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1)If the Reserve Bank of Australia wants to increase interest rates it will  buy financial securities

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1)If the Reserve Bank of Australia wants to increase interest rates it will 

1. 1. buy financial securities. 
   2. increase the exchange rate.  
   3. decrease the exchange rate. 
   4. sell financial securities.

 

2. If the Reserve Bank of Australia buys financial securities, this 
   1. increases reserves, causes banks to reduce their loans, and decreases interest rates.  
   2. decreases reserves, causes banks to reduce their loans, and increases interest rates.  
   3. decreases reserves and causes banks to reduce their loans.  
   4. increases reserves and encourages banks to make more loans.  

 

3. The policy aimed at controlling the rate of inflation by changing the cash rate is called  a) monetary policy. 
   2. exchange rate policy.  
   3. interest rate policy. 
   4. fiscal policy.

 

4. The Reserve Bank of Australia manages the supply of cash on a daily basis to 
   1. ensure that banks have sufficient cash to meet the demand for funds.  
   2. ensure that there are no large injections of cash into or withdrawals of cash out of the financial system.  
   3. ensure that the interest rate changes to create equilibrium in the money market.  
   4. sterilise deficits and surpluses of cash in the financial system.  

 

5. The cash rate is the interest rate 
   1. banks charges their largest customers.  
   2. on a Treasury Note.  
   3. the Reserve Bank of Australia charges commercial banks.  
   4. banks charges each other for overnight loans.

 

6. The overnight cash rate is determined 
   1. directly by household demand for funds.  
   2. administratively by the Reserve Bank of Australia.  
   3. by the supply and demand of cash.  
   4. directly by firm demand for funds.

 

7. An increase in interest rates should 
   1. decrease consumption spending.  
   2. increase government spending.  
   3. increase net exports.  
   4. increase investment spending.  

 

8. If interest rates rise this will 
   1. raise the cost of buying new homes, fewer new homes will be purchased thereby reducing consumption expenditure.  
   2. raise the cost of buying new homes, fewer new homes will be purchased thereby reducing investment expenditure.  
   3. lower the cost of buying new homes, fewer new homes will be purchased thereby reducing investment expenditure.  
   4. lower the cost of buying new homes, fewer new homes will be purchased thereby reducing consumption expenditure.  
9. When the RBA raises the cash rate this leads to 
   1. other interest rates falling which stimulates investment spending.  
   2. other interest rates rising which reduces investment spending.  
   3. other interest rates rising which stimulates consumption spending.  
   4. people spending less because they have less money.

 

10. An increase in the supply of cash on the overnight money market will lead to 
    1. a fall in interest rates and a decrease in investment expenditure.  
    2. a fall in interest rates and an increase in investment expenditure.  
    3. a rise in interest rates and a decrease in investment expenditure.  
    4. a rise in interest rates and an increase in investment expenditure.  

 

11. If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to 
    1. a rise in interest rates and a depreciation of the Australian dollar.  
    2. a fall in interest rates and a depreciation of the Australian dollar.  
    3. a fall in interest rates and an appreciation of the Australian dollar.  
    4. a rise in interest rates and an appreciation of the Australian dollar.  

 

12. A rise in domestic interest rates relative to interest rates in other countries may lead to 
    1. an exchange rate depreciation and an increase in net exports.  
    2. an exchange rate appreciation and a fall in net exports.  
    3. an exchange rate depreciation and a fall in net exports.  
    4. an exchange rate appreciation and an increase in net exports.  

 

13. If the RBA pursues expansionary monetary policy then interest rates will 
    1. fall and GDP will fall. 
    2. rise and GDP will rise.  
    3. fall and GDP will rise. 
    4. rise and GDP will fall.  

 

14. If contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand? 
    1. Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports.  
    2. Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports.  
    3. Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports.  
    4. Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports.  

 

15. If the Reserve Bank of Australia lowers its target for the cash rate, this indicates that it is 
    1. pursuing a contractionary monetary policy.  
    2. attempting to combat inflation.  
    3. pursuing an expansionary monetary policy.  
    4. concerned that the growth in aggregate demand will exceed potential GDP.  

 

16. Which of the following describes what the Reserve Bank of Australia would do to pursue an expansionary monetary policy? 
    1. Use open market operations to sell bonds and securities.  
    2. Increase interest rates on mortgages and corporate loans.  
    3. Use open market operations to buy bonds and securities.  
    4. Use open market operations to increase the overnight cash rate.  

 

 

17. If the Reserve Bank of Australia pursues expansionary monetary policy, ceteris paribus, 
    1. aggregate demand will fall, and the price level will fall.  
    2. aggregate demand will rise, and the price level will fall.  
    3. aggregate demand will rise, and the price level will rise.  
    4. aggregate demand will fall, and the price level will rise.  

 

18. When the RBA uses contractionary policy, 
    1. it does not change the price level.  
    2. the price level rises less than it would if the RBA did not pursue policy.  
    3. the price level rises higher than it would if the RBA did not pursue policy.   d) it causes inflation.

 

19. The Australian Share Exchange 
    1. cares about monetary policy because falling interest rates make shares less attractive as investments.  
    2. does not care about monetary policy because interest rates do not affect the attractiveness of investments in shares.  
    3. does not care about monetary policy as the inflation rate does not affect investment in shares.  
    4. cares about monetary policy because changes in the interest rate affect the economy.  

 

20. In an open economy, expansionary monetary policy will have the added effect of causing 
    1. the exchange rate to appreciate and net exports to increase.  
    2. the exchange rate to depreciate and net exports to decrease.  
    3. the exchange rate to appreciate and net exports to decrease.  
    4. the exchange rate to depreciate and net exports to increase.