Monetary policy Quiz 2

With respect to the actual cash rate and the target cash rate

• The actual cash rate will always be close to the target cash rate

• The actual cash rate will always equal the target cash rate

• The actual cash rate will always be above the target cash rate

• The actual cash rate will always be below the target cash rate

The Reserve Bank of Australia will conduct monetary policy primarily via the manipulation of

• Wage rates

• The cash rate

• The terms of trade

• Exchange rates

The Reserve Bank of Australia (RBA) lowered the cash rate six times between May 2013 and August 2016.

• expansionary monetary policy aimed at increasing interest rates.

• restrictive monetary policy aimed at decreasing interest rates.

• expansionary monetary policy aimed at decreasing interest rates.

• restrictive monetary policy aimed at increasing interest rates.

To tighten monetary policy and increase the cash rate, the RBA will immediately announce a higher target cash rate. They will then

• Increase the interest rate corridor by increasing amounts paid on surpluses and charged on deficits

• selling government securities or repos to cash market participants by offering to sell them at a higher price

• buying government securities or repos from cash market participants by offering to pay a low price for the security

• selling government securities or repos to cash market participants by offering to sell them at a cheaper price

Which of the following is usually an important consideration in the monetary policy decision making process?

• trends in housing and other real estate prices

• anticipated trends in the rate of underlying inflation

• changes in share prices on the Australian Securities Exchange

• the level of Australia’s net foreign debt

Interest rates are most likely to be lowered if:

• unemployment is decreasing.

• economic growth is too low.

• the inflation rate is below the Reserve Bank’s target range.

• aggregate demand is increasing.

When more money is taken out of ESA;s due to taxes and people withdrawing money the RBA will look to

• decrease the supply of money in the money market by purchasing government securities

• increase the supply of money in the money market by purchasing government securities

• decrease the supply of money in the money market by selling government securities

• increase the supply of money in the money market by selling government securities.

A restrictive monetary policy is likely to:

• encourage capital inflow.

• encourage borrowing.

• increase aggregate demand.

• discourage national savings.

Low interest rates in Australia are likely to contribute to:

• a rise in the value of the Australian dollar.

• decreased lending for investment and decreased economic activity.

• an increase in economic growth and inflationary pressures.

• greater savings and less borrowing for investment.

Given the transmission mechanisms of monetary policy, rising interest rates are likely to lead to:

• an appreciating exchange rate that undermines Australia’s international competitiveness, and increases the current account deficit while reducing economic growth, employment and business investment.

• an appreciating exchange rate that assists Australia’s international competitiveness, and reductions in the current account deficit while encouraging economic growth, employment and business investment.

• a depreciating exchange rate that undermines Australia’s international competitiveness, and increases in the current account deficit while reducing economic growth, employment and business investment.

• a depreciating exchange rate that assists Australia’s international competitiveness, and reductions in the current account deficit while encouraging economic growth, employment and business investment.