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Homework answers / question archive /   1)Robba Bank has $500 million in deposits, and is meeting its usual reserve ratio and has no excess liquidity

  1)Robba Bank has $500 million in deposits, and is meeting its usual reserve ratio and has no excess liquidity

Economics

 

1)Robba Bank has $500 million in deposits, and is meeting its usual reserve ratio and has no excess liquidity. It has $125 million in liquid assets. Robba Bank therefore has a reserve ratio of:

     

Answers:

20%.

 

4%.

 

 

25%.

 

1.25%.

     

 

 

2The Reserve Bank Board comprises:

Answers:

The Reserve Bank Governor, the Deputy Governor and the managers of the major banks.

 

The Reserve Bank Governor and six other members appointed by the government.

 

The Reserve Bank Governor, the Deputy Governor, the Federal Government Treasurer, and members from business and academia.

 

 

The Reserve Bank Governor, the Deputy Governor, the Secretary to the Federal Government Treasury, and up to six other members.

 

3

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

 

Answers:

achieve the same low rate of inflation every year.

 

 

achieve a particular annual rate of inflation, on average, over the business cycle.

 

control the money supply to achieve a target rate of interest that will ensure a low rate of inflation.

 

control the money supply to achieve a target rate of inflation.

4

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

Answers:

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

 

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

 

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

 

 

sterilise deficits and surpluses of cash in the financial system.

 

5    

If the Reserve Bank of Australia wants to increase interest rates, it will:

Answers:

 

sell financial securities.

 

decrease the exchange rate.

 

buy financial securities.

 

increase the exchange rate.

 

   

6

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 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.

 

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

     

 

7

If the Reserve Bank of Australia buys 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.

 

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

 

 

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

 

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

 

8.

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

Answers:

other interest rates rising which stimulates consumption spending.

 

people spending less because they have less money.

 

other interest rates falling which stimulates investment spending.

 

 

other interest rates rising which reduces investment spending.

 

   

9.

M1 includes:

     

Answers:

currency plus all banks and non-bank financial institution deposits.

 

currency plus demand deposits in Australian-owned banks only.

 

currency plus all deposits in Australian- and foreign-owned banks.

 

 

currency plus demand deposits in banks.

     

 

   

10.

A decrease in the real interest rate will:

     

Answers:

increase saving and investment.

 

 

increase consumption and investment.

 

increase consumption and reduce investment.

 

decrease investment and government spending.

     

 

   

11

When a grocery store accepts your $10 note in exchange for bread and milk, this illustrates that the $10 note is serving as a:

     

Answers:

unit of account.

 

 

medium of exchange.

 

standard of deferred payment.

 

store of value.

     

 

   

12.

A financial intermediary's main function is to match ________ with excess funds to ________ who want to borrow funds.

     

Answers:

 

households; firms

 

firms; firms

 

households; households

 

firms; households

     

 

   

13.

Assume that banks become more conservative in their lending policies, and start holding some excess liquid assets. Compared to a situation in which banks are not holding excess reserves, the size of the deposit multiplier will be:

     

Answers:

zero.

 

the same.

 

larger.

 

 

smaller.

     

 

   

14.

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

     

Answers:

increase; lower

 

reduce; raise

 

increase; raise

 

 

reduce; lower

     

 

   

15.

A decrease in real GDP can:

     

Answers:

increase money demand and increase the interest rate.

 

decrease money demand and increase the interest rate.

 

increase money demand and decrease the interest rate.

 

 

decrease money demand and decrease the interest rate.

     

 

   

16.

Credit cards are considered:

     

Answers:

part of M1.

 

broad money.

 

part of M3.

 

 

not part of the money supply.

     

 

17.

If you save $3000 for a deposit on a new car, you are using money as a:

Answers:

unit of account.

 

 

store of value.

 

standard of deferred payment.

 

medium of exchange.

 

18

If banks do not loan out all their excess reserves, then the real world multiplier is:

Answers:

larger than 1/RR.

 

equal to 1/RR.

 

not related to 1/RR.

 

 

smaller than 1/RR.

 

19

If during a deposit expansion, not all money is re-deposited into the banking system and some leaks out as currency, then the real world multiplier is:

Answers:

larger than 1/RR.

