Chapter 16—Macroeconomic policy I: monetary policy
MULTIPLE CHOICE
The goals of monetary policy
1. The RBA believes that by keeping inflation low and steady it can assist with:
A.|the achievement of low prices over the medium to long term.|
B.|the achievement of slow and steady economic growth over the medium to long term.|
C.|the achievement of full unemployment and slow and steady economic growth over the medium to long term.|
D.|the achievement of full employment and high economic growth over the medium to long term.|
ANS: D PTS: 1 DIF: Moderate REF: The goals of monetary policy
2. The primary goal of the RBA is to:
A.|keep inflation low.|
B.|maintain full employment.|
C.|ensure the economic prosperity of Australian people.|
D.|keep interest rates low.|
E.|reduce unemployment.|
ANS: A PTS: 1 DIF: Easy REF: The goals of monetary policy
3. The inflation target of the RBA is:
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.|
E.|0–5 per cent over the course of the business cycle.|
ANS: B PTS: 1 DIF: Moderate REF: The goals of monetary policy
4. The goal of the monetary policy in Australia:
The Term Paper on Fiscal and Monetary Policy- the Response of Global Economic Crisis Especially in Eu
Fiscal and Monetary policy- The response of global economic crisis especially in EU Introduction Monetary and fiscal authorities across the globe have responded quickly and decisively to these extraordinary developments. In particular, against the background of rapidly receding inflationary pressures and risks, the Euro system has taken monetary policy and liquidity management measures that were ...
A.|is to help low-income earners find a better job.|
B.|is to provide everyone with a high income.|
C.|is to keep the interest rates as high as possible.|
D.|is to keep inflation between 2 and 3 per cent.|
ANS: D PTS: 1 DIF: Moderate REF: The goals of monetary policy
Two views of the monetary policy transmission mechanism
5. The Keynesian cause-and-effect sequence predicts that a decrease in the money supply will cause interest rates to:
A.|fall, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.|
B.|fall, boosting investment and shifting the AD curve rightward, leading to a decrease in real GDP.|
C.|rise, cutting investment and shifting the AD curve rightward, leading to an increase in real GDP.|
D.|rise, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.|
E.|rise, cutting investment and shifting the AD curve leftward, leading to a decrease in real GDP.|
ANS: E PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
6. According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:
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.|
E.|either the horizontal or vertical portions of the aggregate supply curve.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
7. According to Keynesians, for monetary policy to have a stimulative effect on GDP, a/an:
A.|increase in the money supply is needed which lowers the interest rate in order to stimulate higher levels of investment.|
The Essay on Media and Foreign Policy
It indicates the principles and preferences on which a country wants to establish relations with another country. ” WHY IT IS NECESSORY FOR A COUNTERY? No country today can think of a life independent of other nations. Every country has to develop relations with other countries so as to meet its requirements in economical, industrial and technological fields. It is thus necessary for every country ...
B.|increase in the money supply is needed which lowers the interest rate in order to lower levels of investment.|
C.|decrease in the money supply is needed which lowers the interest rate in order to stimulate higher levels of investment|
D.|decrease in the money supply is needed which causes the interest rate to rise in order to stimulate higher levels of investment.|
E.|increase in the money supply is needed which causes the interest rate to rise in order to stimulate higher levels of investment.|
ANS: A PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
8. Monetarists believe that an increase in the money supply will lead to:
A.|an increase in real GDP.|
B.|an increase in leisure time.|
C.|an increase in the price level.|
D.|a decrease in nominal GDP.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
9. The monetarist transmission mechanism, through which monetary policy affects the price level, real GDP and employment, depends on the:
A.|indirect impact of changes on the interest rate.|
B.|indirect impact of changes on profit expectations.|
C.|direct impact of changes in fiscal policy on aggregate demand.|
D.|direct impact of changes in the money supply on aggregate demand.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
10. 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:
A.|MP = VQ.|
B.|MV = PQ.|
C.|MQ = VP.|
D.|MP = PQ.|
ANS: B PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
The Essay on Macroeconomic Transmission Mechanism
Macroeconomic Transmission Mechanism of International Oil Price Rise: The Indian Situation In this Article, an effort has been made to trace the impact of an increase in international oil prices on Indian economy outlining the various transmission mechanisms. These transmission mechanisms take into account some of the important macroeconomic relationships, as relevant to the Indian context, and ...
