Question 1

The RBA abandoned targeting the money supply in 1985 because the demand for money became more volatile.

Accepted Answer

A) True 
 B)False

Question 2

Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.

Accepted Answer

A) True 
 B)False

Question 3

If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:

Accepted Answer

A)  higher unemployment may result. 
B)  lower unemployment may result. 
C)  inflation will be higher than expected. 
D)  inflation will be unaffected, but unemployment will be lower. 
A)  higher unemployment may result. 
B)  lower unemployment may result. 
C)  inflation will be higher than expected. 
D)  inflation will be unaffected, but unemployment will be lower.

Question 4

The effect of a decrease in interest rates by the RBA is likely to be that the:

Accepted Answer

A)  AD curve will shift left. 
B)  AD curve will shift right. 
C)  AS curve will shift right. 
D)  AS curve will shift left. 
A)  AD curve will shift left. 
B)  AD curve will shift right. 
C)  AS curve will shift right. 
D)  AS curve will shift left.

Question 5

Monetarists advocate the monetary rule, which states that the money supply should be stable year after year, in order to stabilise the business cycle.

Accepted Answer

A) True 
 B)False

Question 6

According to the quantity theory of money, if the money supply is increased by 1.5 times while velocity remains constant, the new price level will:

Accepted Answer

A)  fall to half its initial level. 
B)  fall, but it will not fall all the way to half its initial level. 
C)  increase, but it will not double. 
D)  increase by 1.5 times. 
A)  fall to half its initial level. 
B)  fall, but it will not fall all the way to half its initial level. 
C)  increase, but it will not double. 
D)  increase by 1.5 times.

Question 7

The effect of an increase in interest rates by the RBA is likely to be:

Accepted Answer

A)  the AD curve shifting left. 
B)  the AD curve shifting right. 
C)  the AS curve shifting right. 
D)  the AS curve shifting left. 
A)  the AD curve shifting left. 
B)  the AD curve shifting right. 
C)  the AS curve shifting right. 
D)  the AS curve shifting left.

Question 8

According to the quantity theory of money, any change in the money supply:

Accepted Answer

A)  must lead to an inverse change in the price level. 
B)  must lead to an exponential change in the price level. 
C)  does not lead to any change in the price level. 
D)  must lead to a proportional change in the price level. 
A)  must lead to an inverse change in the price level. 
B)  must lead to an exponential change in the price level. 
C)  does not lead to any change in the price level. 
D)  must lead to a proportional change in the price level.

Question 9

Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is true?

Accepted Answer

A)  Controlling the growth of the supply of money will only have predictable effects on interest rates if the growth in the demand for money is unpredictable. 
B)  Volatile interest rates can be detrimental to economic growth. 
C)  Interest rates can become volatile because the demand for money is controlled. 
D)  Interest rates can become volatile because the supply for money is fluctuating. 
A)  Controlling the growth of the supply of money will only have predictable effects on interest rates if the growth in the demand for money is unpredictable. 
B)  Volatile interest rates can be detrimental to economic growth. 
C)  Interest rates can become volatile because the demand for money is controlled. 
D)  Interest rates can become volatile because the supply for money is fluctuating.

Question 11

The RBA might try to sell securities at an attractive rate of interest.

Accepted Answer

A) True 
 B)False

Question 12

According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Accepted Answer

A)  the vertical portion of the aggregate supply curve. 
B)  the upward-sloping portion of the aggregate supply curve. 
C)  the horizontal portion of the aggregate supply curve. 
D)  either the upward-sloping or the vertical portions of the aggregate supply curve. 
A)  the vertical portion of the aggregate supply curve. 
B)  the upward-sloping portion of the aggregate supply curve. 
C)  the horizontal portion of the aggregate supply curve. 
D)  either the upward-sloping or the vertical portions of the aggregate supply curve.

Question 13

Monetarists argue that active discretionary monetary policy will:

Accepted Answer

A)  reduce economic fluctuations. 
B)  increase economic fluctuations. 
C)  have no information lag. 
D)  be effective immediately. 
A)  reduce economic fluctuations. 
B)  increase economic fluctuations. 
C)  have no information lag. 
D)  be effective immediately.

Question 14

'Statistics released show that real GDP contracted by 0.7 per cent in the previous quarter.' This statement highlights the _____ lag of monetary policy.

Accepted Answer

A)  policy implementation 
B)  effectiveness 
C)  information 
D)  monetary 
A)  policy implementation 
B)  effectiveness 
C)  information 
D)  monetary

Question 15

If the RBA believes the economy is likely to fall into a recession over the next two quarters, its likely response to this will be to:

Accepted Answer

A)  sell government securities to banks in order to increase interest rates. 
B)  sell government securities to banks in order to decrease interest rates. 
C)  buy government securities from banks in order to decrease interest rates. 
D)  buy government securities from banks in order to increase interest rates. 
A)  sell government securities to banks in order to increase interest rates. 
B)  sell government securities to banks in order to decrease interest rates. 
C)  buy government securities from banks in order to decrease interest rates. 
D)  buy government securities from banks in order to increase interest rates.

