Question 1

An important assumption in the application of the Mundell- Fleming model of exchange rates is that:

Accepted Answer

A)  the balance of payments is in deficit. 
B)  the exchange rate is fixed. 
C)  a small open economy cannot influence overseas interest rates. 
D)  prices of short- dated bonds are more sensitive to market yields than long- dated bonds. 
A)  the balance of payments is in deficit. 
B)  the exchange rate is fixed. 
C)  a small open economy cannot influence overseas interest rates. 
D)  prices of short- dated bonds are more sensitive to market yields than long- dated bonds.

Question 2

For policy based on monetary aggregates to be successful, which of the following variables needs to remain fairly constant?

Accepted Answer

A)  V 
B)  P 
C)  M 
D)  Y 
A)  V 
B)  P 
C)  M 
D)  Y

Question 3

In the transmission mechanism, an appreciation of the exchange rate leads to higher exports and lower imports which in turn lifts economic growth.

Accepted Answer

A) True 
 B)False

Question 4

Which options are open to a central bank?

Accepted Answer

A)  Setting interest rates. 
B)  Setting monetary growth. 
C)  Setting both interest rates and monetary growth. 
D)  Setting interest rates or setting monetary growth, but not both. 
A)  Setting interest rates. 
B)  Setting monetary growth. 
C)  Setting both interest rates and monetary growth. 
D)  Setting interest rates or setting monetary growth, but not both.

Question 5

An increase in interest rates makes the creation of new assets more attractive.

Accepted Answer

A) True 
 B)False

Question 6

Under a fixed exchange rate, if there is an excess supply of foreign currency the authorities must sell the excess.

Accepted Answer

A) True 
 B)False

Question 7

The cost of changing a monetary policy instrument increases with the size of the change.

Accepted Answer

A) True 
 B)False

Question 8

In order to set the interest rate, the authorities must fix the rate of monetary growth.

Accepted Answer

A) True 
 B)False

Question 9

Tobin's q is equal to:

Accepted Answer

A)  S divided by PI. 
B)  S multiply by PI. 
C)  PI multiply by S. 
D)  PI divided by S. 
A)  S divided by PI. 
B)  S multiply by PI. 
C)  PI multiply by S. 
D)  PI divided by S.

Question 10

Monetary policy is an important tool used by governments to influence economic activity.

Accepted Answer

A) True 
 B)False

Question 11

Broad money is equal to:

Accepted Answer

A)  M3 + NBFI deposits - Bank deposits held by NBFIs. 
B)  M3 - M5. 
C)  M3 + M1. 
D)  none of the above. 
A)  M3 + NBFI deposits - Bank deposits held by NBFIs. 
B)  M3 - M5. 
C)  M3 + M1. 
D)  none of the above.

Question 12

Which of the following policies can be used to prevent the growth of asset price bubbles?

Accepted Answer

A)  Banks and other lenders can be required to adopt conservative loan- to- valuation ratios (LVRs). 
B)  The use of 'circuit breakers'. 
C)  The tax regime could be altered to make speculation in assets less attractive. 
D)  All of the above' 
A)  Banks and other lenders can be required to adopt conservative loan- to- valuation ratios (LVRs). 
B)  The use of 'circuit breakers'. 
C)  The tax regime could be altered to make speculation in assets less attractive. 
D)  All of the above'

Question 13

Which of the following is NOT an ultimate target of central banks' monetary policy?

Accepted Answer

A)  Lower unemployment. 
B)  Lower budget deficit. 
C)  Higher economic growth. 
D)  Lower inflation. 
A)  Lower unemployment. 
B)  Lower budget deficit. 
C)  Higher economic growth. 
D)  Lower inflation.

Question 14

What is the Fisher Effect?

Accepted Answer

The Fisher Effect holds that nominal int

Question 15

The velocity of money will be unstable if banks make a sharp change in the amount of cash they hold.