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
11. According to the equation of exchange, if M = 500, P = 100 and Q = 10, the V is:
A.|2.|
B.|5.|
C.|10.|
D.|20.|
E.|2000.|
ANS: A PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
12. According to the equation of exchange, if V = 5, P = 100 and Q = 10, M is:
A.|10.|
B.|20.|
C.|500.|
D.|200.|
E.|1000.|
ANS: D PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
13. The V in the equation of exchange represents the:
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.|
ANS: D PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
14. The average number of times per year each dollar is used to transact an exchange is known as the:
A.|liquidity of money.|
B.|velocity of money.|
C.|quantity theory of money.|
D.|equation of exchange.|
E.|rapidity index.|
ANS: B PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
15. The velocity of money is the:
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.|
E.|number of times per year each product is purchased.|
ANS: A PTS: 1 DIF: Easy REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
16. The quantity theory of money of the classical economists says that a change in the money supply will produce a:
The Term Paper on The Evolution of the Philippine Monetary Policy
I. Introduction * The chief monetary authority of the Philippines is the Bangko Sentral ng Pilipinas or BSP. Bangko Sentral ng Pilipinas, established in June 1948, is considered as the main monetary authority of the Philippines because it acts as a policy guide to the direction of money, banking and credit. It is here to control operations of banks and implements administrative powers over non- ...
A.|proportional change in the price level.|
B.|greater than proportional change in the price level.|
C.|less than proportional change in the price level.|
D.|wide variation in the velocity of money.|
ANS: A PTS: 1 DIF: Easy REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
17. According to the equation of exchange, the money supply multiplied by the average number of times per year a dollar is spent on final goods and services is equal to:
A.|marginal spending.|
B.|unemployment.|
C.|total spending.|
D.|price level.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
18. Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium, the equation of exchange becomes a theory in which:
A.|the quantity of money explains prices.|
B.|the quantity of money explains velocity.|
C.|the quantity of money explains real GDP.|
D.|changes in M cause changes in V.|
E.|prices are never flexible.|
ANS: A PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
19. Causality is clear and mechanical with the quantity theory of money. If M increases because V and Q are:
A.|variable, the price level, P, increases.|
B.|variable, the price level, P, decreases.|
C.|constant, the price level, P, increases.|
D.|constant, the price level, P, decreases.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
20. According to the quantity theory of money, if M’s growth is lower than Q’s, then:
A.|V falls.|
B.|V rises.|
C.|P stays the same.|
D.|P falls.|
E.|P rises.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
The Essay on Business Ethics A Philosophical View Money And Mea
Money and Measurement Business is often thought of according to a game and in mos Title: Ethics Content: Business Ethics a philosophical view MOney and measurement Description: Game Theory Money and Measurement Business is often thought of according to a game and in most games a score is kept. A lot of board games and even quite a few card games are scored using money. The person or team who ends ...
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
21. 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:
A.|0.5.|
B.|$5|
C.|$120 million.|
D.|5.|
ANS: D PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
22. Since classical economists and monetarists believe that the economy operates at full employment, real GDP, that is, along the vertical segment of aggregate supply, then:
A.|any increase in the money supply can only end up raising the price level.|
B.|any increase in the money supply can only end up lowering the price level.|
C.|any decrease in the money supply can only end up raising the price level.|
D.|changes in the money supply will not affect the price level.|
E.|any increase in the money supply will cause both nominal and real GDP to increase.|
ANS: A PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
23. According to the quantity theory of money, if an economy produces 5000 units of output, its money supply equals $40 000 and the velocity of money equals one, then the price level will equal:
A.|$0.13.|
B.|$1.25.|
C.|$8.|
D.|$200.|
E.|$8000.|
ANS: C PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
24. 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:
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.|
E.|more than double.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
The Essay on Rbi’s Debt Management and Monetary Policy
I have shown you in class, using the IS-LM model, how the above two roles of the RBI presents a conflict between the desired positions of the LM curve and therefore the equilibrium interest rate. Some of you have expressed interest in knowing more about this debate. Therefore here are the two opposing points of view. For the motion: On this side of the debate is the government which supports an ...
