WorksheetsUnit 4 monetary policy
Total questions: 72
Worksheet time: 50mins
Which organisation conducts monetary policy?
Reserve Bank of Australia
APRA
RCA
ASIC
Tightening of monetary policy involves
decreasing the cash rate
increasing the cash rate
Easing monetary policy involves
decreasing the cash rate
increasing the cash rate
The RBA announces the monetary policy decision on
The first Tuesday of each week at 2:30pm
The First Tuesday of each month at 2:30pm
The First Tuesday of each month at 5pm
The first Tuesday of each week at 5pm
Which of the following laws govern the RBA
The Reserve Act 1959
The Australian Monetary Fund 1961
The Australian Monetary Fund 1964
The Reserve Bank Act 1959
Which of the following is NOT an objective of monetary policy
Inflation between 2-3%
Full employment
Equal distribution of income
Economic prosperity
CGS stands for
Commonwealth Government Spending
Commonwealth Government Securities
Commonwealth Government Stability
Commonwealth Government Stance
To increase money supply the RBA will
Sell CGS to banks
Buy CGS from banks
Buy CGS from the government
Sell CGS to the government
The current inflation rate for March quarter 2024 is
5.1%
3.6%
2%
3%
The RBA target inflation rate is between
3-4%
2-3%
5-6%
4-5%
The cash rate in the policy corridor has a price ceiling and price floor with how many basis points above the target?
50 basis points
25 basis points
15 basis points
5 basis points
What is the primary tool used for monetary policy in Australia?
Cash rate target
Quantitative easing
Exchange rates
Term funding
What is the main objective of monetary policy in Australia?
To control inflation
To promote full employment
To stabilize the currency
To increase the nation's wealth
What does full employment mean?
No unemployment
High-paying jobs for all
Jobs for everyone who wants to work
Employment in government sectors only
What does the stability of the currency aim to achieve?
High exchange rates
Low and stable inflation
Elimination of foreign currency
Rapid economic growth
Which of the following is NOT a tool of monetary policy mentioned?
Cash rate target
Forward guidance
Direct investment
Yield target
What does the Reserve Bank consider when setting monetary policy?
Only inflation rates
Only employment rates
Only the cash rate target
Financial stability and other factors
How does monetary policy influence the economy?
By influencing interest rates
By creating jobs directly
By directly setting prices of goods
By changing the weather patterns
What is the purpose of smoothing the business cycle?
To increase government spending
To reduce the population's wealth
To eliminate all economic fluctuations
To avoid recessions and financial crises
What might the Reserve Bank do when economic growth is too slow?
Increase the cash rate target
Decrease the cash rate target
Increase taxes
Stop all investments
Which of the following is a consequence of tightening monetary policy?
Lower interest rates
Higher interest rates
Increased money supply
Decreased unemployment
What does the RBA aim to achieve by setting a target inflation rate?
Economic stability
Higher employment
Increased government revenue
Lower interest rates
What is the primary goal of the RBA's monetary policy?
To control inflation
To increase government spending
To regulate the stock market
To manage foreign exchange rates
Which of the following is a tool used by the RBA to implement monetary policy?
Open market operations
Taxation
Government spending
Trade tariffs
What happens when the RBA increases the cash rate?
Borrowing becomes cheaper
Inflation decreases
Money supply increases
Interest rates decrease
What is the effect of decreasing the cash rate?
Increased borrowing costs
Decreased borrowing costs
Higher inflation
Lower inflation
Which of the following is NOT a consequence of easing monetary policy?
Lower interest rates
Increased money supply
Higher inflation
Decreased economic growth
What is the primary function of the Reserve Bank of Australia (RBA)?
To regulate the stock market
To control inflation and maintain financial stability
To manage government spending
To oversee trade policies
Which of the following is a consequence of increasing the cash rate?
Lower borrowing costs
Higher inflation
Decreased money supply
Increased economic growth
What does the term 'monetary policy' refer to?
Government spending and taxation policies
Regulation of the stock market
Actions by the central bank to control the money supply and interest rates
Trade agreements between countries
Which of the following best describes the cash flow transmission channel of monetary policy?
It affects the exchange rate and international trade.
It influences the amount of disposable income available to households and businesses.
It impacts the prices of assets like stocks and real estate.
It determines the level of savings and investment in the economy.