 

 

smaller than 1/RR.

 

equal to 1/RR.

 

not related to 1/RR.

 

20

If the reserve ratio is 0.05 then the simple deposit multiplier is:

Answers:

10.

 

5.

 

2.

 

 

20.

 

21

The simple deposit multiplier is the ratio of the amount of:

Answers:

deposits created by the banks.

 

 

deposits created by the banks to the amount of new reserves.

 

new reserves created by the banks to the amount of deposits.

 

new reserves created by the banks to the amount of loans.

 

22.

A decrease in the supply of cash on the overnight money market will lead to a:

Answers:

fall in interest rates and a decrease in investment expenditure.

 

fall in interest rates and an increase in investment expenditure.

 

rise in interest rates and an increase in investment expenditure.

 

 

rise in interest rates and a decrease in investment expenditure.

 

23

Which of the following describes what the Reserve Bank of Australia would do to pursue an expansionary monetary policy?

Answers:

Use open market operations to increase the overnight cash rate.

 

Use open market operations to sell bonds and securities.

 

 

Use open market operations to buy bonds and securities.

 

Increase interest rates on mortgages and corporate loans.

 

24

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

Answers:

decreases; decreases

 

 

increases; increases

 

increases; decreases

 

decreases; increases

 

25

Which of the following does the Reserve Bank of Australia use as its main measure of monetary movements in Australia?

Answers:

 

Credit.

 

The demand for money.

 

The money supply.

 

The cash rate.

 

26

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

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 inflation rate.

 

Real GDP and potential GDP.

 

Real GDP and the unemployment rate.

 

Potential GDP and the inflation rate.

 

27 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 (RBA) does not use monetary policy. If the RBA wants to keep real GDP at its potential level in 2013, it should:

Answers:

decrease interest rates.

 

buy government securities.

 

 

sell government securities.

 

decrease income taxes.

 

28

The cash rate is the interest rate:

Answers:

 

banks charge each other for overnight loans.

 

the Reserve Bank of Australia charges commercial banks.

 

on a government bond or security.

 

banks charge their largest customers.

 

29.

Assume that some people who receive bank loans do not deposit the full amount of the loan into a bank. This will cause the deposit multiplier to be ________ it would have been if all loans are deposited in banks.

Answers:

 

smaller than

 

greater than

 

the same as

 

either greater than or smaller than

 

30

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

Answers:

households

 

banks

 

government

 

 

firms

 

31

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

Answers:

The effect of technological change on profitability.

 

Expectations of high returns to investments.

 

The expectation of a recession by businesses.

 

 

Lower interest rates.

 

32

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

Answers:

A government budget deficit.

 

A government budget surplus.

 

 

Expectations of high returns to investments.

 

A decrease in taxation on interest earned on savings accounts.

 

33

From an initial long-run macroeconomic equilibrium, if the Reserve Bank of Australia anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the RBA would most likely:

Answers:

 

decrease interest rates.

 

increase interest rates.

 

decrease income tax rates.

 

increase income tax rates.

 

34

A person's wealth:

Answers:

is measured independently of his or her current and expected future income.

 

is a measure of how much money the person has.

 

 

equals the value of the person's assets minus his or her liabilities.

 

All of these options are correct.

 

35

Equilibrium in the loanable funds market determines the:

Answers:

 

real interest rate.

 

nominal interest rate.

 

expected interest rate.

 

current interest rate.

 

36

If the Reserve Bank of Australia buys financial securities, this:

Answers:

 

increases reserves and encourages banks to make more loans.

 

decreases reserves and causes banks to reduce their loans.

 

decreases reserves, causes banks to reduce their loans, and increases interest rates.

 

increases reserves, causes banks to reduce their loans, and decreases interest rates.

 

37

When banks gain ________, they can ________ their loans; and the money supply ________.

Answers:

 

reserves; increase; expands

 

withdrawals; increase; expands

 

reserves; increase; contracts

 

withdrawals; decrease; expands

 

38

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

Answers:

rise by less than it otherwise would have, and the price level will rise by less than it otherwise would have.

 

 

rise by more than it otherwise would have, and the price level will rise by more than it otherwise would have.

 

fall by more than it otherwise would have, and the price level will fall by more than it otherwise would have.

