Year 12 Economics AOS 1 unit 4 monetary policy [1]

Selling bonds

• increases money supply
• decreases money supply

Buying bonds

• increases money supply
• decreases money supply

On the Business Cycle, where would you find the period of time when recovering from a recession?

• peak

• trough

• expansion

• trend line

____________ is the price paid for the use of money.

• Gold

• Monetary policy

• Fiscal policy

• The interest rate

An increase in the money supply will

• Reduce interest rates and increase aggregate demand.

• Reduce interest rates and decrease aggregate demand.

• Raise interest rates and increase aggregate demand.

• Raise interest rates and decrease aggregate demand.

The Official Cash Rate is the:

• The rate of exchange between the Australian dollar and currencies with the rest of the world

• The overnight settlement rate charged/ set by the Reserve Bank of Australia to the major trading banks

• The overnight settlement rate charged/ set by the major trading bank to the Reserve Bank of Australia

• The rate of exchange between currencies from the rest of the world and the Australian dollar

Monetary policy refers to:

• microeconomic measures introduced by the Treasury.

• aggregate demand management measures of the RBA.

• measures that mostly affect the flows of credit between borrowers and lenders and the level of expenditure.

• both (B) and (C).

Which monetary policy action is likely to be most expansionary on the level of AD and economic activity?

• The RBA increases its net sales of government bonds in the short-term money market by $2 billion.

• The RBA increases its net repurchases of government bonds in the short-term money market by $3 billion.

• The RBA decreases its net sales of government bonds in the short-term money market by $1 billion.

• The RBA decreases its net repurchases of government bonds in the short term money market by $6 billion.

The transmission mechanism(s) following a cut in the official cash rate set by the RBA from 2.25 to 1.75 per cent could involve:

• an increase in the demand for and the availability of credit.

• an increase in the cash flow for households with existing loans.

• some households feeling wealthier and more confident to spend, along with a likely depreciation in the exchange rate.

• all of the above.

If GDP or economic growth was running below 2 per cent and annual inflation rate was 1.2 per cent, the RBA would probably:

• tighten its monetary policy stance.

• loosen its monetary policy stance.

• not change its monetary policy stance.

• start by tightening its policy stance before easing it.