Deck 4: The Reserve Bank of Australia and Interest Rates

Question 1

_______________ is included as part of M1.

A)Currency held by nonbank businesses.
B)Bank saving deposits held by nonbank businesses.
C)Borrowing by nonbank businesses from banks.
D)Bank term deposits held by nonbank businesses.

Answer 1

A

Question 2

Which of the following is part of M1?

A)Loans made by banks to the private nonbank sector.
B)Bank term deposits held by the private nonbank sector.
C)Bank saving deposits held by the private nonbank sector.
D)Bank current accounts held by the private nonbank sector.

Answer 2

D

Question 3

In order to reach its cash rate target,the Reserve Bank of Australia (RBA):

A)influences the supply of ESF.
B)influences the demand for ESF.
C)assists the government in its issuance of securities.
D)imposes the interest rate on interbank overnight loans.

Answer 3

A

Question 4

Which of the following statements is NOT correct? The cash rate:

A)is the result of the demand and supply of ESF.
B)is the interest rate on overnight interbank loans.
C)is determined by a decree of the Reserve Bank of Australia (RBA).
D)is used as a reference rate by banks for the determination of other interest rates.

Question 5

M1 includes:

A)Bank current accounts held by households.
B)Bank saving deposits held by households.
C)Bank term deposits held by households.
D)Current accounts held by households in nonbank financial institutions.

Question 6

Broad money is:

A)M3 plus borrowings by the private sector from non-bank financial institutions (NBFIs)less currency and bank deposits of NBFIs.
B)M3 plus borrowings from the private sector by non-bank financial institutions (NBFIs)less currency and bank deposits of NBFIs.
C)M3 minus borrowings from the private sector by non-bank financial institutions (NBFIs)plus currency and bank deposits of NBFIs.
D)M3 plus borrowings from the private sector by non-bank financial institutions (NBFIs)less currency and bank deposits held by the private sector.

Question 7

A decrease in reserve requirements will definitely cause:

A)an increase in the Fed Funds rate.
B)inflation expectations to fall.
C)excess reserves to increase.
D)expenditures to fall.

Question 8

Which of the following statements is NOT correct? In Australia,open market operations are implemented:

A)daily.
B)through auctions.
C)mainly through repos.
D)using exclusively Commonwealth government securities.

Question 9

The supply of ESF increases when:

A)commercial banks pay back their loans to the central bank.
B)the government sells foreign currencies to the private sector.
C)the government provides social benefits to Australian households.
D)the government issues treasury bonds that are bought by the private sector.

Question 10

If the actions of the government bring the cash rate above the cash rate target:

A)the RBA will sell securities from banks to make the cash rate decrease.
B)the RBA will buy securities from banks to make the cash rate decrease.
C)the RBA will sell securities to banks to make the cash rate target increase.
D)the RBA will buy securities from banks to make the cash rate target increase.

Question 11

In order to reach its cash rate target,the Reserve Bank of Australia (RBA):

A)lends to banks at the cash rate target.
B)imposes the rate used by banks when they lend to each other.
C)brings the ESF supply to a level so that it intersects with the demand for ESF at the level of the cash rate target.
D)brings the demand for ESF to a level so that it intersects with the supply of ESF at the level of the cash rate target.

Question 12

Which of the following is part of M1?

A)Bank current accounts held by the private nonbank sector.
B)Accounts held by banks at the central bank.
C)Loans made by banks to the private nonbank sector.
D)Accounts held by the government at the central bank.

Question 13

Which of the following does NOT belong to M1?

A)Currency held by nonbank businesses.
B)Currency held by households.
C)Bank current accounts held by the private nonbank sector.
D)Bank saving accounts held by the private nonbank sector.

Question 14

Which of the following is included in M3?

A)Bank term deposits held by households.
B)Bank saving deposits held by the government.
C)Bank term deposits held by the government.
D)Saving deposits held by households in nonbank financial institutions.

Question 15

An increase in the supply of ESF:

A)decreases the cash rate.
B)increases the cash rate.
C)decreases the cash rate target.
D)increases the cash rate target.

Question 16

When the government provides social benefits to households:

A)the currency held by banks increases.
B)the money supply decreases.
C)the money supply increases.
D)the currency held by banks decreases.

Question 17

If the actions of the government bring the cash rate below the cash rate target,

A)the RBA will sell securities from banks to make the cash rate increase.
B)the RBA will buy securities from banks to make the cash rate increase.
C)the RBA will sell securities from banks to make the cash rate target decrease.
D)the RBA will buy securities to banks to make the cash rate target decrease.

Question 18

The cash rate is the interest rate:

A)on the balances of the ESAs.
B)on overnight interbank loans.
C)on deposits at commercial banks.
D)on the Reserve Bank of Australia (RBA)overnight provisions of ESF to commercial banks.

Question 19

Which of the following is part of M1?

A)Bank loans to the private nonbank sector.
B)Interbank loans.
C)Foreign currency held by the private nonbank sector.
D)Domestic currency held by the private nonbank sector.

Question 20

Which of the following is included in the money base?

