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Homework answers / question archive / 1)If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to a: Answers: rise in interest rates and a depreciation of the Australian dollar

1)If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to a: Answers: rise in interest rates and a depreciation of the Australian dollar

Economics

1)If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to a:

Answers:

rise in interest rates and a depreciation of the Australian dollar.

 

fall in interest rates and an appreciation of the Australian dollar.

 

fall in interest rates and a depreciation of the Australian dollar.

 

 

rise in interest rates and an appreciation of the Australian dollar.

 
  • Question 2

 

 

 

 

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

 

 

 

Answers:

purchasing bonds and securities, which increases banks' reserves.

 

lending cash to banks using repurchase agreements.

 

 

borrowing from the banks using reverse repurchase agreements.

 

purchasing bonds and securities, which decreases banks' reserves.

 

 

 

 
  • Question 3

 

 

 

 

Refer to Figure 16.4 for the following question.

Figure 16.4
 




Refer to Figure 16.4. 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?

 

 

 

 

Answers:

 

Buy financial securities.

 

Sell financial securities.

 

Decrease income taxes.

 

Increase government spending.

 

 

 

 
  • Question 4

 

 

 

 

Which of the following does not function as an automatic stabiliser?

 

 

 

Answers:

The personal income tax system.

 

Unemployment benefit payments.

 

The Goods and Services Tax (GST).

 

 

Government expenditure on road building programs.

 

 

 

 
  • Question 5

 

 

 

 

Refer to the Figure 16.6 for the following question.

Figure 16.6
 




Refer to Figure 16.6. 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?

 

 

 

 

Answers:

Buy financial securities.

 

Decrease income taxes.

 

 

Sell financial securities.

 

Increase government spending.

 

 

 

 
  • Question 6

 

 

 

 

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

 

 

 

Answers:

 

smaller than its effect on short-term interest rates.

 

immediate, as long-term rates are closely linked to the cash rate.

 

larger than its effect on short-term rates, but the effect occurs with a lag.

 

larger than its effect on short-term interest rates.

 

 

 

 
  • Question 7

 

 

 

 

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

 

 

 

Answers:

The RBA fears that unemployment is climbing above the natural rate of unemployment.

 

 

The RBA is concerned that aggregate demand would continue to exceed the growth in potential GDP.

 

The RBA is worried that deflation will become a problem.

 

The RBA believes that aggregate demand was growing too slowly to keep up with potential GDP.

 

 

 

 
  • Question 8

 

 

 

 

If contractionary monetary policy is used, which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand?

 

 

 

Answers:

 

Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports.

 

Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports.

 

Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports.

 

Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports.

 

 

 

 
  • Question 9

 

 

 

 

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

 

 

 

Answers:

decrease current consumption if the income effect is greater than the substitution effect.

 

increase current consumption if the substitution effect is greater than the income effect.

 

decrease saving if the substitution effect is greater than the income effect.

 

 

increase current consumption if the income effect is greater than the substitution effect.

 

 

 

 
  • Question 10

 

 

 

 

Refer to Figure 16.3 for the following question(s).

Figure 16.3 The market for loanable funds in equilibrium
 




Refer to Figure 16.3. As a result of an increase in the government budget deficit, the ________ for loanable funds will ________, thereby ________ the equilibrium real interest rate and ________ the equilibrium quantity of loanable funds.

 

 

 

 

Answers:

demand; fall; decreasing; decreasing

 

demand; rise; increasing; decreasing

 

supply; rise; decreasing; increasing

 

 

supply; fall; increasing; decreasing

 

 

 

 

 

QUESTION 11

Which of the following is an automatic stabiliser?

Answers:

Increases in government spending on schools.

 

Interest rate changes.

 

 

Unemployment benefit payments to the unemployed.

 

Reductions in nominal wages as inflation rates rise.

 

 

QUESTION 12

Under the current operation of monetary policy in Australia, the money supply is:

Answers:

targeted by the use of open market operations.

 

fixed by the Reserve Bank of Australia.

 

perfectly inelastic at the current interest rate.

 

 

perfectly elastic at the current interest rate.

 

 

QUESTION 13

If contractionary monetary policy is used, which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand?

Answers:

Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports.

 

Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports.

 

 

Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports.

 

Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports.

 

 

QUESTION 14

If the Reserve Bank of Australia buys bonds and securities in the open market, this is likely to lead to a:

Answers:

fall in interest rates and an appreciation of the Australian dollar.