How does a decrease in interest rates typically affect the savings and investment transmission channel?
It encourages more savings and less investment.
It discourages both savings and investment.
It encourages less savings and more investment.
It has no significant impact on savings and investment.
What is the primary effect of the exchange rate transmission channel on the economy?
It affects the level of disposable income.
It influences the prices of domestic and foreign goods.
It impacts the amount of savings and investment.
It determines the value of assets like stocks and bonds.
Which of the following is a direct consequence of the asset prices transmission channel?
Changes in the exchange rate.
Variations in the level of savings and investment.
Fluctuations in the value of stocks and real estate.
Adjustments in disposable income.
How does an increase in interest rates affect the cash flow transmission channel?
It increases disposable income for households and businesses.
It decreases disposable income for households and businesses.
It has no effect on disposable income.
It only affects the disposable income of businesses.
In the context of the savings and investment transmission channel, what is the likely outcome of a central bank lowering interest rates?
Increased savings and decreased investment.
Decreased savings and increased investment.
No change in savings and investment.
Increased savings and investment.
What role does the exchange rate transmission channel play in a country's international trade?
It has no impact on international trade.
It makes exports cheaper and imports more expensive when the domestic currency depreciates.
It makes exports more expensive and imports cheaper when the domestic currency depreciates.
It only affects the prices of domestic goods.
Which of the following best explains the impact of the asset prices transmission channel on consumer wealth?
Higher asset prices increase consumer wealth, leading to higher spending.
Higher asset prices decrease consumer wealth, leading to lower spending.
Asset prices have no impact on consumer wealth.
Asset prices only affect the wealth of businesses, not consumers.
Monetary policy aim to influence
aggregate demand (AD)
aggregate supply (AS)
What is the current interest rate held by the Reserve Bank of Australia (RBA)?
3.9%
4.0%
4.35%
4.5%
What was the trend unemployment rate in May?
3.5%
3.7%
3.9%
4.0%
What did the RBA Board indicate about unemployment in their statement?
It will decrease to ensure inflation rises.
It will remain steady to ensure inflation remains stable.
It will have to rise to ensure inflation comes down.
It will decrease to ensure inflation comes down.
What has been the trend in wages growth according to the RBA Board?
It has decreased below the level that can be sustained.
It has peaked but is still above the sustainable level.
It has remained steady.
It has increased above the sustainable level.
What has been the impact of higher interest rates on inflation since its peak in 2022?
Inflation has increased.
Inflation has remained the same.
Inflation has fallen substantially.
Inflation has slightly increased.
What did the RBA board say about the path of interest rates?
It is certain and will not change.
It is uncertain and further rate hikes could be on the cards.
It will definitely decrease.
It will remain the same.
What is the main reason Governor Bullock said the June quarter CPI data is important?
It will provide a comprehensive view of what's happening with inflation.
It will show a decrease in inflation.
It will predict future interest rates.
It will show the economic growth rate.
When will the June quarter CPI data be available?
June 30
July 31
August 15
September 1
On the Business Cycle, where would you find the period of time when recovering from a recession?
peak
trough
expansion
trend line
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.
Which statement about Australian monetary policy is most correct?
The implementation lag is long, increasing the chance that policy may become pro-cyclical, but this is offset by the fact that the impact lag is short.
Monetary policy is a very precise or surgical instrument that can accurately target and correct specific problem areas in the economy.
Monetary policy can do little else to stimulate economic growth and full employment once interest rates are close to, or reach, zero per cent.
Following its deregulation, there are no controls or regulations governing Australia’s financial system.
Monetary policy is often regarded as being more effective than budgetary policy in directly helping to achieve the goal of:
full employment.
strong and sustainable economic growth
low inflation (price stability).
international competitiveness.
Which of the following could tend to impair the effectiveness of an expansionary monetary policy stance involving large reductions in the cash rate?
The existence of consumer and business pessimism
Large expansionary budget deficits funded by the sale of government bonds in the domestic capital market
Very high levels of unemployment and negative GDP growth, typical of recession rather than a boom
All of the above
The likely effect of a more expansionary monetary policy setting by the RBA would be:
a rise in the household savings ratio.
a slower rise in I.
a higher C and net X.
none of the above.
