Which of the following statements about the RBA's monetary policy is correct?
A) The RBA must report each week to the Senate on the conduct of monetary policy.
B) Reserve requirements have been abandoned.
C) Over the past thirty years, the RBA has always stayed within its pre- announced target rates for growth in M3.
D) The rate at which the RBA lends money to banks is called the "federal funds rate".
E) The most common tool used by the RBA is a change in the required ratio of reserves to deposits.

Question

Quizplus · Accepted Answer

The statement that reserve requirements have been abandoned is correct. This means that banks in Australia are no longer required to hold a certain amount of deposits as reserves with the RBA. The other statements are incorrect. A) The RBA must report to the Parliament (not just the Senate) on the conduct of monetary policy, but not necessarily each week. C) The RBA has not always stayed within its pre-announced target rates for growth in M3, as evidenced by periods of inflation and economic downturn. D) The rate at which the RBA lends money to banks is called the cash rate, not the federal funds rate. E) While changing the required ratio of reserves to deposits is a tool that the RBA could use, it is not the most common tool. The RBA more commonly uses open market operations (buying and selling government securities) to affect the cash rate and monetary policy.

Which of the Following Statements About the RBA's Monetary Policy