Question 1

Explain what role money illusion plays in determining the RBA's ability to affect output in the short run.

Accepted Answer

Money illusion refers to a situation whe

Question 2

Briefly discuss the organisation of the RBA. Include in your answer a discussion of the individuals/groups who make decisions about monetary policy.

Accepted Answer

In terms of the structure of the RBA, an

Question 3

Discuss the various macro prudential tools available to policymakers to deal with bubbles, credit booms, and risky behaviour in the financial system.

Accepted Answer

If policymakers worry about excessive in

Question 4

Which of the following would cause an increase in M1?

Accepted Answer

A)  A decrease in the discount rate. 
B)  An increase in the required ratio of reserves to deposits. 
C)  An open market operation where the RBA buys bonds from the public. 
D)  Both A and B. 
E)  Both B and C. 
A)  A decrease in the discount rate. 
B)  An increase in the required ratio of reserves to deposits. 
C)  An open market operation where the RBA buys bonds from the public. 
D)  Both A and B. 
E)  Both B and C.

Question 5

In Australia, monetary policy decisions are made by:

Accepted Answer

A)  the Federal Treasurer. 
B)  the RBA Governor. 
C)  the RBA Deputy Governor. 
D)  the RBA Board. 
E)  the Treasury secretary. 
A)  the Federal Treasurer. 
B)  the RBA Governor. 
C)  the RBA Deputy Governor. 
D)  the RBA Board. 
E)  the Treasury secretary.

Question 6

The existence of inflation does which of the following?

Accepted Answer

A)  Allows governments to benefit from seignorage. 
B)  Reduces the costs associated with money illusion. 
C)  Reduces tax distortions. 
D)  Increases output in the medium run. 
E)  Reduces shoe- leather costs. 
A)  Allows governments to benefit from seignorage. 
B)  Reduces the costs associated with money illusion. 
C)  Reduces tax distortions. 
D)  Increases output in the medium run. 
E)  Reduces shoe- leather costs.

Question 7

The Governor of the Reserve Bank Board:

Accepted Answer

A)  serves a 7- year renewable term as chair. 
B)  serves a 10- year non- renewable term as chair. 
C)  also serves as chair of the House of Representatives committee on monetary policy. 
D)  is a member of the Federal cabinet. 
E)  is selected by the House of Representatives, once every four years. 
A)  serves a 7- year renewable term as chair. 
B)  serves a 10- year non- renewable term as chair. 
C)  also serves as chair of the House of Representatives committee on monetary policy. 
D)  is a member of the Federal cabinet. 
E)  is selected by the House of Representatives, once every four years.

Question 8

Discuss quantitative easing and credit easing in relation to the liquidity trap. How effective are these unconventional monetary policy measures?

Accepted Answer

The nominal interest rate is zero when t

Question 9

The nominal interest rate can be negative if:

Accepted Answer

A)  the real interest rate is negative. 
B)  inflation is variable. 
C)  the inflation rate is greater than the nominal interest rate. 
D)  inflation is unexpected. 
E)  None of the above. 
A)  the real interest rate is negative. 
B)  inflation is variable. 
C)  the inflation rate is greater than the nominal interest rate. 
D)  inflation is unexpected. 
E)  None of the above.

Question 10

Assume that the RBA sets monetary policy according to the Taylor rule. Suppose current Australian macroeconomic conditions are represented by the following: n > n* and u = un. Given this information, we would expect that the RBA will:

Accepted Answer

A)  maintain its current stance of monetary policy. 
B)  implement a monetary expansion. 
C)  implement a monetary contraction. 
D)  implement a monetary contraction with a revaluation. 
E)  More information is needed to answer this question. 
A)  maintain its current stance of monetary policy. 
B)  implement a monetary expansion. 
C)  implement a monetary contraction. 
D)  implement a monetary contraction with a revaluation. 
E)  More information is needed to answer this question.

Question 11

Bracket creep would less likely occur in which of the following?

Accepted Answer

A)  A flat income tax system. 
B)  A regressive income tax system. 
C)  A progressive income tax system. 
D)  A regressive indexed income tax system. 
E)  A progressive indexed income tax system. 
A)  A flat income tax system. 
B)  A regressive income tax system. 
C)  A progressive income tax system. 
D)  A regressive indexed income tax system. 
E)  A progressive indexed income tax system.

Question 12

Discuss and explain each of the instruments of monetary policy.