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
25. Classical economists traditionally believed that:
A.|there are three motives for demanding money.|
B.|a change in the money supply can affect real GDP.|
C.|the transactions demand for money influences the velocity of money.|
D.|the velocity of money is constant.|
E.|the economy does not always operate at full employment.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
26. The belief that the velocity of money is not constant, but is highly predictable, is associated with the:
A.|classical school.|
B.|Keynesian school.|
C.|supply-side school.|
D.|rational expectations school.|
E.|monetarist school.|
ANS: E PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
27. According to the quantity theory of money, if M = 200, P = 1000 and real output of goods and services is 100, then velocity is:
A.|2.|
B.|500.|
C.|10.|
D.|50.|
E.|200 000.|
ANS: B PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
28. If V =2, P = 100 and Q = 10, then M is:
A.|10.|
B.|20.|
C.|500.|
D.|1000.|
E.|2000.|
ANS: C PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
29. Monetarists and classical economists assume that:
A.|stimulative monetary policy will create high levels of GDP without inflation.|
B.|stimulative monetary policy will create high levels of GDP and slightly high prices.|
C.|the economy operates at full employment and stimulative monetary policy will only cause the price level to rise.|
D.|the economy operates at full employment and stimulative monetary policy will increase both aggregate supply and aggregate demand.|
E.|the Keynesian description of monetary policy underestimates the true stimulative effect of an increase in the money supply.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
30. Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?
A.|The money demand curve is vertical.|
B.|The investment curve is very steep.|
C.|The money demand curve is horizontal at any interest rate.|
D.|The monetary rule.|
ANS: B PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: SA TOP: Two views of the monetary policy transmission mechanism
31. Which of the following is an important issue in the Keynesian–monetarist debate?
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.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
32. Most monetarists recognise that:
A.|the velocity of money is constant over time and that the economy does not operate at full employment all the time.|
B.|the velocity of money is not constant over time and that the economy always operates at full employment.|
C.|the velocity of money is not predictable and that the economy always operates at full employment.|
D.|the velocity of money is not constant over time and that the economy does not operate at full employment all the time.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
33. Which of the following is a belief of the monetarists?
A.|They think the problems of Great Depression were solved by monetary policy.|
B.|They believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment.|
C.|They do not believe that the interest-investment curve is vertical.|
D.|They do not believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
34. Which of the following is true?
A.|Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions.|
B.|Monetarists advocate decreasing the money supply by a constant rate year after year.|
C.|Keynesians argue that the crowding-out effect is significant.|
D.|Monetarists argue that the crowding-out effect is very small.|
ANS: A PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
35. If the money supply = $100 billion, nominal GDP = $400 billion and real GDP = $200 billion, then the velocity of money is:
A.|0.67.|
B.|1.5.|
C.|2.|
D.|4.|
E.|8.|
ANS: D PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
36. If the velocity of money is 3, nominal GDP is $300 billion and real GDP is $250 billion, then the supply of money is:
A.|$100 billion.|
B.|$50 billion.|
C.|$2500 billion.|
D.|$2 billion.|
E.|indeterminate.|
ANS: A PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
37. If the velocity of money is 5 and the supply of money is $200 billion, then real GDP is:
A.|$66.67 billion.|
B.|$200 billion.|
C.|$600 billion.|
D.|falling.|
E.|indeterminate.|
ANS: E PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
38. If nominal GDP is $500 billion, the money supply is $100 billion and the velocity of money is 5, then real GDP is:
A.|$20 billion.|
B.|$100 billion.|
C.|$500 billion.|
D.|$5000 billion.|
E.|indeterminate.|
ANS: E PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
39. The equation of exchange (MV = PY) is:
A.|a theory, because no one knows what the value of V is.|
B.|used by Keynesian economists to justify the monetarist transmission mechanism.|
C.|only held if V is constant.|
D.|an accounting identity and is by definition true.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
40. If the velocity of money = 1, then the money supply will be:
A.|equal to the price level.|
B.|equal to nominal GDP.|
C.|equal to real GDP.|
D.|equal to the difference between nominal and real GDP.|
E.|indeterminate.|
ANS: B PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
41. While the classicists believed that both velocity and output are stable, Keynesians believe:
A.|velocity is stable and output is variable.|
B.|velocity and output are both variable.|
C.|output is stable and velocity is variable|
D.|the same as the classical economists: that both output and velocity are stable|
E.|at low levels of income both velocity and output are stable, but at high levels of income velocity becomes variable.|
ANS: B PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
42. According to classical economists:
A.|prices are rigid.|
B.|both V and Q are variable for an economy in short-run equilibrium.|
C.|changes in M cause changes in V.|
D.|the velocity of money is constant.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
43. The reduction in aggregate demand would:
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.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: CA TOP: Two views of the monetary policy transmission mechanism
44. According to Keynes:
A.|monetary policy acts directly causing changes in investment and aggregate demand.|
B.|monetary policy acts too slowly to cause any changes in aggregate demand.|
C.|monetary policy acts indirectly causing changes in interest rates but not in investment and aggregate demand.|
D.|monetary policy acts indirectly causing changes in interest rates first before affecting investment and aggregate demand.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
45. According to monetarists:
A.|if the money supply is expanding too much, higher rates of inflation will be likely.|
B.|if the money supply is expanding too slowly, the unemployment rate will decline.|
