WorksheetsPearson 18 monetary policy
Total questions: 28
Worksheet time: 19mins
Too much inflation in the economy is fixed by
budget deficits
tight monetary policy
FED purchase of government bonds and securities
Which of the following is a monetary policy action used to combat a recession?
cutting taxes
increasing the money supply
decreasing the money supply
Increasing the reserve requirement has which of the following results:
More is lent out and more is paid in interest, and bank profits increase
More is lent out and less is paid back in interest because the money supply increases
Less is lent out and more is paid in interest as money supply decreases
Higher interest rates, increase in the reserve requirement and higher taxes are all examples of
Monetary Policy
Fiscal Policy
Contractionary demand side Policy (tight money)
another demand side policy often used is expansionary monetary policy where
the government cuts interest rates so it can borrow more to fund the budget deficit and help break the deflation cycle
Government cutting spending so they don't have to borrow as much and there decrease in demand means that the interest rate decreases and help boost growth
the central bank cuts the cash rate and may even be forced to offer negative rates
However this policy can lead to
a situation where interest rates can not be cut any further and so it loses its effectiveness
a liquidity trap of low interest meaning people will borrow too much and cause inflation
a conflict with austerity because they want everyone to be spending more not saving and this will help achieve social equity in tough times
Why is this woman considered one of the most powerful people in the World
She is the world's richest person
She is Queen Elizabeth II of Britain
She is the Chairperson of the Federal Reserve
Milton Friedman, idea that states changes in the money supply are the main cause of inflation and of economic expansions or contractions
Classical Economics
Monetarism
Keynesian economics
If the RBA wanted to stimulate the economy (make it grow), they might
Sell Treasury bonds
Buy Treasury bonds
Spend more money
Which of the following is not a goal of fiscal and monetary policy?
Full employment
Investment in human capital
Economic Growth
How does the RBA regulate monetary policy?
Adjusting the long-term interest rates
Adjusting the short-term interest rates
Adjusting long-term taxes
Which of the following is not a Monetary Policy tool?
Bond Purchases
Balance Accounts
Discount Rate
The buying & selling of government securities to change the supply of money is called
market operations
expansionary policy
monetary policy
the major problem with monetary policy during a period of deflation is
high levels of confidence mean consumers dont need to borrow money
low levels of confidence mean that there is too much investment
low levels of confidence means that people will not be prepared to take out loans
the inflation target set by the RBA to achieve price stability is
2-3%
0-1%
1-2%
which is not a function of money
medium of exchange
accessibility
store of value
If the RBA wanted to stimulate theeconomy and reduce unemployment, it would
decrease cash rate in the short term money market
cause interest rates to rise because high interest rates encourage business growthand expansion
D. increase consumer spending by reducing the money supply
the money supply in the form of coins and notes is approx ..... % of the total money supply
32%
6%
50%
monetary policy during a recession means
lowering the interest rate on government bonds and securities
buying government bonds and securities from the banks
lowering the interest rate on government bonds and securities
which is not a benefit of monetary policy
the RBA is independent of the government
the money supply can be controlled via interest rate changes
time lags
quantitative easing is best defined as
printing more money
increasing the money supply through increased sales of government bonds
a quick fix in a time of recession
a problem with increasing interest rates is it can
appreciate the exchange rate and hurt domestic exports
cause deflation because loans are too dear
increase the level of budget deficit
contractionary monetary policy is likely to help fight
stagflation
cost push inflation
demand pull inflation
monetary policy is generally regarded as being more effective in fighting
demand pull inflation during an upswing to break the inflation cycle
unemployment in a down turn so that the poor can increase spending and AD
external imbalance in a boom - as it strengthens the A$ and reduces exports