Accepted Answer

The instruments are:
1() Reserve require

Question 13

In the medium run, monetary policy determines:

Accepted Answer

A)  the rate of inflation. 
B)  the rate of unemployment. 
C)  the level of output. 
D)  the level of employment. 
E)  the division of output between consumption, investment, and government goods. 
A)  the rate of inflation. 
B)  the rate of unemployment. 
C)  the level of output. 
D)  the level of employment. 
E)  the division of output between consumption, investment, and government goods.

Question 14

What is inflation targeting? Is it possible for a central bank that adopts inflation targeting to also pursue output stabilisation?

Accepted Answer

An inflation targeting regime specifies

Question 15

Monetary policy has short- run effects on which of the following?

Accepted Answer

A)  Only the price level. 
B)  The level of output but not its composition. 
C)  Only the nominal interest rate, not the real interest rate. 
D)  Both the level and composition of output. 
E)  Inflation but not the level of output. 
A)  Only the price level. 
B)  The level of output but not its composition. 
C)  Only the nominal interest rate, not the real interest rate. 
D)  Both the level and composition of output. 
E)  Inflation but not the level of output.

Question 16

If advertising by term deposit funds began to lure money from current account deposits, and the RBA controls M1, then:

Accepted Answer

A)  the IS curve would shift leftward. 
B)  the LM curve would shift upward. 
C)  the IS curve would shift rightward. 
D)  the LM curve would shift downward. 
E)  the IS curve would shift rightward and the LM curve would shift downward. 
A)  the IS curve would shift leftward. 
B)  the LM curve would shift upward. 
C)  the IS curve would shift rightward. 
D)  the LM curve would shift downward. 
E)  the IS curve would shift rightward and the LM curve would shift downward.

Question 17

What are the factors that will determine the optimal inflation rate?

Accepted Answer

In short, the factors that will determin

Question 18

Suppose the annual inflation rate is 5%, and an asset bought at the beginning of the year for $50,000 is sold for $65,000. If the capital- gains tax rate is 30%, what is the (approximate) effective tax rate on the sale of this asset?

Accepted Answer

A)  7%. 
B)  10%. 
C)  9%. 
D)  6%. 
E)  8%. 
A)  7%. 
B)  10%. 
C)  9%. 
D)  6%. 
E)  8%.

Question 19

Which of the following is part of M3 but not M1?

Accepted Answer

A)  Saving deposits. 
B)  High- powered money. 
C)  Notes and coins. 
D)  Current account deposits. 
E)  Currency. 
A)  Saving deposits. 
B)  High- powered money. 
C)  Notes and coins. 
D)  Current account deposits. 
E)  Currency.

Question 20

A change in the reserve requirement changes:

Accepted Answer

A)  the money multiplier. 
B)  high- powered money. 
C)  the discount rate. 
D)  the real interest rate. 
E)  the monetary base. 
A)  the money multiplier. 
B)  high- powered money. 
C)  the discount rate. 
D)  the real interest rate. 
E)  the monetary base.

Exam 24: Monetary Policy: a Summing up

Explain what role money illusion plays in determining the RBA's ability to affect output in the short run.

Briefly discuss the organisation of the RBA. Include in your answer a discussion of the individuals/groups who make decisions about monetary policy.

Discuss the various macro prudential tools available to policymakers to deal with bubbles, credit booms, and risky behaviour in the financial system.

Which of the following would cause an increase in M1?

In Australia, monetary policy decisions are made by:

The existence of inflation does which of the following?

The Governor of the Reserve Bank Board:

Discuss quantitative easing and credit easing in relation to the liquidity trap. How effective are these unconventional monetary policy measures?

The nominal interest rate can be negative if:

Assume that the RBA sets monetary policy according to the Taylor rule. Suppose current Australian macroeconomic conditions are represented by the following: n > n* and u = un. Given this information, we would expect that the RBA will:

Bracket creep would less likely occur in which of the following?

Discuss and explain each of the instruments of monetary policy.

In the medium run, monetary policy determines:

What is inflation targeting? Is it possible for a central bank that adopts inflation targeting to also pursue output stabilisation?

Monetary policy has short- run effects on which of the following?

If advertising by term deposit funds began to lure money from current account deposits, and the RBA controls M1, then:

What are the factors that will determine the optimal inflation rate?

Suppose the annual inflation rate is 5%, and an asset bought at the beginning of the year for $50,000 is sold for $65,000. If the capital- gains tax rate is 30%, what is the (approximate) effective tax rate on the sale of this asset?

Which of the following is part of M3 but not M1?

A change in the reserve requirement changes:

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Epilogue: the Story of Macroeconomics

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