C.|if the money supply is expanding too slowly, prices will grow.|
D.|if the money supply is shrinking, higher rates of inflation will be likely.|
ANS: A PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
46. Which of the following is the equation of exchange?
A.|MQ=PV.|
B.|PV=MQ.|
C.|MP=VQ.|
D.|MV=PQ.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
47. The monetarists argued that to avoid inflation and unemployment, that:
A.|the money supply growth rate has to be maintained at the highest level.|
B.|the money demand growth rate has to be maintained at the proper level.|
C.|the money supply growth rate has to be maintained at the proper level.|
D.|the interest rates have to be maintained at the proper level.|
ANS: C PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
48. According to the quantity theory of money, any change in the money supply:
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.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
49. According to the quantity theory of money, if the money supply doubles, the:
A.|output level must also triple.|
B.|velocity must also double.|
C.|output level must also double.|
D.|price level must also double.|
ANS: D PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
50. According to monetarists:
A.|money supply directly determines changes in prices, real GDP and employment.|
B.|monetary policy acts too slow to cause any changes in aggregate demand.|
C.|monetary policy acts indirectly causing changes in interest rates but not in investment and aggregate demand.|
D.|monetary policy acts indirectly causing changes in interest rates first before affecting investment and aggregate demand.|
ANS: A PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
51. According to monetarists:
A.|if the money supply is expanding too much, lower rates of inflation will be likely.|
B.|if the money supply is expanding too slowly, the unemployment rate may increase.|
C.|if the money supply is expanding too slowly, prices may increase.|
D.|if the money demand is expanding too much, lower rates of inflation will be likely.|
ANS: B PTS: 1 DIF: Difficult REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
The appropriate role for monetary policy: the rules versus discretion debate
52. The monetary rule is the view of the:
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.|
ANS: D PTS: 1 DIF: Difficult REF: The appropriate role for monetary policy: the rules versus discretion debate OBJ: TYPE: CA TOP: The appropriate role for monetary policy: the rules versus discretion debate
53. Monetarists argue that the central bank should allow the money supply to grow:
A.|counter to the business cycles.|
B.|faster than 10 per cent annually.|
C.|only during recessions.|
D.|at a constant rate.|
ANS: D PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate OBJ: TYPE: RE TOP: The appropriate role for monetary policy: the rules versus discretion debate
54. Monetarists argue that setting a specific target for money supply is the best policy because:
A.|there are no lags in policy making.|
B.|the central bank does not make the target publicly available.|
C.|changes in interest rates can take up to 18 months to work their way through the economy.|
D.|the velocity of money is not predictable.|
ANS: C PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
55. The expression ‘Don’t do something, just stand there’ applies to economists who favour a/an _____ approach to monetary policy.
A.|discretionary|
B.|interventionist|
C.|expansionary|
D.|rules-based|
E.|Keynesian|
ANS: D PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
56. Countercyclical macroeconomic policy is favoured by:
A.|Keynesian economists.|
B.|monetarists.|
C.|classical economists.|
D.|microeconomists.|
E.|Milton Friedman.|
ANS: A PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
57. ‘Statistics released show that real GDP contracted by 0.7 per cent in the previous quarter.’ This statement highlights the _____ lag of monetary policy.