Question 16

One thing monetarists and Keynesians agree on is:

Accepted Answer

A)  that monetary policy is ineffective in controlling inflation. 
B)  the monetary transmission mechanism. 
C)  that the velocity of money is constant. 
D)  that monetary policy will impact mainly on demand in the short run. 
A)  that monetary policy is ineffective in controlling inflation. 
B)  the monetary transmission mechanism. 
C)  that the velocity of money is constant. 
D)  that monetary policy will impact mainly on demand in the short run.

Question 17

If the RBA decides to leave the cash rate unchanged, then it will:

Accepted Answer

A)  do nothing. 
B)  try to ensure ESAs will be in balance that day. 
C)  try to sell securities to ensure ESAs have a healthy surplus that day. 
D)  try to buy securities to ensure ESAs have a healthy surplus that day. 
A)  do nothing. 
B)  try to ensure ESAs will be in balance that day. 
C)  try to sell securities to ensure ESAs have a healthy surplus that day. 
D)  try to buy securities to ensure ESAs have a healthy surplus that day.

Question 18

One reason the demand for money became more volatile in Australia during the mid-1980s was:

Accepted Answer

A)  the supply of money was more volatile. 
B)  the government imposed new restrictions on financial institutions. 
C)  the government began deregulating financial institutions. 
D)  the government capped interest rates. 
A)  the supply of money was more volatile. 
B)  the government imposed new restrictions on financial institutions. 
C)  the government began deregulating financial institutions. 
D)  the government capped interest rates.

Question 19

If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is an important issue in the Keynesian-monetarist debate?

Accepted Answer

A)  The relative importance of international policy. 
B)  The nature of the transmission mechanism through which a change in employment affects the economy. 
C)  The shape of the supply-demand curve. 
D)  The shape of the investment-demand curve. 
A)  The relative importance of international policy. 
B)  The nature of the transmission mechanism through which a change in employment affects the economy. 
C)  The shape of the supply-demand curve. 
D)  The shape of the investment-demand curve.

The RBA abandoned targeting the money supply in 1985 because the demand for money became more volatile.

Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.

If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:

The effect of a decrease in interest rates by the RBA is likely to be that the:

Monetarists advocate the monetary rule, which states that the money supply should be stable year after year, in order to stabilise the business cycle.

According to the quantity theory of money, if the money supply is increased by 1.5 times while velocity remains constant, the new price level will:

The effect of an increase in interest rates by the RBA is likely to be:

According to the quantity theory of money, any change in the money supply:

Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.

Which of the following statements is true?

The RBA might try to sell securities at an attractive rate of interest.

According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Monetarists argue that active discretionary monetary policy will:

'Statistics released show that real GDP contracted by 0.7 per cent in the previous quarter.' This statement highlights the _____ lag of monetary policy.

If the RBA believes the economy is likely to fall into a recession over the next two quarters, its likely response to this will be to:

One thing monetarists and Keynesians agree on is:

If the RBA decides to leave the cash rate unchanged, then it will:

One reason the demand for money became more volatile in Australia during the mid-1980s was:

If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

Which of the following is an important issue in the Keynesian-monetarist debate?

Thinking Like an Economist

Applying Graphs to Economics

Production Possibilities and Opportunity Cost

Market Demand and Supply

Markets in Action

Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Policy Issues: Housing Affordability and Climate Change

Measuring the Size of the Economy

Business Cycles and Economic Growth

Inflation and Unemployment

A Simple Model of the Macro Economy

The Monetary and Financial System

Macroeconomic Policy II: Fiscal Policy

International Trade and Finance

Filters

Exam 17: Macroeconomic Policy I: Monetary Policy

The RBA abandoned targeting the money supply in 1985 because the demand for money became more volatile.

Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.

If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:

The effect of a decrease in interest rates by the RBA is likely to be that the:

Monetarists advocate the monetary rule, which states that the money supply should be stable year after year, in order to stabilise the business cycle.

According to the quantity theory of money, if the money supply is increased by 1.5 times while velocity remains constant, the new price level will:

The effect of an increase in interest rates by the RBA is likely to be:

According to the quantity theory of money, any change in the money supply:

Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.

Which of the following statements is true?

The RBA might try to sell securities at an attractive rate of interest.

According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Monetarists argue that active discretionary monetary policy will:

'Statistics released show that real GDP contracted by 0.7 per cent in the previous quarter.' This statement highlights the _____ lag of monetary policy.

If the RBA believes the economy is likely to fall into a recession over the next two quarters, its likely response to this will be to:

One thing monetarists and Keynesians agree on is:

If the RBA decides to leave the cash rate unchanged, then it will:

One reason the demand for money became more volatile in Australia during the mid-1980s was:

If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

Which of the following is an important issue in the Keynesian-monetarist debate?

Thinking Like an Economist

Applying Graphs to Economics

Production Possibilities and Opportunity Cost

Market Demand and Supply

Markets in Action

Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Policy Issues: Housing Affordability and Climate Change

Measuring the Size of the Economy

Business Cycles and Economic Growth

Inflation and Unemployment

A Simple Model of the Macro Economy

The Monetary and Financial System

Macroeconomic Policy II: Fiscal Policy

International Trade and Finance

Filters