Question 1

Explain why the 'money demand curve' is downward sloping.
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Accepted Answer

The answer of Explain why the 'money demand curve' is...

Question 2

What is the function of 'exchange settlement accounts'?
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Accepted Answer

The answer of What is the function of 'exchange settlement...

Question 3

The Reserve Bank of Australia currently conducts monetary policy by controlling the money supply.

Accepted Answer

The Reserve Bank of Australia conducts monetary policy primarily through setting the target for the cash rate, which influences other interest rates in the economy, rather than directly controlling the money supply.

Question 4

A rise in the rate of interest on financial securities will lead to a movement downward along the money demand curve.

Accepted Answer

A rise in the rate of interest on financial securities causes a decrease in the demand for money, which is represented by a shift to the left of the money demand curve, not a movement along the curve. Movements along the curve are caused by changes in the price level, not changes in interest rates.

Question 5

For over a decade,monetary policy in Australia has been carried out mainly by using repurchase agreements rather than the outright purchase of government securities.

Accepted Answer

This statement is true. Since the late 1990s, the Reserve Bank of Australia has relied on repurchase agreements as its main tool for implementing monetary policy. This involves the RBA buying securities from banks and financial institutions with an agreement to sell them back at a later date, thereby injecting liquidity into the financial system. This approach has been preferred over the outright purchase of government securities, which was the dominant approach before the 1990s.

Question 6

Lowering the interest rate will normally

Accepted Answer

Lowering the interest rate makes it cheaper for firms to borrow money, therefore increasing their incentive to invest in new projects. However, it may not necessarily impact spending on consumer durables or new homes, and may have an unintended effect on net exports.

Question 7

Describe how the Reserve Bank of Australia uses open market operations to change short-term and long-term interest rates.
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Accepted Answer

The answer of Describe how the Reserve Bank of Australia...

Question 8

Rising real GDP will increase the demand for money and short-term interest rates.

Accepted Answer

As real GDP increases, there will be a higher demand for money to fund increased economic activity. This will lead to an increase in short-term interest rates as lenders will demand higher rates to lend out the increased money supply.

Question 9

A decrease in interest rates will usually

Accepted Answer

A decrease in interest rates will lead to lower borrowing costs for consumers, making it easier and more attractive to finance purchases such as homes and cars. This increase in consumption spending will boost economic activity and overall demand. Investment spending may also increase as borrowing becomes cheaper, but this is not always the case. Government spending and net exports are not directly impacted by changes in interest rates.

Question 10

How does the Reserve Bank of Australia affect the supply of cash?
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Accepted Answer

The answer of How does the Reserve Bank of Australia...

Question 11

A decrease in the supply of cash on the overnight money market will lead to a(n)____________ in interest rates and a(n)_________ in investment expenditure.

Accepted Answer

A decrease in the supply of cash on the overnight money market will increase interest rates as there is less available cash to borrow, which will decrease investment expenditure as businesses and individuals will have to pay more to borrow money.

Question 12

Not all households are net borrowers.For households that are net lenders,an increase in interest rates will

Accepted Answer

The answer of Not all households are net borrowers.For households...

Question 13

If interest rates rise,this will _________ the cost of buying new homes,so ________ new homes will be purchased thereby reducing ___________ expenditures.

Accepted Answer

If interest rates rise, the cost of borrowing money to purchase new homes will increase. This will lead to fewer new homes being purchased, reducing investment (not consumption). Thus, "raise; fewer; investment" is the correct choice.

Question 14

If the Reserve Bank of Australia sells bonds and securities in the open market,this is likely to lead to a ______ in interest rates and a(n)_______ of the Australian dollar.

Accepted Answer

When the Reserve Bank of Australia sells bonds and securities in the open market, it reduces the money supply, leading to higher interest rates and an appreciation of the Australian dollar due to increased demand for the currency to purchase the higher-yielding assets.

Question 15

The effect of monetary policy on long-term interest rates is usually

Accepted Answer

Monetary policy typically has a larger effect on short-term interest rates than on long-term interest rates. This is because long-term interest rates are influenced by a range of factors beyond just monetary policy, such as economic growth, inflation expectations, and global events. Additionally, investors may be more hesitant to adjust their long-term investments based on short-term changes in interest rates.

Question 16

Falling interest rates can

Accepted Answer

Falling interest rates make borrowing cheaper for firms, which can lead to an increase in a firm's share price as future earnings become more valuable. This can encourage firms to issue more shares to raise funds for investment.

Question 17

An increase in the supply of cash on the overnight money market will lead to a(n)____________ in interest rates and a(n)_________ in investment expenditure.