 

fall by less than it otherwise would have, and the price level will rise by less than it otherwise would have.

 

39

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

Answers:

 

borrowing from the banks using reverse repurchase agreements.

 

lending cash to banks using repurchase agreements.

 

purchasing bonds and securities, which increases banks' reserves.

 

purchasing bonds and securities, which decreases banks' reserves.

 

40

The Reserve Bank of Australia's main monetary policy target is:

Answers:

the unemployment rate.

 

 

the inflation rate.

 

the money supply.

 

real GDP.

 

41

The reserves of a bank:

Answers:

include funds held at the Reserve Bank of Australia.

 

comprise vault cash.

 

are usually a small proportion of the bank's deposits.

 

 

All of these are correct.

 

 

Refer to the Figure 16.6 for the following question.

   

 

 

42Refer to Figure 16.6. In this figure, suppose the economy in Year 1 is at point 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:

 

Sell financial securities.

 

Decrease income taxes.

 

Increase government spending.

 

Buy financial securities.

 

43

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 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 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.

 

44

A government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.

Answers:

demand; right; rise

 

demand; left; fall

 

supply; right; fall

 

 

supply; left; rise

 

45

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

Answers:

 

medium of exchange; store of value

 

unit of barter; unit of account

 

store of value; unit of liquidity

 

store of value; unit of barter

 

46

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

Answers:

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

 

larger than its effect on short-term interest rates.

 

 

smaller than its effect on short-term interest rates.

 

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

 

47

Monetary policy targets the:

Selected Answer:

 

short-term nominal rate of interest.

Answers:

short-term real rate of interest.

 

long-term real rate of interest.

 

 

short-term nominal rate of interest.

 

long-term nominal rate of interest.

 

48

Open market operations occur when the Reserve Bank of Australia:

Answers:

 

purchases or sells short-dated financial instruments.

 

controls the money supply.

 

purchases or sells corporate shares in the market to control interest rates.

 

makes loans to foreign banks.

 

 

 

49

If firms are anticipating that the profitability of new investments will be lower in the future, then the ________ curve for loanable funds will shift to the ________.

Answers:

supply: right

 

supply; left

 

 

demand; left

 

demand; right

 

 

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




50 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:

 

buy government securities.

 

increase income taxes.

 

sell government securities.

 

increase interest rates.

 

51

An increase in the real interest rate does which of the following?

Answers:

 

Reduces consumption spending.

 

Reduces the demand for loanable funds.

 

Increases the demand for loanable funds.

 

Reduces saving.

 

52

Liquidity is defined as the ease with which a given asset can be converted to a:

Answers:

a standard of deferred payment.

 

unit of account.

 

store of value.

 

 

a medium of exchange.

 

53

Which of the following are part of a bank's assets?

Answers:

Shareholders' equity.

 

Long-term debt.

 

Customer's deposits.

 

 

Reserves held at the Reserve Bank of Australia.

 

54

Increases in the price level:

Answers:

decrease the quantity of money needed for buying and selling.

 

increase the opportunity cost of holding money.

 

 

increase the quantity of money needed for buying and selling.

 

decrease the opportunity cost of holding money.

 

55

If interest rates rise, this will:

Answers:

lower the cost of buying new homes, fewer new homes will be purchased, thereby reducing consumption expenditure.

 

lower the cost of buying new homes, fewer new homes will be purchased, thereby reducing investment expenditure.

 

 

raise the cost of buying new homes, fewer new homes will be purchased, thereby reducing investment expenditure.

 

raise the cost of buying new homes, more new homes will be purchased, thereby increasing investment expenditure.

 

56

The ________ the reserve ratio, the ________ the simple deposit multiplier.

Answers:

larger; larger

 

 

smaller; larger

 

smaller; smaller

 

smaller; greater likelihood there is no change in

 

57

The majority of intervention into financial markets by the Reserve Bank of Australia is to:

Answers:

change the exchange rate between the Australian dollar and overseas currencies.

 

decrease the cash rate.

 

increase the cash rate.

 

 

offset daily variations in liquidity to keep interest rates at the same level.

 

58

The demand for loanable funds has a ________ slope because the lower the interest rate, the ________ number of investment projects are profitable, and the ________ the quantity of loanable funds demanded.

