Question 1

Which of the following would serve to reduce the costs caused by the variability of inflation?

Accepted Answer

A)  Bracket creep. 
B)  Seignorage. 
C)  Indexed wages. 
D)  Negative real interest rates. 
E)  Higher capital gains tax. 
A)  Bracket creep. 
B)  Seignorage. 
C)  Indexed wages. 
D)  Negative real interest rates. 
E)  Higher capital gains tax.

Question 2

Suppose individuals decide to reduce their holdings of term deposit funds. Further assume that these decisions put funds into current account deposits. Given this information, we know that:

Accepted Answer

A)  the demand for M1 would increase and the demand for M3 would increase. 
B)  the demand for M1 would increase and the demand for M3 would decrease. 
C)  the demand for M1 would decrease and the demand for M3 would decrease. 
D)  the demand for M1 would decrease and the demand for M3 would increase. 
E)  the demand for M1 does not change and the demand for M3 would decrease. 
A)  the demand for M1 would increase and the demand for M3 would increase. 
B)  the demand for M1 would increase and the demand for M3 would decrease. 
C)  the demand for M1 would decrease and the demand for M3 would decrease. 
D)  the demand for M1 would decrease and the demand for M3 would increase. 
E)  the demand for M1 does not change and the demand for M3 would decrease.

Question 3

Which of the following is not a tool of the RBA?

Accepted Answer

A)  Reserve requirements. 
B)  Open market operations. 
C)  Lending to banks. 
D)  Foreign currency swaps. 
E)  Both B and D. 
A)  Reserve requirements. 
B)  Open market operations. 
C)  Lending to banks. 
D)  Foreign currency swaps. 
E)  Both B and D.

Question 4

In the medium run, an increase in the rate of growth of nominal money will cause:

Accepted Answer

A)  lower nominal and lower real interest rates. 
B)  lower nominal interest rates and an increase in the real interest rate. 
C)  higher nominal interest rates and no change in the real interest rate. 
D)  an increase in inflation and an increase in output growth. 
E)  a less than proportionate increase in inflation. 
A)  lower nominal and lower real interest rates. 
B)  lower nominal interest rates and an increase in the real interest rate. 
C)  higher nominal interest rates and no change in the real interest rate. 
D)  an increase in inflation and an increase in output growth. 
E)  a less than proportionate increase in inflation.

Question 5

The existence of inflation does which of the following?

Accepted Answer

A)  Reduces tax distortions. 
B)  Reduces shoe- leather costs. 
C)  Allows for the possibility of negative real interest rates. 
D)  Eliminates money illusion. 
E)  Reduces the costs associated with money illusion. 
A)  Reduces tax distortions. 
B)  Reduces shoe- leather costs. 
C)  Allows for the possibility of negative real interest rates. 
D)  Eliminates money illusion. 
E)  Reduces the costs associated with money illusion.

Question 6

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

Accepted Answer

A)  Travellers cheques. 
B)  Term deposits. 
C)  Currency. 
D)  High- powered money. 
E)  Current account deposits. 
A)  Travellers cheques. 
B)  Term deposits. 
C)  Currency. 
D)  High- powered money. 
E)  Current account deposits.

Question 7

The existence of inflation does which of the following?

Accepted Answer

A)  Eliminates money illusion. 
B)  Reduces the costs associated with money illusion. 
C)  Reduces shoe- leather costs. 
D)  Reduces tax distortions. 
E)  Facilitates the downward adjustment of real wages. 
A)  Eliminates money illusion. 
B)  Reduces the costs associated with money illusion. 
C)  Reduces shoe- leather costs. 
D)  Reduces tax distortions. 
E)  Facilitates the downward adjustment of real wages.

Question 8

M1 consists of:

Accepted Answer

A)  currency plus term deposits only. 
B)  currency only. 
C)  currency plus current account deposits only. 
D)  current account deposits only. 
E)  currency plus travellers cheques only. 
A)  currency plus term deposits only. 
B)  currency only. 
C)  currency plus current account deposits only. 
D)  current account deposits only. 
E)  currency plus travellers cheques only.

Question 9

The Taylor rule (where a and b are positive parameters) is represented by:

Accepted Answer

A)  i = i* + a(n* - n ) - b(un - u). 
B)  i = i* + a(n - n*) - b(un - u). 
C)  i = i* + a(n - n*) - b(u - un). 
D)  i = i* + a(n* - n ) + b(u - un). 
E)  i = i* + a(n - n*) + b(u - un). 
A)  i = i* + a(n* - n ) - b(un - u). 
B)  i = i* + a(n - n*) - b(un - u). 
C)  i = i* + a(n - n*) - b(u - un). 
D)  i = i* + a(n* - n ) + b(u - un). 
E)  i = i* + a(n - n*) + b(u - un).

Question 10

When the RBA wants to signal the public about the direction of monetary policy, it will likely use:

Accepted Answer

A)  the overnight cash rate. 
B)  the T- bill rates. 
C)  the discount rate. 
D)  the federal funds rate. 
E)  the commercial paper rates. 
A)  the overnight cash rate. 
B)  the T- bill rates. 
C)  the discount rate. 
D)  the federal funds rate. 
E)  the commercial paper rates.

Question 11

M3 is approximately equal to which of the following?

Accepted Answer

A)  Narrow money. 
B)  Fiat money. 
C)  High- powered money. 
D)  Near money. 
E)  Broad money. 
A)  Narrow money. 
B)  Fiat money. 
C)  High- powered money. 
D)  Near money. 
E)  Broad money.

