Question 1

'Smoothing' operations by the RBA are intended to provide a long-term solution for a volatile foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 2

Controlling the growth of the supply of money will have predictable effects on interest rates if:

Accepted Answer

A)  the demand for money is unpredictable. 
B)  the growth in the demand for money can be predicted accurately. 
C)  the interest rates are volatile. 
D)  the interest rates are low. 
A)  the demand for money is unpredictable. 
B)  the growth in the demand for money can be predicted accurately. 
C)  the interest rates are volatile. 
D)  the interest rates are low.

Question 3

The monetary rule is the view of the:

Accepted Answer

A)  Keynesians, that monetary policy is most important. 
B)  monetarists that monetary policy is most important. 
C)  classical economists that monetary policy is most important. 
D)  monetarists that the RBA should expand the money supply at a constant rate. 
A)  Keynesians, that monetary policy is most important. 
B)  monetarists that monetary policy is most important. 
C)  classical economists that monetary policy is most important. 
D)  monetarists that the RBA should expand the money supply at a constant rate.

Question 4

The V in the equation of exchange represents the:

Accepted Answer

A)  variation in the GDP. 
B)  variation in the CPI. 
C)  variation in real GDP. 
D)  average number of times per year a dollar is spent on final goods and services. 
A)  variation in the GDP. 
B)  variation in the CPI. 
C)  variation in real GDP. 
D)  average number of times per year a dollar is spent on final goods and services.

Question 5

Narrbegin Exhibit 16.1   
-According to Exhibit 16.1, if the economy is currently operating at point C, the RBA is likely to:

Accepted Answer

A)  decrease interest rates to stimulate aggregate demand and shift the AD curve to the right. 
B)  increase interest rates to suppress aggregate demand and shift the AD curve to the left. 
C)  increase interest rates to stimulate aggregate demand and shift the AD curve to the right. 
D)  decrease interest rates to discourage investments and shift the AD curve to the left. 
A)  decrease interest rates to stimulate aggregate demand and shift the AD curve to the right. 
B)  increase interest rates to suppress aggregate demand and shift the AD curve to the left. 
C)  increase interest rates to stimulate aggregate demand and shift the AD curve to the right. 
D)  decrease interest rates to discourage investments and shift the AD curve to the left.

Question 6

One of the potential difficulties in following a rules-based approach to monetary policy is:

Accepted Answer

A)  that interest rates will be stable. 
B)  that the relationship between the money supply and inflation can be weak in the short run. 
C)  that the velocity of money is fully predictable. 
D)  that the policy outcome is desirable. 
A)  that interest rates will be stable. 
B)  that the relationship between the money supply and inflation can be weak in the short run. 
C)  that the velocity of money is fully predictable. 
D)  that the policy outcome is desirable.

Question 7

'Smoothing' occurs when the RBA is trying to:

Accepted Answer

A)  reduce excessive fluctuations in the Australian dollar. 
B)  maintain the Australian dollar at its agreed fixed rate. 
C)  see whether movement in the value of the currency is real or speculative. 
D)  smooth the market. 
A)  reduce excessive fluctuations in the Australian dollar. 
B)  maintain the Australian dollar at its agreed fixed rate. 
C)  see whether movement in the value of the currency is real or speculative. 
D)  smooth the market.

Question 8

The rules-based approach to monetary policy was followed in Australia:

Accepted Answer

A)  between 1976-85. 
B)  from 1991 to the present. 
C)  between 1960-74. 
D)  during the Second World War. 
A)  between 1976-85. 
B)  from 1991 to the present. 
C)  between 1960-74. 
D)  during the Second World War.

Question 9

The inflation target of the RBA is:

Accepted Answer

A)  2-3 per cent at all times. 
B)  2-3 per cent over the course of the business cycle. 
C)  zero per cent at all times. 
D)  zero per cent over the course of the business cycle. 
A)  2-3 per cent at all times. 
B)  2-3 per cent over the course of the business cycle. 
C)  zero per cent at all times. 
D)  zero per cent over the course of the business cycle.

Question 10

Since the early 1980s, the velocity of money in Australia has been:

Accepted Answer

A)  volatile, but increases in velocity have been matched by decreases in velocity. 
B)  steadily declining. 
C)  steadily increasing. 
D)  constant. 
A)  volatile, but increases in velocity have been matched by decreases in velocity. 
B)  steadily declining. 
C)  steadily increasing. 
D)  constant.

Question 11

The velocity of money is the:

Accepted Answer

A)  number of times per year each dollar is used to transact an exchange. 
B)  rapidity of price increases during inflation. 
C)  number of times the price level increases during a year. 
D)  time it takes for cheques to clear banks. 
A)  number of times per year each dollar is used to transact an exchange. 
B)  rapidity of price increases during inflation. 
C)  number of times the price level increases during a year. 
D)  time it takes for cheques to clear banks.

Question 12

If the RBA believes inflation will rise to 7 per cent over the next few months, its likely response will be to:

Accepted Answer

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

Question 13

If the central bank announces that it is going to increase the money supply by 6 per cent this year, it is following:

Accepted Answer

A)  a demand-based approach. 
B)  a discretionary monetary policy. 
C)  a discretionary fiscal policy. 
D)  a monetarist approach. 
A)  a demand-based approach. 
B)  a discretionary monetary policy. 
C)  a discretionary fiscal policy. 
D)  a monetarist approach.

Question 14

Which of the following statements is least likely to be true?