A)Accounts held by the banks at the central bank.
B)Accounts held by the government at the central bank.
C)Bank term deposits held by the private nonbank sector.
D)Bank current accounts held by the private nonbank sector.

Question 21

An expansion in the Australian money supply:

A)will cause Australian exports to increase.
B)will increase domestic interest rates
C)will cause Australian imports to increase.
D)will cause the exchange value of the dollar to increase.

Question 22

Inflation is defined as:

A)a one-time increase in prices.
B)a continuous increase in the average price level.
C)changes in the relative prices of goods and services.
D)the difference between the interest rate and the exchange rate.

Question 23

Which of the following is not a consequence of a decrease in the cash rate target in an economy with unemployment and underused capital?

A)Real GDP increases.
B)Net exports decrease.
C)Business investment increases.
D)Investment in housing increases.

Question 24

The intended longer run goal of monetary policy is:

A)to raise security prices.
B)to lower interest rates.
C)to reduce government spending.
D)to increase consumption and investment spending.

Question 25

The "tools" of monetary policy include all of the following except:

A)open market operations.
B)changing the discount rate.
C)changes in the government budget deficit.
D)changes in reserve requirements.

Question 26

Which of the following statements is not correct? Natural rate of unemployment is:

A)the irreducible unemployment rate.
B)the lowest rate of unemployment that can be reached.
C)the unemployment rate that is tolerated by economic policy makers.
D)the unemployment rate capturing unemployed people that do not actually look for a job.

Question 27

Which of the following is not an aim for the Reserve Bank of Australia (RBA)stipulated in the Reserve Bank Act 1959?

A)Full employment in Australia.
B)Stability of the currency of Australia.
C)Equality of opportunity for the people of Australia.
D)Economic prosperity and welfare of the people of Australia.

Question 28

Which of the following is an official aim for the Reserve Bank of Australia (RBA)stipulated in the Reserve Bank Act 1959?

A)Individual rights of the people of Australia.
B)Equitable distribution of wealth in Australia.
C)Equality of opportunity for the people of Australia.
D)Economic prosperity and welfare of the people of Australia.

Question 29

Monetarists believe that an increase in the money supply,all else equal,will cause:

A)national income to fall.
B)investment spending to fall.
C)government expenditures to rise.
D)consumption expenditures to rise.

Question 30

Structural unemployment implies that:

A)there is actually full employment.
B)unemployed people are in transition between jobs.
C)people in search of work do not match the available jobs.
D)only people who do not wish to work are unemployed.

Question 31

In the short term,there are possible conflicts between the following monetary policy aims:

A)Full employment versus economic prosperity.
B)Stability of the currency versus low inflation.
C)Economic prosperity versus economic welfare.
D)Full employment versus stability of the currency.

Question 32

Price stability implies that:

A)the purchase power of a given amount of money significantly decreases.
B)the purchase power of a given amount of money significantly increases.
C)every price in the economy does not change or changes by a small percentage only.
D)the average price in the economy does not change or changes by a small percentage only.

Question 33

Which of the following is not a consequence of a decrease in the cash rate target?

A)A decrease in the interest rates in the Australian financial markets.
B)An increase in the prices of fixed income securities.
C)An increase in the value of the Australian Dollar in foreign currencies.
D)A decrease in the interest rates for financial products in the banking sector.

Question 34

When making open market purchases the Reserve Bank of Australia (RBA)does not accept:

A)ADI issued securities.
B)State government securities.
C)Nonbank corporate securities.
D)Commonwealth government securities (CGS).

Question 35

Which of the following is NOT a consequence of a decrease in the cash rate target in an economy operating at full capacity?

A)Inflation increases.
B)Real GDP increases.
C)Consumption increases.
D)Value of the dollar with respect to other currencies decreases.

Question 36

Unemployment should fall if:

A)the money supply decreases.
B)wages increase and people expect prices to rise.
C)wages increase and people expect prices to be stable.
D)interest rates rise more than prices are expected to rise.

Question 37

Which of the following is NOT a consequence of a decrease in the cash rate target?

A)Imports increase.
B)Exports increase.
C)Consumption increases.
D)Investment in housing increases.

Question 38

A contraction in the Australian money supply should:

A)cause Australian exports to increase.
B)cause the exchange value of the Australian dollar to decrease.
C)increase domestic interest rates.
D)all of the above.

Question 39

Which of the following statements is not correct? When implementing Repos open market operations the Reserve Bank of Australia (RBA):

A)announces before the auction the interest rate that banks have to pay to acquire ESF.
B)usually buys securities from banks with the commitment to resell them at an agreed later date.
C)serves the banks with the best interest rates in their bids until the exhaustion of the amount of ESF it intended to inject in the banking sector.
D)invites banks to bid to acquire ESF.

Question 40

When making open market purchases,the Reserve Bank of Australia (RBA)accepts:

A)Shares.
B)Nonbank corporate securities.
C)Foreign government securities.
D)Commonwealth government securities.

