Question 1

Refer to Figure 17.1 for the following question.
Figure 17.1  
-Refer to Figure 17.1.In this figure,the money demand curve would move from Money demand1 to Money demand2 if

Accepted Answer

A)  real GDP decreased. 
B)  the price level increased. 
C)  the interest rate increased. 
D)  the Reserve Bank of Australia sold government securities. 
A)  real GDP decreased. 
B)  the price level increased. 
C)  the interest rate increased. 
D)  the Reserve Bank of Australia sold government securities.

Question 2

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Each day,the financial system is likely

Question 3

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

Accepted Answer

A)  decrease current consumption if the income effect is greater than the substitution effect. 
B)  decrease saving if the substitution effect is greater than the income effect. 
C)  increase current consumption if the substitution effect is greater than the income effect. 
D)  increase current consumption if the income effect is greater than the substitution effect. 
A)  decrease current consumption if the income effect is greater than the substitution effect. 
B)  decrease saving if the substitution effect is greater than the income effect. 
C)  increase current consumption if the substitution effect is greater than the income effect. 
D)  increase current consumption if the income effect is greater than the substitution effect.

Question 4

An increase in real GDP will __________ the demand for money and ____________the equilibrium interest rate.

Accepted Answer

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

Question 5

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

Accepted Answer

A)  achieve a particular annual rate of inflation on average over the business cycle. 
B)  achieve the same low rate of inflation every year. 
C)  control the money supply to achieve a target rate of inflation. 
D)  control the money supply to achieve a target rate of interest that will ensure a low rate of inflation. 
A)  achieve a particular annual rate of inflation on average over the business cycle. 
B)  achieve the same low rate of inflation every year. 
C)  control the money supply to achieve a target rate of inflation. 
D)  control the money supply to achieve a target rate of interest that will ensure a low rate of inflation.

Question 6

What is 'inflation targeting'?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Inflation targeting is a commitment by t

Question 7

Explain the effect that a rise in interest rates has on real GDP in the short term.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

In the short term,the rise in interest r

Question 8

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.

Accepted Answer

A)  rise; appreciation 
B)  rise; depreciation 
C)  fall; appreciation 
D)  fall; depreciation 
A)  rise; appreciation 
B)  rise; depreciation 
C)  fall; appreciation 
D)  fall; depreciation

Question 9

In which of the following situations would the Reserve Bank of Australia conduct contractionary monetary policy?

Accepted Answer

A)  The RBA believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B)  The RBA fears that unemployment is climbing above the natural rate of unemployment. 
C)  The RBA is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D)  The RBA is worried that deflation will become a problem. 
A)  The RBA believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B)  The RBA fears that unemployment is climbing above the natural rate of unemployment. 
C)  The RBA is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D)  The RBA is worried that deflation will become a problem.

Question 10

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 does not use monetary policy.If the RBA uses monetary policy successfully to keep real GDP at its potential level in 2017,which of the following will be lower than if the RBA had taken no action?

Accepted Answer

A)  Real GDP and the unemployment rate 
B)  Real GDP and the inflation rate 
C)  Real GDP and potential GDP 
D)  Potential GDP and the inflation rate 
A)  Real GDP and the unemployment rate 
B)  Real GDP and the inflation rate 
C)  Real GDP and potential GDP 
D)  Potential GDP and the inflation rate

Question 11

Assuming that all else remains constant,contractionary monetary policy causes aggregate demand to

Accepted Answer

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

Question 12

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 monetary policy to be more contractionary or expansionary.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Potential GDP } \
\text { (dollars) }
\end{array} & \text { Real GDP (dollars) } & \text { Price level } \
\hline 2016 & 1.42 \text { trillion } & 1.42 \text { trillion } & 114 \
\hline 2017 & 1.48 \text { trillion } & 1.46 \text { trillion } & 116 \
\hline
\end{array}$$ Suppose that the RBA uses an appropriate policy and is successful in keeping real GDP at potential in 2017.Discuss the type of monetary policy that the RBA should adopt,explaining the effect of the policy on real GDP,the price level and employment.Use a dynamic aggregate demand and supply model to illustrate your answer.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The economy starts in equilibrium in 201

Question 13

Refer to Table 17.1 for the following question.
Table 17.1
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Potential GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 1.5 \text { trillion } & \$ 1.5 \text { trillion } & 150 \
\hline 2017 & \$ 1.6 \text { trillion } & \$ 1.52 \text { trillion } & 152 \
\hline
\end{array}$$
-Refer to Table 17.1.Consider the hypothetical information in the table for potential GDP,real GDP and the price level in 2016 and in 2017 if the Reserve Bank of Australia does not use monetary policy.If the Reserve Bank of Australia wants to keep real GDP at its potential level in 2017,it should

Accepted Answer

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

Question 14

The Reserve Bank of Australia targets a per annum inflation rate,on average over the business cycle,of between _________.

Accepted Answer

A)  1 per cent and 2 per cent 
B)  2 per cent and 4 per cent 
C)  3 per cent and 4 per cent 
D)  2 per cent and 3 per cent 
A)  1 per cent and 2 per cent 
B)  2 per cent and 4 per cent 
C)  3 per cent and 4 per cent 
D)  2 per cent and 3 per cent

Question 15

The 'cash rate' is the interest rate

Accepted Answer

A)  the Reserve Bank of Australia charges commercial banks. 
B)  banks charge their largest customers. 
C)  banks charge each other for overnight loans. 
D)  on a government bond or security. 
A)  the Reserve Bank of Australia charges commercial banks. 
B)  banks charge their largest customers. 
C)  banks charge each other for overnight loans. 
D)  on a government bond or security.