 

rise in interest rates and an appreciation of the Australian dollar.

 

rise in interest rates and a depreciation of the Australian dollar.

 

 

fall in interest rates and a depreciation of the Australian dollar.

 

QUESTION 15

 

Discretionary fiscal policy is when:

Answers:

 

the government changes the levels of expenditure or taxation to achieve a macroeconomic aim.

 

policy is left to the discretion of the Reserve Bank of Australia.

 

politicians are discrete about policy changes, and do not advise consumers or producers of new policies.

 

existing taxation policy automatically smoothes out business cycle fluctuations in the economy.

 

 

QUESTION 16

 

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

Answers:

ensure that the interest rate changes to create equilibrium in the money market.

 

ensure that there are no large injections of cash into or withdrawals of cash out of the financial system.

 

 

sterilise deficits and surpluses of cash in the financial system.

 

ensure that banks have sufficient cash to meet the demand for funds.

 

QUESTION 17

The largest share of Australian federal government welfare payments in 2012/13 went to:

Answers:

disability pensions and expenditures.

 

 

age pensions and services to the aged.

 

unemployment benefits.

 

payments to families with children.

 

QUESTION 18

 

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________.

Answers:

automatic stabilisers; discretionary fiscal policy

 

automatic stabilisers; monetary policy

 

 

discretionary fiscal policy; automatic stabilisers

 

discretionary fiscal policy; conscious fiscal policy

 

 

QUESTION19

 

Refer to Table 16.1 for the following question.

Table 16.1

Year

Potential GDP

Real GDP

Price Level

2012

$1.4 trillion

$1.4 trillion

150

2013

$1.5 trillion

$1.42 trillion

152




Refer to Table 16.1. Consider the hypothetical information in the table for potential GDP, real GDP and the price level in 2012 and in 2013 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 2013, it should:

Answers:

increase interest rates.

 

sell government securities.

 

 

buy government securities.

 

increase income taxes.

 

QUESTION 20

 

A rise in domestic interest rates relative to interest rates in other countries may lead to an exchange rate:

Answers:

 

appreciation and a decrease in net exports.

 

depreciation and a decrease in net exports.

 

appreciation and an increase in net exports.

 

depreciation and an increase in net exports.

 

QUESTION 21

 

In the model of the market for loanable funds, which of the following will not shift the supply curve for loanable funds?

Answers:

 

Expectations of high returns to investments.

 

A decrease in taxation on interest earned on savings accounts.

 

A government budget surplus.

 

A government budget deficit.

 

 

QUESTION 22

Which of the following is an automatic stabiliser?

Answers:

Interest rate changes.

 

 

Unemployment benefit payments to the unemployed.

 

Increases in government spending on schools.

 

Reductions in nominal wages as inflation rates rise.

 

 

QUESTION 23

If the Reserve Bank of Australia buys bonds and securities in the open market, this is likely to lead to a:

Answers:

fall in interest rates and an appreciation of the Australian dollar.

 

rise in interest rates and an appreciation of the Australian dollar.

 

 

fall in interest rates and a depreciation of the Australian dollar.

 

rise in interest rates and a depreciation of the Australian dollar.

 

 

 

 

Refer to Table 16.2 for the following question(s).

Table 16.2

Year

Potential GDP

Real GDP

Price Level

2012

$1.4 trillion

$1.4 trillion

150

2013

$1.5 trillion

$1.8 trillion

154


QUESTION 24
Consider the hypothetical information in Table 16.2 for potential GDP, real GDP and the price level in 2012 and in 2013 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 2013, which of the following will be lower than if the RBA had taken no action?

Answers:

Real GDP and the unemployment rate.

 

 

Real GDP and the inflation rate.

 

Real GDP and potential GDP.

 

Potential GDP and the inflation rate.

 

 

QUESTION 25

Which of the below is an argument that supports the non-independence of a country's central bank from its government?

Answers:

Non-independence allows the government to sell bonds to finance spending more efficiently.

 

Non-independence removes monetary policy from the political electoral cycle.

 

 

Independent monetary policy decision makers are not answerable to the voting public.

 

Independent monetary policy is more likely to be inflationary.

 

 

QUESTION 26

Which of the following is an example of discretionary fiscal policy?

Answers:

 

Tax increases to combat rising inflation.

 

An increase in income tax receipts during an expansion because incomes are rising.

 

An increase in the number of unemployment benefit payments during a recession due to rising unemployment.

 

A decrease in income tax receipts during a recession because incomes are falling.

 

 

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