1.

With regard to real GDP, which of the following statements is correct?

It is defined as the value of final goods and services produced in a given year when valued at the prices of a reference base year.

It moves with changes in the value of goods and services produced.

It is defined as the value of final goods and services produced in a given year when valued at the prices of the current year

It is the preferred measure of economic growth because it takes into account the influence of aggregate price level increase, or inflation.

2.

Consider the following data from the national accounts in a country in a given year:

Category$ billionsGDP1500Investment450Government spending130Exports120Imports70

Calculate the total consumption for this country.

$970 billion

$870 billion

$730 billion

$1,110 billion

3.

Which of the following statements is correct?

(There may be more than one correct answer)

The labour force is the sum of employed and unemployed people who are actively looking for jobs.

Okun's Law shows a negative relationship between the change in the unemployment rate and the GDP or output growth.

Consumer price index (CPI) measure includes the quantities of various goods and services normally purchased in a given country.

4.

A recent ABS Labour Force Survey contained the following information:

Employed persons ('000)12,000Unemployment rate (%)5.3

Calculate the number of unemployed persons (round to the closest number).

203

708

492

672

5.

Suppose a 1% decrease in the unemployment rate is associated with a 1% increase in the inflation rate now, but 2% increase in the inflation rate 10 years ago.

What does this mean?

The Okun's Law relationship is flatter

The Phillips curve relationship is flatter

The Phillips curve relationship is steeper

The Okun's Law relationship is steeper

6.

Suppose the exchange rate between the Australian dollar and the Euro is 0.55 Euro/AU$.

If the price of a pint of Guinness in Dublin is 7 Euro, how much does it cost in terms of Australian dollar?

3.85 AU$

9.55 AU$

0.079 AU$

12.73 AU$

11.5 AU$

7.

Suppose that an economy adopts an inflation targeting framework but is operating under a fixed exchange rate regime.

Why are these two policies incompatible?

Inflation targeting policy necessitates changes in the cash rate from time to time, which would cause the exchange rates to fluctuate.

Under a fixed exchange rate regime, the Reserve Bank is more powerful and can better control the money supply.

The 1959 Reserve Bank Act forbids the Reserve Bank from jointly implementing the two policies

Under inflation targeting, inflation is always constant and equal to the target, which cannot occur under a fixed exchange rate regime

8.

In 2001, the exchange rate for the Australian dollar against the US dollar was 0.48 (meaning one Australian dollar was equal to 0.48 US dollars). In 2011, through various market forces, the exchange rate was 1.1.

We can therefore say that the Australian dollar has:

appreciated

depreciated

been devalued

been re-valued

9.

Which of the following best describes the exchange rate regime in Australia from 1971-1983?

Managed floating exchange rate regime

Freely floating exchange rate regime

Fixed exchange rate regime under a currency board system

Fixed exchange rate regime, with the AU$ pegged to the US$ and then to a basket of currencies

Fixed exchange rate regime within the Bretton Woods system

10.

Under a fixed exchange rate regime, the Reserve Bank cannot conduct an expansionary or contractionary monetary policy because:

the Reserve Bank lacks credibility in its monetary policymaking.

the cash rate and the exchange rates are not influenced by market forces under a fixed exchange rate regime.

changes in the cash rate and other interest rates would affect the relative demand of the Australian dollar, and hence, cause the exchange rates to fluctuate.

changes in the cash rate would not affect other market interest rates.

11.

To increase the money supply in the economy, the Reserve Bank sets a _____ cash-rate target and conducts an open-market operation. This policy action is normally referred to as ____________.

lower; an expansionary monetary policy

higher; an expansionary monetary policy

higher; a monetary policy easing

higher; a contractionary monetary policy

lower; a monetary policy tightening

12.

Which of the following is NOT a transmission channel of monetary policy?

Saving-investment channel

Cash-flow channel

Exchange-rate channel

Construction channel

Expectations channel

13.

If the inflation rate is currently above the target rate, the Reserve Bank should conduct a/an _______ monetary policy to stabilize inflation. In an AS-AD diagram, this policy can be represented by a shift of the AD curve to the ______.

expansionary; left

expansionary; right

contractionary; left

contractionary; right

14.

