Question 1

Which of the following statements is true?

Accepted Answer

A)   Controlling the growth of the supply of money will only have predictable effects on interest rates if the growth in the demand for money is unpredictable.
B)   Volatile interest rates can be detrimental to economic growth.
C)   Interest rates can become volatile because the demand for money is controlled.
D)   Interest rates can become volatile because the supply for money is fluctuating.E) B) and C)
F) C) and D)

Question 2

According to the quantity theory of money, any change in the money supply:

Accepted Answer

A)   must lead to an inverse change in the price level.
B)   must lead to an exponential change in the price level.
C)   does not lead to any change in the price level.
D)   must lead to a proportional change in the price level.E) A) and C)
F) All of the above

Question 3

If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:

Accepted Answer

A)   higher unemployment may result.
B)   lower unemployment may result.
C)   inflation will be higher than expected.
D)   inflation will be unaffected, but unemployment will be lower.E) A) and B)
F) B) and C)

Question 4

The RBA might try to sell securities at an attractive rate of interest.

Accepted Answer

A) True 
 B)False

Question 5

The effect of a decrease in interest rates by the RBA is likely to be that the:

Accepted Answer

A)   AD curve will shift left.
B)   AD curve will shift right.
C)   AS curve will shift right.
D)   AS curve will shift left.E) A) and B)
F) None of the above

Question 6

One reason the demand for money became more volatile in Australia during the mid-1980s was:

Accepted Answer

A)   the supply of money was more volatile.
B)   the government imposed new restrictions on financial institutions.
C)   the government began deregulating financial institutions.
D)   the government capped interest rates.E) A) and B)
F) C) and D)

Question 7

Monetarists argue that active discretionary monetary policy will:

Accepted Answer

A)   reduce economic fluctuations.
B)   increase economic fluctuations.
C)   have no information lag.
D)   be effective immediately.E) All of the above
F) B) and C)

Question 8

The effect of an increase in interest rates by the RBA is likely to be:

Accepted Answer

A)   the AD curve shifting left.
B)   the AD curve shifting right.
C)   the AS curve shifting right.
D)   the AS curve shifting left.E) C) and D)
F) B) and D)

Question 9

According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Accepted Answer

A)   the vertical portion of the aggregate supply curve.
B)   the upward-sloping portion of the aggregate supply curve.
C)   the horizontal portion of the aggregate supply curve.
D)   either the upward-sloping or the vertical portions of the aggregate supply curve.E) B) and C)
F) A) and C)

Question 10

If the RBA believes the economy is likely to fall into a recession over the next two quarters, its likely response to this will be to:

Accepted Answer

A)   sell government securities to banks in order to increase interest rates.
B)   sell government securities to banks in order to decrease interest rates.
C)   buy government securities from banks in order to decrease interest rates.
D)   buy government securities from banks in order to increase interest rates.E) C) and D)
F) B) and C)

Question 11

According to the quantity theory of money, if the money supply is increased by 1.5 times while velocity remains constant, the new price level will:

Accepted Answer

A)   fall to half its initial level.
B)   fall, but it will not fall all the way to half its initial level.
C)   increase, but it will not double.
D)   increase by 1.5 times.E) A) and B)
F) All of the above

Question 12

If the RBA decides to leave the cash rate unchanged, then it will:

Accepted Answer

A)   do nothing.
B)   try to ensure ESAs will be in balance that day.
C)   try to sell securities to ensure ESAs have a healthy surplus that day.
D)   try to buy securities to ensure ESAs have a healthy surplus that day.E) A) and D)
F) B) and D)

Question 13

If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Question 14

'Statistics released show that real GDP contracted by 0.7 per cent in the previous quarter.' This statement highlights the _____ lag of monetary policy.

Accepted Answer

A)   policy implementation
B)   effectiveness
C)   information
D)   monetaryE) A) and C)
F) None of the above

Question 15

Which of the following is an important issue in the Keynesian-monetarist debate?

Accepted Answer

A)   The relative importance of international policy.
B)   The nature of the transmission mechanism through which a change in employment affects the economy.
C)   The shape of the supply-demand curve.
D)   The shape of the investment-demand curve.E) B) and C)
F) All of the above

Question 16

Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.

Accepted Answer

A) True 
 B)False

Question 17

The RBA abandoned targeting the money supply in 1985 because the demand for money became more volatile.

Accepted Answer

A) True 
 B)False

Question 18

Monetarists advocate the monetary rule, which states that the money supply should be stable year after year, in order to stabilise the business cycle.

Accepted Answer

A) True 
 B)False

Question 19

One thing monetarists and Keynesians agree on is:

Accepted Answer

A)   that monetary policy is ineffective in controlling inflation.
B)   the monetary transmission mechanism.
C)   that the velocity of money is constant.
D)   that monetary policy will impact mainly on demand in the short run.E) B) and D)
F) None of the above

Question 20

Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.

Accepted Answer

A) True 
 B)False

Exam 17: Macroeconomic Policy I: Monetary Policy

Monetarists argue that the central bank should frequently adjust the money supply in response to ever-changing economic conditions.

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According to the quantity theory of money, any change in the money supply:

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'Statistics released show that real GDP contracted by 0.7 per cent in the previous quarter.' This statement highlights the _____ lag of monetary policy.

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The effect of a decrease in interest rates by the RBA is likely to be that the:

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According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

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According to the quantity theory of money, if the money supply is increased by 1.5 times while velocity remains constant, the new price level will:

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If the RBA believes the economy is likely to fall into a recession over the next two quarters, its likely response to this will be to:

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The effect of an increase in interest rates by the RBA is likely to be:

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The RBA abandoned targeting the money supply in 1985 because the demand for money became more volatile.

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One reason the demand for money became more volatile in Australia during the mid-1980s was:

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If the RBA decides to leave the cash rate unchanged, then it will:

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Modern monetary policy in Australia is implemented by the RBA seeking to maintain the overnight cash rate at a pre-announced level.

Correct AnswerverifiedShow Answer

Monetarists advocate the monetary rule, which states that the money supply should be stable year after year, in order to stabilise the business cycle.

Correct AnswerverifiedShow Answer

If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

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Which of the following statements is true?

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Which of the following is an important issue in the Keynesian-monetarist debate?

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The RBA might try to sell securities at an attractive rate of interest.

Correct AnswerverifiedShow Answer

One thing monetarists and Keynesians agree on is:

Correct AnswerverifiedShow Answer

Monetarists argue that active discretionary monetary policy will:

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If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:

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