FinEnt Week 11

Open market operations are used to:

• A) prevent drastic declines in the exchange rate.
• B) offset balance of payments deficits.
• C) influence the rate of inflation.
• D) influence the availability of finance.

Which of the following would be most likely to result in an increase in liquidity in the private sector?

• Sale of government securities by the Reserve Bank
• Purchase of government securities by the Reserve Bank
• Increase in the capital assets ratio
• Increase in private sector deposits

Which of the following is a monetary policy goal
i.  Keeping the inflation rate in the target of 2 to 3 per cent.
ii.  Attaining minimum employment.
iii.  The stability of the currency in Australia.

• A) i only
• B) ii only
• C) iii only
• D) i and iii

If the Reserve Bank wants to raise the short-term interest rate, it

• A) instructs large commercial banks to sell government securities in the open market.
• B) sells government securities in the open market.
• C) buys government securities in the open market.
• D) tells large commercial banks to raise their interest rates.

When there is a threat of inflation in the economy, the Reserve Bank can ________ the cash rate to ________ aggregate demand and ________ the price level.

• A) lower; increase; increase
• B) raise; decrease; decrease
• C) raise; increase; decrease
• D) lower; increase; decrease