Question 41

The current 1-year Treasury rate is 10 per cent.It is predicted that the annual inflation rate is going to be 0.50 per cent higher than originally expected.The higher inflation forecasts reflect unexpectedly strong macroeconomic conditions.What is the current inflation premium? (Assume that the real rate of interest is 9.0 per cent.)

A)0.5%.
B)1%.
C)1.5%.
D)11%.

Question 42

The allocative function of interest rates allocates between:

A)between banks,non-banks institution and borrowers.
B)banks and borrowers.
C)surplus spending units (SSUs)and deficit spending units (DSUs)and among financial markets.
D)Both A and B.

Question 43

Monetary policy is thought to affect the economy through:

A)the business investment channel.
B)the consumer spending channel.
C)the net exports channel.
D)all of the above.

Question 44

Which of the following statement is false?

A)The real rate of interest is the rate unadjusted for inflation.
B)The nominal rate of interest is the rate of interest unadjusted for inflation.
C)The real rate of interest is the interest rate that would exist in the absence of inflation.
D)None of the above.

Question 45

Fluctuations in the real rate of interest occurs because of:

A)monetary policies.
B)changes in taxation system.
C)technological changes.
D)all of the above.

Question 46

Monetary policies directed toward increased economic activity are likely to ________ the value of the domestic currency in relation to other currencies.

A)have an ambiguous effect on.
B)have no effect on.
C)increase.
D)decrease.

Question 47

The _____________ is called the equilibrium rate of interest.

A)market interest rate.
B)nominal interest rate.
C)real rate of interest.
D)bank lending rate.

Question 48

The Consumer Price Index (CPI),used to calculate the 'headline' rate of inflation,is the most generally accepted measure of the:

A)price level.
B)lending rate.
C)real rate of interest.
D)nominal interest rate.

Question 49

At a basic level,the real rate of return can be justified by:

A)compensation for the level of international borrowing.
B)compensation for deferring consumption.
C)compensation for inflation.
D)all of the above.

Question 50

The price of borrowing money is called:

A)return.
B)interest.
C)inflation.
D)all of the above.

Question 51

Which of the following factors influences the real rate of interest?

A)the rate of inflation
B)return on capital investments.
C)investor's positive time preference.
D)both B and C.

Question 52

Monetary policies directed toward increased economic growth may have what impact upon the value of the dollar in relation to other currencies?

A)an unpredictable effect.
B)no effect.
C)decrease.
D)increase.

Question 53

If the actual rate of inflation is less than the rate expected during a period,

A)both borrowers and lenders benefited.
B)neither borrowers nor lenders benefited.
C)borrowers benefited at the expense of lenders.
D)lenders benefited at the expense of borrowers.

Question 54

An increase in the money supply,all else equal,will cause:

A)national income to fall.
B)investment spending to fall.
C)consumption expenditures to rise.
D)government expenditures to rise.

Question 55

During an economic expansion,we would expect:

A)interest rates to remain the same.
B)the price of money to decrease.
C)interest rates to increase.
D)interest rates to decrease.

Question 56

If the supply of loanable funds decreases relative to the demand for those funds,then we would expect:

A)the price of money to remain unchanged.
B)interest rates to decrease.
C)interest rates to increase.
D)interest rates to remain unchanged.

Question 57

An increase in consumer saving caused by a tax cut in savings by the government would:

A)increase wealth.
B)increase spending.
C)increase interest rate.
D)increase the supply of loanable funds and bring down interest rates.

Question 58

The nominal rate of interest is:

A)the unadjusted return rate.
B)the inflation adjusted cost rate.
C)the inflation-adjusted return rate.
D)a commodity cross-indexed return rate.

Question 59

Fisher's equation states that:

A)the nominal interest rate is equal to the real interest rate minus expected inflation rate.
B)the nominal interest rate is equal to the real interest rate plus expected inflation rate.
C)the real interest rate is equal to the expected inflation rate plus nominal interest rate.
D)the nominal interest rate is equal to real interest rate multiplied by the expected inflation rate.

Question 60

If inflation is anticipated to be 5 per cent during the next year,while the real rate of interest for a one-year loan is 5 per cent,then what should the nominal rate of interest be for a risk-free one-year loan?

A)25 per cent.
B)10 per cent.
C)5 per cent.
D)none of the above.

Question 61

The current 1-year Treasury rate is 10 per cent.It is predicted that the annual inflation rate is going to be 0.50 per cent higher than originally expected.The higher inflation forecasts reflect unexpectedly strong macroeconomic conditions.When the market opens tomorrow,what should the Treasury rate be? (Assume that the real rate of interest is 9.0 per cent.)

A)9%.
B)10%.
C)10.5%.
D)11%.

Question 62

The current 1-year Treasury rate is 10 per cent.It is predicted that the annual inflation rate is going to be 0.50 per cent lower than originally expected.The lower inflation forecasts reflect the unexpected drop in world prices.When the market opens tomorrow,what should the Treasury rate be? (Assume that the real rate of interest is 9.0 per cent.)

A)9.5%.
B)10%.
C)10.5%.
D)11%.