Answers:

 

negative; greater; greater

 

negative; lesser; greater

 

negative; greater; lesser

 

positive; lesser; lesser

 

59

Which one of the following is not considered a financial intermediary?

Answers:

An insurance company.

 

A managed fund.

 

A building society.

 

 

A financial adviser.

 

60

If real GDP decreases:

Answers:

there will be an upward movement along the money demand curve.

 

the money demand curve will shift to the right.

 

there will be a downward movement along the money demand curve.

 

 

the money demand curve will shift to the left.

 

61

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 worried that deflation will become a problem.

 

 

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

 

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

 

62

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

Answers:

 

The RBA may be able to keep a recession shorter and milder than it would otherwise be.

 

The RBA is incapable of changing aggregate demand through its monetary policy tools.

 

The RBA may be able to eliminate the business cycle and achieve absolute price stability.

 

The RBA is able to 'fine tune' the economy and entirely eliminate recessions.

 

63

Which of the following criteria would make gold a poor medium of exchange?

Answers:

Durability so that value is not lost by spoilage.

 

 

Its value depends on its purity, and its purity is not easy to visibly identify.

 

Divisibility because different goods are valued differently.

 

Value relative to its weight so that amounts large enough to be useful in trade can be easily transported.

 

64

The supply of loanable funds has a ________ slope because the greater the interest rate, the ________ the reward to savings, and the ________ the quantity of loanable funds supplied.

Answers:

positive; greater; lesser

 

negative; lesser; greater

 

positive; lesser; lesser

 

 

positive; greater; greater

 

 

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

   

 

 

65Refer to Figure 16.3. Beginning at equilibrium, if the government budget deficit rises, which of the following would you expect to see?

Answers:

The budget deficit will have no impact on the quantity of loanable funds demanded by firms.

 

The quantity of loanable funds demanded by firms will rise above $120 million.

 

The interest rate will fall below 4 per cent.

 

 

The quantity of loanable funds demanded by firms will fall below $120 million.

 

 

Refer to Figure 16.4 for the following question.

   

 

 

66Refer to Figure 16.4. In this figure, suppose the economy in Year 1 is at point 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:

Decrease income taxes.

 

Increase government spending.

 

 

Buy financial securities.

 

Sell financial securities.

 

67

The overnight cash rate is determined:

Answers:

administratively by the Reserve Bank of Australia.

 

directly by household demand for funds.

 

 

by the supply of and demand for cash.

 

directly by firm demand for funds.

 

68

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

Answers:

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

 

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.

 

 

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

 

69

In World War II, cigarettes were used as money in some prisoner of war camps. Given this, we would expect to see:

Answers:

no one ever smoking cigarettes in the prisoner of war camps.

 

 

prices of other goods expressed in terms of cigarettes.

 

only government-issued cigarettes being accepted as money.

 

people bartering instead of using cigarettes as money.

 

70

A unit of account is:

Answers:

an asset that can be used to transport purchasing power from one period of time to another.

 

what sellers generally accept and buyers generally use to pay for goods and services.

 

 

a standard unit that provides a consistent way of quoting prices.

 

the ability to buy something today but to defer payment to the future.

 

71

Banks can increase the money supply by:

Answers:

paying interest to their depositors.

 

offering financial services, such as money market accounts.

 

 

making loans that result in additional deposits.

 

printing additional currency notes.

 

72

Many international trade contracts are denominated in United States dollars, regardless of the currencies of the countries that are trading with each other. This is an example of money serving as a:

Answers:

standard of deferred payment.

 

store of value.

 

medium of exchange.

 

 

unit of account.

 

73

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

Answers:

 

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

 

74

If you spend more of your income on consumption goods, which of the following will occur?

Answers:

Investments in education will rise.

 

Economic growth will be stimulated.

 

For every dollar you spend on consumption, real GDP will fall by a dollar.

 

 

The production of investment goods will fall.

 

75

The portion of ________ that a bank does not loan out or spend on securities is known as ________.

Answers:

loans; reserves

 

loans; securities

 

deposits; securities

 

 

deposits; reserves

 

76

Which of the following are goals of monetary policy?

Answers:

Price stability, maximising the value of the dollar relative to other currencies, and high employment.