Question 16

The money supply curve would be perfectly inelastic if

Accepted Answer

A)  banks and the RBA jointly determine the money supply. 
B)  the RBA is able to completely fix the money supply. 
C)  banks and households determine the money supply. 
D)  households and the RBA jointly determine the money supply. 
A)  banks and the RBA jointly determine the money supply. 
B)  the RBA is able to completely fix the money supply. 
C)  banks and households determine the money supply. 
D)  households and the RBA jointly determine the money supply.

Question 17

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

Accepted Answer

A)  The RBA is able to 'fine tune' the economy and entirely eliminate recessions. 
B)  The RBA is incapable of changing aggregate demand through its monetary policy tools. 
C)  The RBA may be able to keep a recession shorter and milder than it would otherwise be. 
D)  The RBA may be able to eliminate the business cycle and achieve absolute price stability. 
A)  The RBA is able to 'fine tune' the economy and entirely eliminate recessions. 
B)  The RBA is incapable of changing aggregate demand through its monetary policy tools. 
C)  The RBA may be able to keep a recession shorter and milder than it would otherwise be. 
D)  The RBA may be able to eliminate the business cycle and achieve absolute price stability.

Question 18

The money demand curve has a

Accepted Answer

A)  negative slope. 
B)  positive slope. 
C)  zero slope and is perfectly elastic. 
D)  positive slope for low levels of money demand and a negative slope for high levels of money demand. 
A)  negative slope. 
B)  positive slope. 
C)  zero slope and is perfectly elastic. 
D)  positive slope for low levels of money demand and a negative slope for high levels of money demand.

Question 19

A contractionary monetary policy would be more effective if it caused

Accepted Answer

A)  interest rates to increase, leading to an exchange rate appreciation and a fall in net exports. 
B)  interest rates to decrease, leading to an exchange rate appreciation and a fall in net exports. 
C)  interest rates to decrease, leading to an exchange rate depreciation and a rise in net exports. 
D)  interest rates to increase, leading to an exchange rate depreciation and a rise in net exports. 
A)  interest rates to increase, leading to an exchange rate appreciation and a fall in net exports. 
B)  interest rates to decrease, leading to an exchange rate appreciation and a fall in net exports. 
C)  interest rates to decrease, leading to an exchange rate depreciation and a rise in net exports. 
D)  interest rates to increase, leading to an exchange rate depreciation and a rise in net exports.

Question 20

When the Reserve Bank of Australia raises the cash rate,this normally leads to

Accepted Answer

A)  other interest rates rising, which stimulates consumption spending. 
B)  people spending less because they have less money. 
C)  other interest rates falling, which stimulates investment spending. 
D)  other interest rates rising, which reduces investment spending. 
A)  other interest rates rising, which stimulates consumption spending. 
B)  people spending less because they have less money. 
C)  other interest rates falling, which stimulates investment spending. 
D)  other interest rates rising, which reduces investment spending.

Refer to Figure 17.1 for the following question. Figure 17.1 -Refer to Figure 17.1.In this figure,the money demand curve would move from Money demand₁ to Money demand₂ if

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis. _ _

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

An increase in real GDP will the demand for money and __the equilibrium interest rate.

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

What is 'inflation targeting'? _ _

Explain the effect that a rise in interest rates has on real GDP in the short term. _ _

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.

In which of the following situations would the Reserve Bank of Australia conduct contractionary monetary policy?

Assuming that all else remains constant,contractionary monetary policy causes aggregate demand to

The Reserve Bank of Australia targets a per annum inflation rate,on average over the business cycle,of between _________.

The 'cash rate' is the interest rate

The money supply curve would be perfectly inelastic if

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

The money demand curve has a

A contractionary monetary policy would be more effective if it caused

When the Reserve Bank of Australia raises the cash rate,this normally leads to

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

Refer to Figure 17.1 for the following question. Figure 17.1 -Refer to Figure 17.1.In this figure,the money demand curve would move from Money demand1 to Money demand2 if

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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

An increase in real GDP will __________ the demand for money and ____________the equilibrium interest rate.

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

What is 'inflation targeting'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Explain the effect that a rise in interest rates has on real GDP in the short term. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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.

In which of the following situations would the Reserve Bank of Australia conduct contractionary monetary policy?

Assuming that all else remains constant,contractionary monetary policy causes aggregate demand to

The Reserve Bank of Australia targets a per annum inflation rate,on average over the business cycle,of between _________.

The 'cash rate' is the interest rate

The money supply curve would be perfectly inelastic if

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

The money demand curve has a

A contractionary monetary policy would be more effective if it caused

When the Reserve Bank of Australia raises the cash rate,this normally leads to

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

Refer to Figure 17.1 for the following question. Figure 17.1 -Refer to Figure 17.1.In this figure,the money demand curve would move from Money demand₁ to Money demand₂ if

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis. _ _

An increase in real GDP will the demand for money and __the equilibrium interest rate.

What is 'inflation targeting'? _ _

Explain the effect that a rise in interest rates has on real GDP in the short term. _ _

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.