A.|policy implementation|
B.|effectiveness|
C.|information|
D.|monetary|
E.|fiscal|
ANS: C PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
58. The policy effectiveness lag refers to the time it takes for:
A.|the government to make up its mind about what to do.|
B.|the government to discover the fluctuation in the economy.|
C.|the economy to get back to full employment.|
D.|the policy response to impact on economic activity.|
ANS: D PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
59. If the central bank announces that it is going to increase the money supply by 6 per cent this year, they are following:
A.|a demand-based approach.|
B.|a discretionary monetary policy.|
C.|a discretionary fiscal policy.|
D.|a monetarist approach.|
ANS: D PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
60. Monetarists argue that using active discretionary monetary policy is dangerous because it is subject to:
A.|information lags.|
B.|long-term policy determination lags.|
C.|short-term policy effectiveness lags.|
D.|information, policy determination and policy effectiveness lags.|
ANS: D PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
61. One of the potential difficulties in following a rules-based approach to monetary policy is:
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.|
ANS: B PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
62. One thing monetarists and Keynesians agree on is:
A.|that monetary policy is ineffective in controlling inflation.|
B.|the monetary transmission mechanism.|
C.|that the velocity of money is constant.|
D.|that a rules-based approach is the best form of monetary policy.|
E.|that monetary policy will impact mainly on demand in the short run.|
ANS: E PTS: 1 DIF: Difficult REF: The appropriate role for monetary policy: the rules versus discretion debate
63. Monetarists argue that active discretionary monetary policy will:
A.|reduce economic fluctuations.|
B.|increase economic fluctuations.|
C.|have no information lag.|
D.|be effective immediately.|
ANS: B PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
64. The time before information about the current phase of economic activity in the real world becomes available is called the:
A.|delay time.|
B.|appropriate time.|
C.|important time.|
D.|information lag.|
ANS: D PTS: 1 DIF: Easy REF: The appropriate role for monetary policy: the rules versus discretion debate
OBJ: TYPE: RE TOP: The appropriate role for monetary policy: the rules versus discretion debate
65. The time taken to decide on an appropriate policy response is known as the:
A.|information lag.|
B.|policy determination lag.|
C.|policy response lag.|
D.|policy effectiveness lag.|
E.|policy inefficiency lag.|
ANS: B PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
How stable is velocity?
66. Keynesians argue that the velocity of money is:
A.|constant over time.|
B.|stable over time.|
C.|constant in the short run, but volatile in the long run.|
D.|zero.|
E.|volatile.|
ANS: E PTS: 1 DIF: Easy REF: How stable is velocity?
67. If the central bank follows a rules-based approach to monetary policy and the velocity of money turns out to be larger than expected, then inflation:
A.|will be lower than expected.|
B.|will be higher than expected.|
C.|will be unaffected.|
D.|could be higher or lower than expected.|
ANS: B PTS: 1 DIF: Difficult REF: How stable is velocity?
68. If the central bank follows a rules-based approach to monetary policy and the velocity of money turns out to be smaller than expected, then inflation:
A.|will be lower than expected.|
B.|will be higher than expected.|
C.|will be unaffected.|
D.|could be higher or lower than expected.|
ANS: A PTS: 1 DIF: Difficult REF: How stable is velocity?
69. 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:
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.|
E.|both inflation and unemployment will be higher.|
ANS: A PTS: 1 DIF: Difficult REF: How stable is velocity?
70. A rules-based approach to monetary policy is likely to be more effective when the velocity of money is:
A.|volatile.|
B.|zero.|
C.|stable.|
D.|equal to the inflation rate.|
E.|less than the inflation rate.|
ANS: C PTS: 1 DIF: Moderate REF: How stable is velocity?
71. A volatile velocity of money is, according to Keynesians, equivalent to saying:
A.|the supply of money is volatile.|
B.|the demand for money is stable.|
C.|the supply of money is stable.|
D.|the demand for money is volatile.|
E.|interest rates are volatile.|
ANS: D PTS: 1 DIF: Moderate REF: How stable is velocity?
72. All economists would agree that velocity:
A.|may be variable over the long term.|
B.|may be variable over the short term.|
C.|cannot be defined over the short term.|
D.|may be stable over the long term.|
ANS: B PTS: 1 DIF: Difficult REF: How stable is velocity?
