1. Which of the following is the main goal of monetary policy in Australia?

a. Lowering the rate of unemployment

b. Increasing the value of the Australian dollar relative to other currencies

c. Economic growth

d. Price stability

2. The money demand curve is downward sloping because

a. lower interest rates cause households and firms to switch from money to

financial assets.

b. lower interest rates cause households and firms to switch from financial assets

to money.

c. lower interest rates cause households and firms to switch from money to

shares.

d. lower interest rates cause households and firms to switch from money to

bonds.

3. Money demand will increase if the price level ________ or if real GDP ________.

a. increases; decreases

b. decreases; decreases

c. increases; increases

d. decreases; increases

4. If the Reserve Bank of Australia sells bonds and securities in the open market, this is

likely to lead to a

a. rise in interest rates and an appreciation of the Australian dollar.

b. rise in interest rates and a depreciation of the Australian dollar.

c. fall in interest rates and an appreciation of the Australian dollar.

d. fall in interest rates and a depreciation of the Australian dollar.

5. If expansionary monetary policy is used, then which of the following would be most

likely to enhance the effect of the expansionary policy on aggregate demand?

a. Interest rates would increase, leading to an exchange rate appreciation and a

fall in net exports.

b. Interest rates would decrease, leading to an exchange rate appreciation and a

fall in net exports.

c. Interest rates would decrease, leading to an exchange rate depreciation and a

rise in net exports.

d. Interest rates would increase, leading to an exchange rate depreciation and a

rise in net exports.

6. Which of the following situations is one in which the Reserve Bank of Australia will

potentially pursue expansionary monetary policy?

a. Potential GDP is forecast to be higher than equilibrium GDP.

b. Potential GDP is forecast to be lower than equilibrium GDP.

c. Aggregate demand is growing too fast to keep the economy at full

employment.

d. Aggregate demand is growing too slowly and the economy is in danger of

producing GDP above full employment.

7. Which of the following characterises the ability of the Reserve Bank of Australia

(RBA) to prevent recessions?

a. The RBA is able to 'fine tune' the economy and entirely eliminate recessions.

b. The RBA is incapable of changing aggregate demand through its monetary

policy tools.

c. The RBA may be able to keep a recession shorter and milder than it would

otherwise be.

d. The RBA may be able to eliminate the business cycle and achieve absolute

price stability.

8. Which of the following is NOT true about monetary policy?

a. Contractionary monetary policy is often more effective at reducing the rate of

economic growth than expansionary monetary policy is at increasing the rate

of economic growth.

b. The burden of contractionary monetary policy is not spread evenly among the

population.

c. Contractionary monetary policy can reduce export earnings.

d. The full effect of monetary policy impacts the economy immediately as,

unlike fiscal policy, monetary policy is not subject to time lags.

9. If technological change increases the profitability of new investment for firms, then

the ________ curve for loanable funds will shift to the ________ and the equilibrium

real interest rate will ________.

a. supply; right; fall

b. supply; left; rise

c. demand; right; rise

d. demand; left; fall

10. A government budget deficit will shift the ________ curve for loanable funds to the

________ and the equilibrium real interest rate will ________.

a. supply; right; fall

b. supply; left; rise

c. demand; right; rise

d. demand; left; fall