Question 1

Other things equal, a rise in saving by Australian households will lead to a fall in interest rates.

Accepted Answer

A) True 
 B)False  True

Question 2

M3 is equal to:

Accepted Answer

A)  Currency + Cheque deposits. 
B)  Currency + Cheque deposits + Bank deposits. 
C)  Currency + Bank deposits. 
D)  none of the above. 
A)  Currency + Cheque deposits. 
B)  Currency + Cheque deposits + Bank deposits. 
C)  Currency + Bank deposits. 
D)  none of the above. C

Question 3

The velocity of money equals the speed with which a change in the cash rate reaches the wider economy via the transmission mechanism.

Accepted Answer

A) True 
 B)False  False

Question 4

If a university student performs a higher number of transactions each year using the same amount of cash, there has been an increase in her velocity of money.

Accepted Answer

A) True 
 B)False

Question 5

A university student last year borrowed at a 10% interest rate when inflation was 5%. This year she borrows at 15% and inflation is 10%. Compared with last year, the student is:

Accepted Answer

A)  in a higher tax bracket. 
B)  better off. 
C)  worse off. 
D)  the same. 
A)  in a higher tax bracket. 
B)  better off. 
C)  worse off. 
D)  the same.

Question 6

The RBA is required to determine its monetary and banking policy so as to:

Accepted Answer

A)  achieve the maintenance of full employment. 
B)  achieve the stability of the Australian currency. 
C)  contribute to the economic prosperity and welfare of the people. 
D)  all of the above. 
A)  achieve the maintenance of full employment. 
B)  achieve the stability of the Australian currency. 
C)  contribute to the economic prosperity and welfare of the people. 
D)  all of the above.

Question 7

The main implication for monetary policy of financial deregulation is that it generates structural change in the financial sector and therefore an interest rate target is more appropriate than a money stock target.

Accepted Answer

A) True 
 B)False

Question 8

The statement that 'official transactions were undertaken in the domestic money market to offset effects on liquidity of official transactions in the foreign exchange market' most closely describes:

Accepted Answer

A)  immunisation of the RBA's portfolio. 
B)  modification of the velocity of money. 
C)  interest rate targeting. 
D)  sterilisation of foreign exchange operations. 
A)  immunisation of the RBA's portfolio. 
B)  modification of the velocity of money. 
C)  interest rate targeting. 
D)  sterilisation of foreign exchange operations.

Question 9

It is important that the RBA adopt a consistent and transparent approach to monetary policy so that economic agents can form valid expectations.

Accepted Answer

A) True 
 B)False

Question 10

If $100 is invested for one year at 8% p.a. and inflation during the same period is 3%, the real value of the investment at the end of the year is:

Accepted Answer

A)  $104.85. 
B)  $103.00. 
C)  $104.76. 
D)  $105.00. 
A)  $104.85. 
B)  $103.00. 
C)  $104.76. 
D)  $105.00.

Question 11

Assume that a monetary growth target has been set at 6- 8% per annum. If the outcome is 10% money growth, the target has not only been achieved but has been bettered.

Accepted Answer

A) True 
 B)False

Question 12

The central bank in Australia is less independent of the central government than is the case in many other countries.

Accepted Answer

A) True 
 B)False

Question 13

Monetary policy is not the only policy available for tackling asset price bubbles.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is correct?

Accepted Answer

A)  Changes in the cash rate and longer- term rates affect inflation and the real economy through the transmission mechanism. 
B)  The change in the cash rate will affect longer- term interest rates (the yield curve) in a way that is determined by changes in market interest rate expectations. 
C)  The RBA carries out market operations so that the money base (balances in ESAs) is consistent with the cash rate the Bank has set. 
D)  All of the above. 
A)  Changes in the cash rate and longer- term rates affect inflation and the real economy through the transmission mechanism. 
B)  The change in the cash rate will affect longer- term interest rates (the yield curve) in a way that is determined by changes in market interest rate expectations. 
C)  The RBA carries out market operations so that the money base (balances in ESAs) is consistent with the cash rate the Bank has set. 
D)  All of the above.

Question 15

Changes in interest rates also have efficiency and consumer welfare effects.

Accepted Answer

A) True 
 B)False

Question 16

A policy instrument over which the authorities have complete control is:

Accepted Answer

A)  the stock market index. 
B)  the cash rate. 
C)  monetary aggregates. 
D)  the exchange rate. 
A)  the stock market index. 
B)  the cash rate. 
C)  monetary aggregates. 
D)  the exchange rate.