A case study in monetary targeting: Australia, 1976–85
73. The rules-based approach to monetary policy was followed in Australia:
A.|between 1976–85.|
B.|from 1991 to the present.|
C.|between 1960–74.|
D.|during the Second World War.|
E.|at no time. It has never been used in Australia.|
ANS: A PTS: 1 DIF: Easy REF: A case study in monetary targeting: Australia, 1976–85
74. Monetary targeting was abandoned in Australia because:
A.|the demand for money became more stable.|
B.|the supply of money became more volatile.|
C.|the velocity of money became more volatile.|
D.|the velocity of money became more stable.|
ANS: C PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
75. If the supply of money is stable while the demand for money is volatile, the likely result will be that:
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.|
E.|Deflation will occur.|
ANS: C PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
76. One reason the demand for money became more volatile in Australia during the mid-1980s was:
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.|
E.|the government began following a monetarist approach to monetary policy.|
ANS: C PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
77. Since the early 1980s, the velocity of money in Australia has been:
A.|volatile, but increases in velocity have been matched by decreases in velocity.|
B.|steadily declining.|
C.|steadily increasing.|
D.|constant.|
E.|close to zero.|
ANS: B PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
78. Financial innovation in Australia during the 1980s led to:
A.|the demand for money increasing.|
B.|the velocity of money becoming more stable.|
C.|the velocity of money becoming more volatile.|
D.|the demand for money becoming more stable.|
ANS: C PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
79. The ‘conditional-projection’ approach used by the Australian government in monetary policy between 1976 and 1985 was based on:
A.|the monetarist view of inflation.|
B.|the Keynesian view of inflation.|
C.|the fact that the demand for money was highly volatile.|
D.|the fact that the velocity of money was highly volatile.|
E.|none of these factors.|
ANS: A PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
80. The ‘conditional-projections’ for the growth of the monetary aggregate, M3, were conditional because:
A.|they were conditional on government policies.|
B.|they depended on local industrial conditions.|
C.|they depended on the world or domestic economic conditions.|
D.|they depended on the climate change.|
ANS: C PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
81. Which of the following statements is correct with respect to monetary policy?
A.|Targeting the money supply is likely to be more successful when the demand for money is volatile.|
B.|When the velocity of money is stable, targeting the money supply is likely to be completely ineffective.|
C.|Interest rates will always be stable if the central bank keeps the growth in the money supply stable.|
D.|Australia’s very high rates of inflation in the early 1970s lead to the monetary targeting in terms of the growth of the monetary aggregate, M3.|
ANS: D PTS: 1 DIF: Difficult REF: A case study in monetary targeting: Australia, 1976–85
82. Which of the following statements is least likely to be true?
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.|
E.|A rules-based approach to monetary policy will be less effective when the velocity of money is volatile.|
ANS: A PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
83. Australia:
A.|did not implement monetarist policy during 1976–85.|
B.|has only used the classical economics approach in designing monetary policy.|
C.|rejected a monetarist policy during 1976–85.|
D.|implemented a monetarist policy during 1976–85.|
ANS: D PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
84. The Australian inflation rate was:
A.|the highest in 1974–75.|
B.|the lowest in 1974–75.|
C.|the highest in 1991–92.|
D.|the lowest in 1982–83.|
E.|the lowest in 1975–76.|
ANS: A PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
85. Controlling the growth of the supply of money will have predictable effects on interest rates if:
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.|
E.|the interest rates are high.|
ANS: B PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
86. The velocity of money in Australia:
A.|is never low.|
B.|is always high.|
C.|has never been estimated.|
D.|began to change significantly around 1984–85.|
ANS: D PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
87. Which of the following statements is true?
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.|
ANS: B PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
Modern monetary policy implementation: the case of Australia
88. Since the early 1990s, the RBA has implemented monetary policy primarily by focusing on:
A.|interest rates.|
B.|the money supply.|
C.|the demand for money.|
D.|the velocity of money.|
E.|unemployment.|
ANS: A PTS: 1 DIF: Easy REF: Modern monetary policy implementation: the case of Australia
89. If the RBA believes inflation will rise to 7 per cent over the next few months, its likely response will be to:
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.|
E.|increase the money supply.|
ANS: C PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
90. 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:
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.|
E.|decrease the money supply.|
ANS: C PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
91. If the RBA wants to reduce inflation in the economy, it is likely to:
A.|buy government securities to put banks’ ESAs into surplus, thereby decreasing interest rates.|
B.|buy government securities to put banks’ ESAs into deficit, thereby decreasing interest rates.|
C.|sell government securities to put banks’ ESAs into surplus, thereby increasing interest rates.|
D.|sell government securities to put banks’ ESAs into deficit, thereby increasing interest rates.|
E.|sell government securities to put banks’ ESAs into deficit, thereby decreasing interest rates.|
ANS: D PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
92. The only interest rate the RBA has direct control over is the:
A.|cash rate.|
B.|bank-accepted bill rate.|
C.|prime lending rate.|
D.|personal loan rate.|
E.|home mortgage rate.|
ANS: A PTS: 1 DIF: Easy REF: Modern monetary policy implementation: the case of Australia
93. A sharp fall in investment in Australia will most likely result in the RBA:
A.|buying securities to decrease the cash rate.|
B.|selling securities to decrease the cash rate.|
C.|selling securities to increase the cash rate.|
D.|buying securities to increase the cash rate.|
E.|increasing government spending.|
ANS: A PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
94. The cash rate is the interest rate charged:
A.|on credit cards.|
B.|by the RBA for its government securities.|
C.|to households when they take out a mortgage.|
D.|on short-term borrowings between money-market participants.|
E.|to firms who are considered risky.|
ANS: D PTS: 1 DIF: Easy REF: Modern monetary policy implementation: the case of Australia