Accepted Answer

An increase in the supply of cash on the overnight money market will increase the amount of available funds for lending, which will decrease the interest rates on loans. A decrease in interest rates will encourage investment expenditure because it reduces the cost of borrowing, making it easier for businesses to obtain funds for investment. Therefore, there will be a decrease in interest rates and an increase in investment expenditure.

Question 18

The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.

Accepted Answer

While open market operations can be a tool used by central banks such as the Reserve Bank of Australia to influence interest rates, they can also be used for other purposes such as managing the money supply or regulating the exchange rate.

Question 19

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis.
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Accepted Answer

The answer of Explain how the Reserve Bank of Australia...

Question 20

When the Reserve Bank of Australia raises the cash rate,this normally leads to

Accepted Answer

When the Reserve Bank of Australia raises the cash rate, other interest rates usually rise as well. This increase in interest rates makes it more expensive for businesses to borrow money, which can lead to a reduction in investment spending. As a result, choice D is the best choice.

Quiz 17: Monetary Policy

Explain why the 'money demand curve' is downward sloping. _ _

What is the function of 'exchange settlement accounts'? _ _

The Reserve Bank of Australia currently conducts monetary policy by controlling the money supply.

A rise in the rate of interest on financial securities will lead to a movement downward along the money demand curve.

For over a decade,monetary policy in Australia has been carried out mainly by using repurchase agreements rather than the outright purchase of government securities.

Lowering the interest rate will normally

Describe how the Reserve Bank of Australia uses open market operations to change short-term and long-term interest rates. _ _

Rising real GDP will increase the demand for money and short-term interest rates.

A decrease in interest rates will usually

How does the Reserve Bank of Australia affect the supply of cash? _ _

A decrease in the supply of cash on the overnight money market will lead to a(n) ____ in interest rates and a(n) _ in investment expenditure.

Not all households are net borrowers.For households that are net lenders,an increase in interest rates will

If interest rates rise,this will _ the cost of buying new homes,so new homes will be purchased thereby reducing ___ expenditures.

If the Reserve Bank of Australia sells bonds and securities in the open market,this is likely to lead to a in interest rates and a(n) _ of the Australian dollar.

The effect of monetary policy on long-term interest rates is usually

Falling interest rates can

An increase in the supply of cash on the overnight money market will lead to a(n) ____ in interest rates and a(n) _ in investment expenditure.

The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis. _ _

When the Reserve Bank of Australia raises the cash rate,this normally leads to

Quiz 17: Monetary Policy

Explain why the 'money demand curve' is downward sloping. _____________________________________________________________________________________________ _____________________________________________________________________________________________

What is the function of 'exchange settlement accounts'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The Reserve Bank of Australia currently conducts monetary policy by controlling the money supply.

A rise in the rate of interest on financial securities will lead to a movement downward along the money demand curve.

For over a decade,monetary policy in Australia has been carried out mainly by using repurchase agreements rather than the outright purchase of government securities.

Lowering the interest rate will normally

Rising real GDP will increase the demand for money and short-term interest rates.

A decrease in interest rates will usually

How does the Reserve Bank of Australia affect the supply of cash? _____________________________________________________________________________________________ _____________________________________________________________________________________________

A decrease in the supply of cash on the overnight money market will lead to a(n) ____________ in interest rates and a(n) _________ in investment expenditure.

Not all households are net borrowers.For households that are net lenders,an increase in interest rates will

If interest rates rise,this will _________ the cost of buying new homes,so ________ new homes will be purchased thereby reducing ___________ expenditures.

If the Reserve Bank of Australia sells bonds and securities in the open market,this is likely to lead to a ______ in interest rates and a(n) _______ of the Australian dollar.

The effect of monetary policy on long-term interest rates is usually

Falling interest rates can

An increase in the supply of cash on the overnight money market will lead to a(n) ____________ in interest rates and a(n) _________ in investment expenditure.

The Reserve Bank of Australia engages in open market operations only when it wants to change interest rates.

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis. _____________________________________________________________________________________________ _____________________________________________________________________________________________

When the Reserve Bank of Australia raises the cash rate,this normally leads to

Explain why the 'money demand curve' is downward sloping. _ _

What is the function of 'exchange settlement accounts'? _ _

How does the Reserve Bank of Australia affect the supply of cash? _ _

A decrease in the supply of cash on the overnight money market will lead to a(n) ____ in interest rates and a(n) _ in investment expenditure.

If interest rates rise,this will _ the cost of buying new homes,so new homes will be purchased thereby reducing ___ expenditures.

If the Reserve Bank of Australia sells bonds and securities in the open market,this is likely to lead to a in interest rates and a(n) _ of the Australian dollar.

An increase in the supply of cash on the overnight money market will lead to a(n) ____ in interest rates and a(n) _ in investment expenditure.

Explain how the Reserve Bank of Australia maintains its targeted cash rate on a daily basis. _ _