Monetary Policy Quiz 1

The key medium term economic objective for monetary policy is

• Economic growth

• Low inflation

• Full employment

• External Stability

One transmission channel by which an increase in interest rates affects economic activity is via the 'Asset Value' or 'Asset Prices' channel. This is best explained by which of the following:

• Assets prices increase (such as the price of houses and shares), causing households to suffer a drop in net wealth, which negatively affects Consumption, AD and economic growth.

• Assets prices decrease (such as the price of houses and shares), causing households to experience an increase in net wealth, which negatively affects Consumption, AD and economic growth.

• Assets prices increase (such as the price of houses and shares), causing households to experience an increase in net wealth, which negatively affects Consumption, AD and economic growth.

• Assets prices decrease (such as the price of houses and shares), causing households to suffer a drop in net wealth, which negatively affects Consumption, AD and economic growth.

Which of the following is not a valid transmission mechanism by which a change in monetary policy (via a change in interest rates) affects the economy

• The availability of credit channel

• The cash flow channel

• The terms of trade channel

• The exchange rate channel

One transmission channel by which a decrease in interest rates affects economic activity is via the Savings and investment’ channel. This is best explained by which of the following:

• Lower interest rates work to increase consumer and business confidence, lifting C, I, AD and economic growth

• Lower interest rates work to increase international competitiveness and boost (X-M), AD and economic growth

• Lower interest rates work to lower the costs to service existing loans for businesses and households, which encourages them to lift C and I, causing AD and economic growth to increase

• Lower interest rates work to increase C and I as households and businesses are encouraged by lowering borrowing costs, which then lifts AD and economic growth

The ultimate objective of monetary policy is to achieve

• Economic growth

• Full employment

• Economic prosperity and welfare of a nation

• Low inflation

Which of the following is most likely to cause the RBA to implement a tightening of monetary policy in the latter part of 2023

• Higher rates of underemployment

• A lower AUD

• A fall in commodity prices

• Lower job vacancy rates

Which of the following is most likely to cause the RBA to implement a tightening of monetary policy in the latter part of 2023

• Lower capacity utilization rates

• Weak overseas growth

• An appreciation of the AUD

• Higher house prices

Which of the following is most likely to cause the RBA to implement a loosening of monetary policy in the latter part of 2023

• A fall in capacity utilization rates

• Higher consumer confidence

• Higher job vacancies

• A higher terms of trade

Which of the following is most likely to cause the RBA to implement a more expansionary stance in the latter part of 2023

• Higher capacity utilization rates

• A lower TWI

• A fall in job vacancies

• A higher terms of trade

Which of the following is considered the most expansionary?

• A fall the cash rate from 5% to 4%

• A fall in the cash rate from 4% to 3.5%

• An increase in the cash rate from 1% to 2%

• The cash rate remains at 3%