95. If the RBA decides to leave the cash rate unchanged, then it will:
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.|
ANS: B PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
96. Which of the following statements is most likely to be true?
A.|To run a contractionary monetary policy, the RBA will buy government securities to decrease the cash rate.|
B.|To run a contractionary monetary policy, the RBA will sell government securities to increase the cash rate.|
C.|To run an expansionary monetary policy, the RBA will buy securities to increase the cash rate.|
D.|To run an expansionary policy, the RBA will sell government securities to decrease the cash rate.|
ANS: B PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
97. When the RBA sells government securities:
A.|the reserve deposits of banks rise.|
B.|the reserve deposits of banks fall.|
C.|the reserve deposits of banks remain unaffected.|
D.|the cash rate must fall.|
ANS: B PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
98. To influence the cash rate, the RBA:
A.|purchases real estate and other non-liquid assets.|
B.|sets the unemployment rate.|
C.|carries out close-market operation in the money markets.|
D.|carries out open-market operation in the commodity markets.|
E.|carries out open-market operation in the money markets.|
ANS: E PTS: 1 DIF: Easy REF: Modern monetary policy implementation: the case of Australia
Linking the RBA operation of monetary policy to the AD–AS framework
99. The effect of an increase in interest rates by the RBA is likely to be:
A.|the AD curve shifting left.|
B.|the AD curve shifting right.|
C.|the AS curve shifting right.|
D.|the AS curve shifting left.|
ANS: A PTS: 1 DIF: Easy REF: Linking the RBA operation of monetary policy to the AD–AS framework
100. The effect of a decrease in interest rates by the RBA is likely to be that the:
A.|AD curve will shift left.|
B.|AD curve will shift right.|
C.|AS curve will shift right.|
D.|AS curve will shift left.|
ANS: B PTS: 1 DIF: Easy REF: Linking the RBA operation of monetary policy to the AD–AS framework
101. If the RBA is ‘testing’ the foreign exchange market, it is trying to:
A.|reduce excessive fluctuations in the $A.|
B.|maintain the $A at its agreed fixed rate.|
C.|see whether movement in the value of the currency is real or speculative.|
D.|smooth the market.|
ANS: C PTS: 1 DIF: Moderate REF: Linking the RBA operation of monetary policy to the AD–AS framework
102. ‘Smoothing’ occurs when the RBA is trying to:
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.|
ANS: A PTS: 1 DIF: Moderate REF: Linking the RBA operation of monetary policy to the AD–AS framework
103. With a fixed exchange rate, the RBA:
A.|had to buy Australian dollars when the currency threatened to depreciate.|
B.|had to sell Australian dollars when the currency threatened to appreciate.|
C.|would alter the domestic money supply when they intervened to keep the Australian dollar at its fixed rate.|
D.|had strong control over domestic interest rates.|
ANS: C PTS: 1 DIF: Difficult REF: Linking the RBA operation of monetary policy to the AD–AS framework
104. Since the Australian dollar was floated in 1983, the RBA has:
A.|not operated in the FOREX market.|
B.|intervened in the FOREX market continually in order to maintain the Australian dollar at a certain level.|
C.|intervened in the FOREX market only when the Australian dollar is under speculative pressure or when it is extremely volatile.|
D.|handed control of the Australian dollar over to the Treasury.|
ANS: C PTS: 1 DIF: Moderate REF: Linking the RBA operation of monetary policy to the AD–AS framework
105. Under a fixed exchange rate system, an excess demand for the Australian dollar in the FOREX market often resulted in:
A.|an increase in liquidity in the financial system and a fall in interest rates.|
B.|a decrease in liquidity in the financial system and an increase in interest rates.|
C.|a decrease in liquidity in the financial system and a decrease in interest rates.|
D.|an increase in liquidity in the financial system and an increase in interest rates.|
ANS: A PTS: 1 DIF: Difficult REF: Linking the RBA operation of monetary policy to the AD–AS framework
106. Under a fixed exchange rate system, an excess supply for the Australian dollar in the FOREX market often resulted in:
A.|an increase in liquidity in the financial system and a fall in interest rates.|
B.|a decrease in liquidity in the financial system and an increase in interest rates.|
C.|a decrease in liquidity in the financial system and a decrease in interest rates.|