Question 12

Which of the following is part of the macro prudential toolkit?

Accepted Answer

A)  Basel II and III agreements. 
B)  A maximum loan- to- value ratio. 
C)  Controls on capital flows. 
D)  All of the above. 
E)  None of the above. 
A)  Basel II and III agreements. 
B)  A maximum loan- to- value ratio. 
C)  Controls on capital flows. 
D)  All of the above. 
E)  None of the above.

Question 13

Which country first adopted an explicit inflation target?

Accepted Answer

A)  Australia. 
B)  The United States. 
C)  New Zealand. 
D)  Canada. 
E)  The United Kingdom. 
A)  Australia. 
B)  The United States. 
C)  New Zealand. 
D)  Canada. 
E)  The United Kingdom.

Question 14

What are the three reasons that central banks are usually hesitant to intervene to lower housing prices?

Accepted Answer

First, it is difficult to identify wheth

Question 15

First, write out the equation that represents the Taylor rule. Second, discuss how the Taylor rule is used to explain the implementation of monetary policy.

Accepted Answer

The Taylor rule is represented by: i = i

Question 16

In the medium run, an increase in inflation causes:

Accepted Answer

A)  no change in the opportunity cost of holding money. 
B)  an increase in the opportunity cost of holding money. 
C)  individuals to switch from holding bonds to money and increase their real money balances. 
D)  a decrease in the opportunity cost of holding money. 
E)  real interest rates to decrease. 
A)  no change in the opportunity cost of holding money. 
B)  an increase in the opportunity cost of holding money. 
C)  individuals to switch from holding bonds to money and increase their real money balances. 
D)  a decrease in the opportunity cost of holding money. 
E)  real interest rates to decrease.

Question 17

Assume that the RBA sets monetary policy according to the Taylor rule. Suppose current Australian macroeconomic conditions are represented by the following: n  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 devaluation. 
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 devaluation. 
E)  More information is needed to answer this question.

Question 18

Researchers have suggested that one way to avoid falling into the liquidity trap is to have higher average inflation. This is because higher average inflation leads to:

Accepted Answer

A)  higher average real interest rates. 
B)  higher average nominal credit rates. 
C)  higher average effective interest rates. 
D)  higher average real credit rates. 
E)  higher average nominal interest rates. 
A)  higher average real interest rates. 
B)  higher average nominal credit rates. 
C)  higher average effective interest rates. 
D)  higher average real credit rates. 
E)  higher average nominal interest rates.

Question 19

According to the Taylor rule:

Accepted Answer

A)  if inflation is equal to target inflation, the central bank should set the real interest rate equal to zero. 
B)  if inflation is equal to target inflation, the central bank should set the nominal interest equal to its short- run value. 
C)  the central bank should not care about the unemployment rate. 
D)  if inflation is equal to target inflation, the central bank should set the real interest rate equal to its medium- run value. 
E)  if inflation is equal to target inflation, the central bank should set the nominal interest rate equal to its medium- run value. 
A)  if inflation is equal to target inflation, the central bank should set the real interest rate equal to zero. 
B)  if inflation is equal to target inflation, the central bank should set the nominal interest equal to its short- run value. 
C)  the central bank should not care about the unemployment rate. 
D)  if inflation is equal to target inflation, the central bank should set the real interest rate equal to its medium- run value. 
E)  if inflation is equal to target inflation, the central bank should set the nominal interest rate equal to its medium- run value.

Question 20

Which of the following statements about the RBA's monetary policy is correct?

Accepted Answer

A)  The RBA must report each week to the Senate on the conduct of monetary policy. 
B)  Reserve requirements have been abandoned. 
C)  Over the past thirty years, the RBA has always stayed within its pre- announced target rates for growth in M3. 
D)  The rate at which the RBA lends money to banks is called the "federal funds rate". 
E)  The most common tool used by the RBA is a change in the required ratio of reserves to deposits. 
A)  The RBA must report each week to the Senate on the conduct of monetary policy. 
B)  Reserve requirements have been abandoned. 
C)  Over the past thirty years, the RBA has always stayed within its pre- announced target rates for growth in M3. 
D)  The rate at which the RBA lends money to banks is called the "federal funds rate". 
E)  The most common tool used by the RBA is a change in the required ratio of reserves to deposits.

Exam 24: Monetary Policy: a Summing up

Which of the following would serve to reduce the costs caused by the variability of inflation?

Suppose individuals decide to reduce their holdings of term deposit funds. Further assume that these decisions put funds into current account deposits. Given this information, we know that:

Which of the following is not a tool of the RBA?

In the medium run, an increase in the rate of growth of nominal money will cause:

The existence of inflation does which of the following?

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

The existence of inflation does which of the following?

M1 consists of:

The Taylor rule (where a and b are positive parameters) is represented by:

When the RBA wants to signal the public about the direction of monetary policy, it will likely use:

M3 is approximately equal to which of the following?

Which of the following is part of the macro prudential toolkit?

Which country first adopted an explicit inflation target?

What are the three reasons that central banks are usually hesitant to intervene to lower housing prices?

First, write out the equation that represents the Taylor rule. Second, discuss how the Taylor rule is used to explain the implementation of monetary policy.

In the medium run, an increase in inflation causes:

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

Researchers have suggested that one way to avoid falling into the liquidity trap is to have higher average inflation. This is because higher average inflation leads to:

According to the Taylor rule:

Which of the following statements about the RBA's monetary policy is correct?

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

Filters