Which of the following would NOT shift the AD (aggregate demand) curve, all else equal?

A demand shock

A shift in expected output

An expansionary monetary policy conducted by a central bank

A shift in natural level of output

15.

According to the AS/AD framework with an upward sloping AS curve and a vertical AD curve, a negative supply shock would result in:

lower output level and lower inflation rate.

higher output level and lower inflation rate.

higher output level and higher inflation rate.

lower output level and higher inflation rate.

16.

Suppose that the inflation rate is currently equal to its target and output is at its potential level. If the economy is hit by a supply shock that raises inflation but lowers output, the Reserve Bank can:

stabilise output by conducting a contractionary monetary policy, but inflation is further away from the target

stabilise inflation by conducting an expansionary monetary policy, but output is further away from its potential level

stabilise inflation by conducting a contractionary monetary policy, but output is further away from its potential level

stabilise both inflation and output by conducting an expansionary monetary policy

stabilise both inflation and output by conducting a contractionary monetary policy

17.

Consider the following AS-AD diagram, with an upward-sloping AS curve and a downward-sloping AD curve. The economy is currently at point A where output is equal to\pmb{Y_1}

Y1

Y1

and inflation is equal to\pmb{\pi_1}

1

1

.\pmb{\overline{Y}}

Y

Y

and\pmb{\overline{\pi}}

are the natural output level and the inflation target, respectively.The central bank is tasked to keep inflation equal to its target and output equal to its potential level if possible.

In this scenario, a contractionary monetary policy would cause the central bank to _____ its inflation objective and _____ its output objective. This is represented by a shift of the AD curve to the _____.

meet; meet; right

miss; meet; left

meet; miss; right

meet; miss; left

meet; meet; left

18.

If the domestic and the foreign interest rates are 8% and 12% respectively, then according to interest rate parity:

foreign currency is expected to depreciate by 2%

foreign currency is expected to appreciate by 2%

foreign currency is expected to appreciate by 4%

foreign currency is expected to depreciate by 4%

19.

Compared to the AS/AD framework in the absence of the exchange rate effect, a contractionary monetary policy in the extended AS/AD framework (where exchange rate may depreciate or appreciate) causes:

a further decrease in equilibrium output and a smaller decrease in inflation.

smaller decreases in both equilibrium output and inflation.

a smaller decrease in equilibrium output and a further decrease in inflation.

further decreases in both equilibrium output and inflation.

20.

According to the extended AS/AD framework, a contractionary monetary policy shifts the AD curve_______, which leads to _______, _______ and _______.

rightward, lower inflation, output contraction, exchange rate appreciation.

rightward, higher inflation, output expansion, exchange rate depreciation.

leftward, lower inflation, output contraction, exchange rate appreciation.

leftward, lower inflation, output expansion, exchange rate depreciation.

21.

Which of the following is not part of the commonwealth government spending?

Firms' investment in infrastructure

Spending on defence

Spending on education

Spending on health

22.

What is the gross debt-to-GDP ratio that is considered by IMF as a prudential limit for developed countries?

60%

50%

70%

40%

23.

What does a government budget deficit imply?

Government revenue is less than government spending.

Government debt has been increasing.

Government debt-to-GDP ratio has been increasing.

24.

The allocation function of fiscal policy involves:

Higher tax rate to high income earners.

Increased government spending on infrastructure.

Decreased interest rate to improve business investments.

Welfare payments to unemployed workers.

25.

Suppose that the actual output or GDP in the economy is below the potential or trend GDP, the government will try to stimulate the economy by conducting athat will result in.

fiscal expansion; higher output and lower inflation

fiscal contraction; higher output and higher inflation

fiscal expansion; higher output and higher inflation

fiscal contraction; higher output and lower inflation

26.

According to the modified AS-AD framework with an upward sloping AS and a vertical AD, if the government decides to increase taxes and decrease government spending simultaneously by the same amount, what would be the effect to the economy's equilibrium?

Both output level and inflation rate remain unchanged.

Both output level and inflation rate increase.

Both output level and inflation rate decrease.

Not enough information to confirm.

27.

Which of the following increases aggregate demand?