 

 

Price stability, economic growth, and high employment.

 

Maximising the value of the dollar relative to other currencies, economic growth, and high employment.

 

Price stability, economic growth, and maximising the value of the dollar relative to other currencies.

 

77

Which of the following is used by the Reserve Bank of Australia as the main measure of monetary movements in Australia?

Answers:

M1.

 

 

Credit.

 

M3.

 

Broad money.

 

   

78

Which of the following is not true about monetary policy?

     

Answers:

The burden of contractionary monetary policy is not spread evenly among the population.

 

Contractionary monetary policy is often more effective at reducing the rate of economic growth than expansionary monetary policy is at increasing the rate of economic growth.

 

 

The full effect of monetary policy impacts the economy immediately, as unlike fiscal policy, monetary policy is not subject to time lags.

 

Contractionary monetary policy can reduce export earnings.

     

 

79

If you transfer all of your currency to your demand deposit account, then initially, M1 will ________ and M3 will ________.

Answers:

decrease; increase

 

 

not change; not change

 

not change; increase

 

increase; not change

 

80

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

Answers:

short-term real interest rates; long-term nominal interest rates

 

 

short-term nominal interest rates; long-term real interest rates

 

short-term real interest rates; long-term real interest rates

 

short-term nominal interest rates; long-term nominal interest rates

 

81

If the Reserve Bank of Australia lowers its target for the cash rate, this indicates that it is:

Answers:

pursuing a contractionary monetary policy.

 

 

pursuing an expansionary monetary policy.

 

attempting to combat inflation.

 

concerned that the growth in aggregate demand will exceed potential GDP.

 

82

The money demand curve is downward sloping because:

Answers:

 

lower interest rates cause households and firms to switch from financial assets to money.

 

lower interest rates cause households and firms to switch from money to shares.

 

lower interest rates cause households and firms to switch from money to bonds.

 

lower interest rates cause households and firms to switch from money to financial assets.

 

 

Refer to Figure 16.2 for the following question.

   

 

 

83Refer to Figure 16.2. In this figure, a movement from point to point would be caused by:

Answers:

an increase in the price level.

 

a decrease in real GDP.

 

 

an increase in the interest rate.

 

a decrease in the price level.

 

84

Suppose you deposit $2000 into a bank that has a reserve ratio of 0.1. How does this initially affect the bank's balance sheet?

Answers:

Deposits rise by $1000.

 

Required reserves rise by $2000.

 

 

Excess reserves rise by $1800.

 

Reserves rise by $200.

 

85

The liquidity property of money is the property that makes money:

Answers:

 

a good medium of exchange and a good store of value.

 

a good medium of exchange and a good unit of account.

 

a good store of value and a good unit of account.

 

a good store of value and a good standard of deferred payment.

 

86

A cash withdrawal from the banking system:

Answers:

 

decreases demand deposits.

 

lowers demand deposits to zero.

 

increases the money supply.

 

increases excess reserves.

 

87

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

Answers:

 

rise by less than it otherwise would have, and the price level to rise by less than it otherwise would have.

 

rise by more than it otherwise would have, and the price level rise by less than it otherwise would have.

 

fall by less than it otherwise would have, and the price level to rise by less than it otherwise would have.

 

fall by more than it otherwise would have, and the price level to rise by more than it otherwise would have.

 

88

The money supply curve would be vertical if:

Answers:

banks and the RBA jointly determine the money supply.

 

banks and households determine the money supply.

 

 

the RBA is able to completely fix the money supply.

 

households and the RBA jointly determine the money supply.

 

89

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

Answers:

perfectly inelastic at the current interest rate.

 

fixed by the Reserve Bank of Australia.

 

 

perfectly elastic at the current interest rate.

 

targeted by the use of open market operations.

 

90

A farm worker gets paid today in money, but waits to spend the money until next week. Which function of money does this illustrate?

Answers:

Unit of account.

 

Medium of exchange.

 

 

Store of value.

 

Standard of deferred payment.

 

91

The key to having the citizens in an economy accept something as money is:

Answers:

 

all citizens accept the good as a means of payment for transactions and debts.

 

having the federal government declare the good be accepted in payment of debts.

 

the good should have gold backing it.

 

having the federal government declare that the good is legal tender.

 

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