D.|an increase in liquidity in the financial system and an increase in interest rates.|
ANS: B PTS: 1 DIF: Difficult REF: Linking the RBA operation of monetary policy to the AD–AS framework
107. With a floating exchange rate, intervention in the FOREX market is usually known as:
A.|violating.|
B.|fixing.|
C.|testing.|
D.|volatility.|
ANS: C PTS: 1 DIF: Easy REF: Linking the RBA operation of monetary policy to the AD–AS framework
108. The effect of a increase in interest rates by the RBA is likely to be:
A.|the AD curve will shift left.|
B.|the AD curve will shift right.|
C.|the AS curve will shift right.|
D.|the AS curve will shift left.|
ANS: A PTS: 1 DIF: Easy REF: Linking the RBA operation of monetary policy to the AD–AS framework
109. ‘Smoothing’ operations of the RBA are intended to be:
A.|medium term.|
B.|long term.|
C.|only very short term.|
D.|medium to long term.|
ANS: C PTS: 1 DIF: Easy REF: Linking the RBA operation of monetary policy to the AD–AS framework
110. Today Australia has:
A.|a floating exchange rate.|
B.|a fixed exchange rate.|
C.|a high exchange rate.|
D.|a low exchange rate.|
E.|a regular exchange rate.|
ANS: A PTS: 1 DIF: Easy REF: Linking the RBA operation of monetary policy to the AD–AS framework
Exhibit 16–1
111. According to Exhibit 16–1, if the economy is currently operating at point A, the RBA is likely to:
A.|increase interest rates to shift the AD” curve to AD’.|
B.|decrease interest rates to shift the AD” curve to AD’.|
C.|decrease interest rates to shift the AD” curve to AD’”.|
D.|decrease interest rates to shift the AD” curve to AD’.|
ANS: A PTS: 1 DIF: Moderate REF: Linking the RBA operation of monetary policy to the AD–AS framework
112. According to Exhibit 16–1, if the economy is currently operating at point C, the RBA is likely to:
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.|
ANS: A PTS: 1 DIF: Moderate REF: Linking the RBA operation of monetary policy to the AD–AS framework
TRUE/FALSE
Two views of the monetary policy transmission mechanism
1. 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.
ANS: T PTS: 1 DIF: Easy REF: Two views of the monetary policy transmission mechanism
OBJ: TYPE: RE TOP: Two views of the monetary policy transmission mechanism
2. The velocity of money is equal to nominal GDP divided by the money supply.
ANS: T PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
3. If the velocity of money is constant then the money supply will also be constant.
ANS: F PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
4. Monetarists argue that velocity is reasonably predictable.
ANS: T PTS: 1 DIF: Moderate REF: Two views of the monetary policy transmission mechanism
The appropriate role for monetary policy: the rules versus discretion debate
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.
ANS: F PTS: 1 DIF: Difficult REF: The appropriate role for monetary policy: the rules versus discretion debate
OBJ: TYPE: CA TOP: The appropriate role for monetary policy: the rules versus discretion debate
6. Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.
ANS: F PTS: 1 DIF: Moderate REF: The appropriate role for monetary policy: the rules versus discretion debate
OBJ: TYPE: RE TOP: The appropriate role for monetary policy: the rules versus discretion debate
A case study in monetary targeting: Australia, 1976–85
7. The RBA abandoned targeting the money supply in 1985 because the demand for money became more volatile.
ANS: T PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
8. When the velocity of money is unstable, a rules-based approach to monetary policy is likely to be extremely effective.
ANS: F PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
9. Australia has experimented with policy based on the monetarist policy prescription of monetary targeting.
ANS: T PTS: 1 DIF: Moderate REF: A case study in monetary targeting: Australia, 1976–85
Modern monetary policy implementation: the case of Australia
10. The RBA might try to sell securities at an attractive rate of interest.
ANS: T PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
11. Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.
ANS: T PTS: 1 DIF: Moderate REF: Modern monetary policy implementation: the case of Australia
Linking the RBA operation of monetary policy to the AD–AS framework
12. ‘Smoothing’ operations by the RBA are intended to provide a long-term solution for a volatile foreign exchange market.
ANS: F PTS: 1 DIF: Moderate REF: Linking the RBA operation of monetary policy to the AD–AS framework