In 2020, government expenditure on income support to unemployed persons has increased significantly. This represents an example of:
Automatic and discretionary stabilisers within the budget
Automatic stabilisers within the budget
Discretionary stabilisers within the budget
Neither automatic nor discretionary stabilisers within the budget
In a downturn in the business cycle, the RBA would be most likely to
Purchase government securities and raise the interest rate it pays on surplus funds in banks' exchange settlement accounts
Purchase government securities and reduce the interest rate it pays on surplus funds in banks' exchange settlement accounts
Sell government securities and raise the interest rate it pays on surplus funds in banks' exchange settlement accounts
Sell government securities and reduce the interest rate it pays on surplus funds in banks' exchange settlement accounts
Which of the following is the RBA NOT mainly concerned with
stability of the currency
full employment
economic prosperity and welfare of the Australian people
Environment and Health
Which tool does the Federal Reserve use to control the money supply?
Reserve Requirement
Discount Rate
Open Market Operations
Fiscal Policy
What is fiscal policy and how does it differ from monetary policy?
Fiscal policy is the use of government spending and taxation, while monetary policy is the control of the money supply and interest rates by the central bank.
Fiscal policy is the control of government spending and taxation, while monetary policy is the use of the money supply and interest rates by the central bank.
Fiscal policy and monetary policy are the same thing.
Fiscal policy is the control of the money supply and interest rates by the central bank, while monetary policy is the use of government spending and taxation.
When is the RBA Board's next meeting scheduled?
Early July
Early August
Late July
Late August
What did Governor Bullock say about the current slowdown in global growth?
She expects a recession in Australia.
She does not expect a recession in Australia.
She expects rapid economic growth.
She expects inflation to decrease.
There is a relationship between an economies level of economic development and the ability of an economy to recover positive economic growth after COVID-19. This can be best summarised
higher levels of economic growth drive higher levels of economic recovery
higher levels of economic development help countries to recover more quickly through vaccinations
India is recovering at a faster rate than Australia due to their population size
The Human Development Index cannot be used to predict post-covid recovery
consumption is worth tracking because
it contributes 40% of GDP
it contributes 50% of GDP
it contributes 60% of GDP
savings is boring
When looking at household investment there was a large spike prior to covid-19. This could be explained by
Expansionary cash rate settings to recover from covid-19
Strong population growth
A poor economic outlook
Removal of negative gearing tax breaks
the trimmed mean is used by the RBA to measure inflation because
it removes the influence of volatile prices
it reflects all price movements in the economy
CPI data are only published annually
it sounds fancy
Why does recognition lag occur?
Many economic reports tend to be forward-looking.
It takes time to collect data and many economic reports are not totally current.
Recessions don't last long enough to track.
Financial markets move too quickly to collect the data.
Which of the following scenarios would lead to movement up the Phillips curve?
A rise in aggregate demand
Inflation remaining constant
Aggregate supply remaining the same
Unemployment rising
The incentive that private commercial banks offer in return for use of a depositor's money is called _____.
the interest rate
the amortisation rate
the discount rate
the prime rate
When economists look at economic output, in the short run, there tends to be _____.
a trade-off between inflation and unemployment
more inflation but lower prices
a trade-off between prices and inflation
no change in economic growth
The rate banks pay to borrow money from the RBA is called the _____ rate.
deposit
minimum reserve
cash
discount
Based on the Phillips’ Curve, if the economy is already at full employment output and aggregate demand increases (ceteris paribus) over the next few months, how will this impact unemployment?
Unemployment will be higher than its natural state.
A change in aggregate demand is not enough information to infer changes in unemployment.
Unemployment will be lower than its natural state.
Unemployment will remain roughly the same.
What is the RBA doing when it engages in open market operations?
Changing the discount rate.
Raising fees on bank transactions.
Buying or selling government securities to influence the cash rate and money supply.
Changing the reserve requirements of banks.
The goals of monetary policy do NOT include the promotion of _____
Moderate long-term interest rates
Stable prices
Maximum employment
High government spending.
These are IOUs from the RBA to investors that finance a little piece of the government's debt in exchange for a very small amount of interest
Government Bonds, or Securities
Government Credit
Government Cash
Government Holdings
Fiat money is
money is checking accounts.
money that has intrinsic value on its own.
specially created from the Federal Reserve.
money that is only valuable because the government says it is.