Decreased taxes

Decreased government spending

Increased interest rate

Decreased money supply

28.

In 2004, following an economic boom experienced by the Australian government due to a worldwide economic expansion, the Reserve Bank and the government respectively adopted:

expansionary monetary policy and expansionary fiscal policy.

contractionary monetary policy and contractionary fiscal policy.

contractionary monetary policy and expansionary fiscal policy.

expansionary monetary policy and contractionary fiscal policy.

29.

From 2009 to 2012, together with the loose fiscal and loose monetary policy mix adopted by the government and the Reserve Bank, there was a sustained rise in the world oil price. What were the effects of the policy mix together with the world oil price increase to economic equilibrium?

AD shifted leftward; AS shifted downward; lower output and higher inflation in equilibrium

AD shifted rightward; AS shifted downward; lower output and higher inflation in equilibrium

AD shifted leftward; AS shifted upward; higher output and higher inflation in equilibrium

AD shifted rightward; AS shifted upward; lower output and lower inflation in equilibrium

AD shifted rightward; AS shifted upward; lower output and higher inflation in equilibrium

30.

The impacts of the Global Financial Crisis were least severe in which country?

Greece

European countries

Australia

The United States

31.

The financial crisis of 2007-08 started in the US, but quickly spread to other countries. What's a primary reason behind the spread?

Foreign banks had bought securities based on US sub-prime mortgages.

Banks in developing economies are not exposed to US sub-prime mortgage markets.

European banks were taken into public ownership.

Bank of China had lent massively to sub-prime borrowers in the USA.

32.

Which of the following is NOT a factor responsible for the financial crisis from 2007-2008?

Foreign banks had bought a large amount of securities based on US sub-prime mortgages.

The Chinese government buying too many US government bonds.

Banks and other lenders were willing to issue risky mortgages and loans, many of which were sub-prime mortgages.

The lack of regulation and oversight of the shadow banking system as well as the overall financial system.

33.

Which of the following occurred in the build-up to the GFC?

The ratio of U.S. households mortgage debts to house values increased significantly.

The U.S. housing market was booming and house prices grew strongly.

Various financial innovations e.g. the issuance of mortgage- or asset-backed securities.

All of the above

34.

Following the onset of the global financial crisis in 2007-08, the US Federal Reserve and various other central banks conducted monetary policy easing. This involved them:

purchasing mortgage-backed securities.

cutting the policy rates.

buying government bonds.

providing liquidity to banks and other financial institutions.

35.

Which of the following was NOT a countermeasure implemented to address the global financial crisis in 2007-08?

Buying government bonds

Allowing tax rebates for low and middle-income US households

Banning investment banks from taking deposits

Cutting the policy rates

36.

Australia's export sector remained strong during the financial crisis because:

(There may be more than one correct answer.)

Australia's exports to China grew strongly due to large demand from China.

Australia did not trade with the US and other countries which were heavily affected by the crisis.

the Australian dollar depreciated which made Australia's exports relatively cheaper.

37.

Which of the following did NOT contribute to the relatively good performance of Australian economy during the financial crisis?

Australian banks mostly focused on domestic lending business and hence were not exposed to the subprime mortgage crisis.

Australia's housing market did not experience any extended bubble or boom prior to crisis.

Australian banks could borrow easily from the Reserve Bank which helped them cover their short-term liabilities.

38.

Due to the mild impacts of the financial crisis on Australian economy, it was not necessary for the country to:

(There may be more than one correct answer.)

cut the cash rate to zero percent.

cut back the interest rate.

employ quantitative easing.

39.

According to our AS-AD framework, if the Reserve Bank implemented an expansionary monetary policy but the commonwealth government chose to sit tight and do nothing in response to the GFC, what would have been the likely scenario?

The shift in the AD curve would have been larger compared to when the government implemented an expansionary fiscal policy.

Output would have expanded by more compared to when the government implemented an expansionary fiscal policy.

The shift in the AD curve would have been smaller compared to when the government implemented an expansionary fiscal policy.

40.

Fill in the blanks:

If the government runs a budget surplus in a given financial year, it must be the case that its spending is _________ than its revenue and its debt has _______.

higher; increased

higher; decreased

lower; increased

lower; decreased