Accepted Answer

A)  By targeting the growth in the money supply, the government will be more successful in keeping inflation low if the demand for money becomes volatile. 
B)  Targeting the growth in the money supply will be more successful in keeping inflation low if the velocity of money is stable. 
C)  The demand for money influences the velocity of money. 
D)  A rules-based approach to monetary policy will be less effective when the demand for money is volatile. 
A)  By targeting the growth in the money supply, the government will be more successful in keeping inflation low if the demand for money becomes volatile. 
B)  Targeting the growth in the money supply will be more successful in keeping inflation low if the velocity of money is stable. 
C)  The demand for money influences the velocity of money. 
D)  A rules-based approach to monetary policy will be less effective when the demand for money is volatile.

Question 15

The belief that the velocity of money is not constant, but is highly predictable, is associated with the:

Accepted Answer

A)  classical school. 
B)  Keynesian school. 
C)  supply-side school. 
D)  monetarist school. 
A)  classical school. 
B)  Keynesian school. 
C)  supply-side school. 
D)  monetarist school.

Question 16

A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:

Accepted Answer

A)  volatile. 
B)  zero. 
C)  stable. 
D)  equal to the inflation rate. 
A)  volatile. 
B)  zero. 
C)  stable. 
D)  equal to the inflation rate.

Question 17

If the velocity of money is 5 and the supply of money is $200 billion, then real GDP is:

Accepted Answer

A)  $66.67 billion. 
B)  $200 billion. 
C)  $600 billion. 
D)  indeterminate as there is no information about nominal GDP. 
A)  $66.67 billion. 
B)  $200 billion. 
C)  $600 billion. 
D)  indeterminate as there is no information about nominal GDP.

Question 18

According to the classical economists' equation of exchange if the money supply is $20 million and the total spending is $100 million, then the velocity of money is:

Accepted Answer

A)  0.5. 
B)  $5 
C)  $120 million. 
D)  5. 
A)  0.5. 
B)  $5 
C)  $120 million. 
D)  5.

Question 19

If the supply of money is stable while the demand for money is volatile, the likely result will be that:

Accepted Answer

A)  interest rates will remain constant. 
B)  inflation rates will remain constant. 
C)  interest rates will become more volatile. 
D)  the velocity of money will fall. 
A)  interest rates will remain constant. 
B)  inflation rates will remain constant. 
C)  interest rates will become more volatile. 
D)  the velocity of money will fall.

Question 20

The reduction in aggregate demand would:

Accepted Answer

A)  slow the economy down and increase the rate of inflation. 
B)  speed the economy up keeping the rate of inflation unchanged. 
C)  slow the economy down and reduce the rate of inflation. 
D)  speed the economy up and reduce the rate of inflation. 
A)  slow the economy down and increase the rate of inflation. 
B)  speed the economy up keeping the rate of inflation unchanged. 
C)  slow the economy down and reduce the rate of inflation. 
D)  speed the economy up and reduce the rate of inflation.

'Smoothing' operations by the RBA are intended to provide a long-term solution for a volatile foreign exchange market.

Controlling the growth of the supply of money will have predictable effects on interest rates if:

The monetary rule is the view of the:

The V in the equation of exchange represents the:

Narrbegin Exhibit 16.1 -According to Exhibit 16.1, if the economy is currently operating at point C, the RBA is likely to:

One of the potential difficulties in following a rules-based approach to monetary policy is:

'Smoothing' occurs when the RBA is trying to:

The rules-based approach to monetary policy was followed in Australia:

The inflation target of the RBA is:

Since the early 1980s, the velocity of money in Australia has been:

The velocity of money is the:

If the RBA believes inflation will rise to 7 per cent over the next few months, its likely response will be to:

If the central bank announces that it is going to increase the money supply by 6 per cent this year, it is following:

Which of the following statements is least likely to be true?

The belief that the velocity of money is not constant, but is highly predictable, is associated with the:

A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:

If the velocity of money is 5 and the supply of money is $200 billion, then real GDP is:

According to the classical economists' equation of exchange if the money supply is $20 million and the total spending is $100 million, then the velocity of money is:

If the supply of money is stable while the demand for money is volatile, the likely result will be that:

The reduction in aggregate demand would:

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

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Exam 17: Macroeconomic Policy I: Monetary Policy

'Smoothing' operations by the RBA are intended to provide a long-term solution for a volatile foreign exchange market.

Controlling the growth of the supply of money will have predictable effects on interest rates if:

The monetary rule is the view of the:

The V in the equation of exchange represents the:

Narrbegin Exhibit 16.1 -According to Exhibit 16.1, if the economy is currently operating at point C, the RBA is likely to:

One of the potential difficulties in following a rules-based approach to monetary policy is:

'Smoothing' occurs when the RBA is trying to:

The rules-based approach to monetary policy was followed in Australia:

The inflation target of the RBA is:

Since the early 1980s, the velocity of money in Australia has been:

The velocity of money is the:

If the RBA believes inflation will rise to 7 per cent over the next few months, its likely response will be to:

If the central bank announces that it is going to increase the money supply by 6 per cent this year, it is following:

Which of the following statements is least likely to be true?

The belief that the velocity of money is not constant, but is highly predictable, is associated with the:

A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:

If the velocity of money is 5 and the supply of money is $200 billion, then real GDP is:

According to the classical economists' equation of exchange if the money supply is $20 million and the total spending is $100 million, then the velocity of money is:

If the supply of money is stable while the demand for money is volatile, the likely result will be that:

The reduction in aggregate demand would:

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