Question 17

The Fisher Equation demonstrates that in the presence of both inflation and taxes the real after- tax interest rate will always be negative.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the central bank increases the money supply. Whether inflation increases as a result will depend on:

Accepted Answer

A)  the yield curve. 
B)  the media reaction. 
C)  the degree of capacity utilisation in the economy. 
D)  the level of the exchange rate. 
A)  the yield curve. 
B)  the media reaction. 
C)  the degree of capacity utilisation in the economy. 
D)  the level of the exchange rate.

Question 19

Briefly summarise the process of monetary policymaking.

Accepted Answer

The main steps in the process are as fol

Question 20

Who sets the overnight rate in the interbank market (the cash rate) in Australia?

Accepted Answer

A)  RBA. 
B)  The traders in Sydney. 
C)  The Finance minister. 
D)  The commercial banks. 
A)  RBA. 
B)  The traders in Sydney. 
C)  The Finance minister. 
D)  The commercial banks.

Other things equal, a rise in saving by Australian households will lead to a fall in interest rates.

M3 is equal to:

The velocity of money equals the speed with which a change in the cash rate reaches the wider economy via the transmission mechanism.

If a university student performs a higher number of transactions each year using the same amount of cash, there has been an increase in her velocity of money.

A university student last year borrowed at a 10% interest rate when inflation was 5%. This year she borrows at 15% and inflation is 10%. Compared with last year, the student is:

The RBA is required to determine its monetary and banking policy so as to:

The main implication for monetary policy of financial deregulation is that it generates structural change in the financial sector and therefore an interest rate target is more appropriate than a money stock target.

The statement that 'official transactions were undertaken in the domestic money market to offset effects on liquidity of official transactions in the foreign exchange market' most closely describes:

It is important that the RBA adopt a consistent and transparent approach to monetary policy so that economic agents can form valid expectations.

If $100 is invested for one year at 8% p.a. and inflation during the same period is 3%, the real value of the investment at the end of the year is:

Assume that a monetary growth target has been set at 6- 8% per annum. If the outcome is 10% money growth, the target has not only been achieved but has been bettered.

The central bank in Australia is less independent of the central government than is the case in many other countries.

Monetary policy is not the only policy available for tackling asset price bubbles.

Which of the following is correct?

Changes in interest rates also have efficiency and consumer welfare effects.

A policy instrument over which the authorities have complete control is:

The Fisher Equation demonstrates that in the presence of both inflation and taxes the real after- tax interest rate will always be negative.

Suppose the central bank increases the money supply. Whether inflation increases as a result will depend on:

Briefly summarise the process of monetary policymaking.

Who sets the overnight rate in the interbank market (the cash rate) in Australia?

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

The Foreign Exchange Market

Listed Securities

Fixed Rate Derivatives

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Global Financial Crisis

Managing Foreign Exchange Risk

Managing Interest Rate Risk

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Exam 7: Interest Rates, the Yield Curve and Monetary Policy

Other things equal, a rise in saving by Australian households will lead to a fall in interest rates.

M3 is equal to:

The velocity of money equals the speed with which a change in the cash rate reaches the wider economy via the transmission mechanism.

If a university student performs a higher number of transactions each year using the same amount of cash, there has been an increase in her velocity of money.

A university student last year borrowed at a 10% interest rate when inflation was 5%. This year she borrows at 15% and inflation is 10%. Compared with last year, the student is:

The RBA is required to determine its monetary and banking policy so as to:

The main implication for monetary policy of financial deregulation is that it generates structural change in the financial sector and therefore an interest rate target is more appropriate than a money stock target.

The statement that 'official transactions were undertaken in the domestic money market to offset effects on liquidity of official transactions in the foreign exchange market' most closely describes:

It is important that the RBA adopt a consistent and transparent approach to monetary policy so that economic agents can form valid expectations.

If $100 is invested for one year at 8% p.a. and inflation during the same period is 3%, the real value of the investment at the end of the year is:

Assume that a monetary growth target has been set at 6- 8% per annum. If the outcome is 10% money growth, the target has not only been achieved but has been bettered.

The central bank in Australia is less independent of the central government than is the case in many other countries.

Monetary policy is not the only policy available for tackling asset price bubbles.

Which of the following is correct?

Changes in interest rates also have efficiency and consumer welfare effects.

A policy instrument over which the authorities have complete control is:

The Fisher Equation demonstrates that in the presence of both inflation and taxes the real after- tax interest rate will always be negative.

Suppose the central bank increases the money supply. Whether inflation increases as a result will depend on:

Briefly summarise the process of monetary policymaking.

Who sets the overnight rate in the interbank market (the cash rate) in Australia?

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

The Foreign Exchange Market

Listed Securities

Fixed Rate Derivatives

Options

Global Financial Crisis

Managing Foreign Exchange Risk

Managing Interest Rate Risk

Filters