidity raises real GDP above potential GDP. 
D)  short-term interest rates are lowered to zero, making further interest rate stimulus impossible. 
A)  interest rates are raised, cutting off liquidity in the economy. 
B)  contractionary monetary policy ceases to be effective. 
C)  increased liquidity raises real GDP above potential GDP. 
D)  short-term interest rates are lowered to zero, making further interest rate stimulus impossible.

Question 17

If the interest rate increases,then

Accepted Answer

A)  there will be an upward movement along the money demand curve. 
B)  there will be a downward movement along the money demand curve. 
C)  the money demand curve will shift to the right. 
D)  the money demand curve will shift to the left. 
A)  there will be an upward movement along the money demand curve. 
B)  there will be a downward movement along the money demand curve. 
C)  the money demand curve will shift to the right. 
D)  the money demand curve will shift to the left.

Question 18

Refer to Table 17.2 for the following questions.
Table 17.2
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Potential GDP } \
\text { (dollars) }
\end{array} & \text { Real GDP (dollars) } & \text { Price Level } \
\hline 2016 & 1.5 \text { trillion } & 1.5 \text { trillion } & 150 \
\hline 2017 & 1.6 \text { trillion } & 1.8 \text { trillion } & 156 \
\hline
\end{array}$$
-Consider the hypothetical information in Table 17.2 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

Accepted Answer

A)  buy government securities. 
B)  sell government securities. 
C)  decrease interest rates. 
D)  decrease income taxes. 
A)  buy government securities. 
B)  sell government securities. 
C)  decrease interest rates. 
D)  decrease income taxes.

Question 19

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?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

All countries impacted by the GFC embark

Question 20

Buying a house during a recession may be a good idea if your job seems secure because the Reserve Bank of Australia often lowers interest rates during a recession.

Accepted Answer

A) True 
 B)False

If the Reserve Bank of Australia lowers the interest rate,this will inflation and the rate of growth of real GDP in the short run.

An increase in the supply of cash on the overnight money market will lead to a(n)____ in interest rates and a(n)_ in investment expenditure.

A government could use control of a central bank to further its political interests by

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

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

Rising prices erode the value of money as a and a .

If the Reserve Bank of Australia pursues expansionary monetary policy,ceteris paribus,aggregate demand will

Money demand will increase if the price level or if real GDP .

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

The Reserve Bank of Australia can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.

The Reserve Bank of Australia is able to use monetary policy to keep real GDP exactly at its potential level.

If the overnight cash rate falls,then ceteris paribus:

A 'liquidity trap' is a situation in which

If the interest rate increases,then

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? _ _

Buying a house during a recession may be a good idea if your job seems secure because the Reserve Bank of Australia often lowers interest rates during a recession.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 17: Monetary Policy

If the Reserve Bank of Australia lowers the interest rate,this will ________ inflation and ________ the rate of growth of real GDP in the short run.

An increase in the supply of cash on the overnight money market will lead to a(n)____________ in interest rates and a(n)_________ in investment expenditure.

A government could use control of a central bank to further its political interests by

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

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

Rising prices erode the value of money as a ________ and a ________.

If the Reserve Bank of Australia pursues expansionary monetary policy,ceteris paribus,aggregate demand will

Money demand will increase if the price level ________ or if real GDP ________.

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

The Reserve Bank of Australia can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.

The Reserve Bank of Australia is able to use monetary policy to keep real GDP exactly at its potential level.

If the overnight cash rate falls,then ceteris paribus:

A 'liquidity trap' is a situation in which

If the interest rate increases,then

Buying a house during a recession may be a good idea if your job seems secure because the Reserve Bank of Australia often lowers interest rates during a recession.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

If the Reserve Bank of Australia lowers the interest rate,this will inflation and the rate of growth of real GDP in the short run.

An increase in the supply of cash on the overnight money market will lead to a(n)____ in interest rates and a(n)_ in investment expenditure.

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

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

Rising prices erode the value of money as a and a .

Money demand will increase if the price level or if real GDP .

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