Accepted Answer

A) True 
 B)False

Question 16

If business investment increases and other factors remain constant, the economy's interest rate will:

Accepted Answer

A)  rise. 
B)  remain unchanged. 
C)  fall. 
D)  It depends on what industry the investment is in. 
A)  rise. 
B)  remain unchanged. 
C)  fall. 
D)  It depends on what industry the investment is in.

Question 17

Under a fixed exchange rate regime, the evidence shows that the authorities lose control of domestic monetary conditions.

Accepted Answer

A) True 
 B)False

Question 18

The Fisher Effect says that:

Accepted Answer

A)  the supply of funds always outweighs the demand. 
B)  the inflation rate increases with the real interest rate. 
C)  the nominal interest rate increases with the rate of inflation. 
D)  the income effect outweighs the substitution effect. 
A)  the supply of funds always outweighs the demand. 
B)  the inflation rate increases with the real interest rate. 
C)  the nominal interest rate increases with the rate of inflation. 
D)  the income effect outweighs the substitution effect.

Question 19

When the RBA buys bonds from the market, it withdraws liquidity from the system.

Accepted Answer

A) True 
 B)False

Question 20

The date when Australian policymakers started to operate with a medium- term flexible target for inflation was:

Accepted Answer

A)  1989. 
B)  1983. 
C)  1993. 
D)  1997. 
A)  1989. 
B)  1983. 
C)  1993. 
D)  1997.

An important assumption in the application of the Mundell- Fleming model of exchange rates is that:

For policy based on monetary aggregates to be successful, which of the following variables needs to remain fairly constant?

In the transmission mechanism, an appreciation of the exchange rate leads to higher exports and lower imports which in turn lifts economic growth.

Which options are open to a central bank?

An increase in interest rates makes the creation of new assets more attractive.

Under a fixed exchange rate, if there is an excess supply of foreign currency the authorities must sell the excess.

The cost of changing a monetary policy instrument increases with the size of the change.

In order to set the interest rate, the authorities must fix the rate of monetary growth.

Tobin's q is equal to:

Monetary policy is an important tool used by governments to influence economic activity.

Broad money is equal to:

Which of the following policies can be used to prevent the growth of asset price bubbles?

Which of the following is NOT an ultimate target of central banks' monetary policy?

What is the Fisher Effect?

The velocity of money will be unstable if banks make a sharp change in the amount of cash they hold.

If business investment increases and other factors remain constant, the economy's interest rate will:

Under a fixed exchange rate regime, the evidence shows that the authorities lose control of domestic monetary conditions.

The Fisher Effect says that:

When the RBA buys bonds from the market, it withdraws liquidity from the system.

The date when Australian policymakers started to operate with a medium- term flexible target for inflation was:

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

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Fixed Rate Derivatives

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Global Financial Crisis

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

An important assumption in the application of the Mundell- Fleming model of exchange rates is that:

For policy based on monetary aggregates to be successful, which of the following variables needs to remain fairly constant?

In the transmission mechanism, an appreciation of the exchange rate leads to higher exports and lower imports which in turn lifts economic growth.

Which options are open to a central bank?

An increase in interest rates makes the creation of new assets more attractive.

Under a fixed exchange rate, if there is an excess supply of foreign currency the authorities must sell the excess.

The cost of changing a monetary policy instrument increases with the size of the change.

In order to set the interest rate, the authorities must fix the rate of monetary growth.

Tobin's q is equal to:

Monetary policy is an important tool used by governments to influence economic activity.

Broad money is equal to:

Which of the following policies can be used to prevent the growth of asset price bubbles?

Which of the following is NOT an ultimate target of central banks' monetary policy?

What is the Fisher Effect?

The velocity of money will be unstable if banks make a sharp change in the amount of cash they hold.

If business investment increases and other factors remain constant, the economy's interest rate will:

Under a fixed exchange rate regime, the evidence shows that the authorities lose control of domestic monetary conditions.

The Fisher Effect says that:

When the RBA buys bonds from the market, it withdraws liquidity from the system.

The date when Australian policymakers started to operate with a medium- term flexible target for inflation was:

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