For each of the statement below, assess whether the statement is TRUE, FALSE or UNCLEAR. Provide an explanation /illustration of why this is the case. Without an explanation or with an explanation that is off topic or incorrect, you will receive 0 mark. T

Your answers must be entirely in words with no balance sheet, no diagram or no equations. The answer must reflect the content of the course and cannot use an outside source.

(a) Expectations theory is a theory to explain how investors form their expectations about the future level of interest rate.

(3 marks)

(b) The purchase of Treasury bonds by the RBA from an insurance company creates new bank deposits and leaves ESF unchanged.

(3 marks)

(c) The purchase of Treasury bonds by the RBA in the secondary market is expected to decrease the yield on Treasury bonds.

(3 marks)

(d) Cash rate targeting means that the RBA legally forces banks to lend and borrow at the target rate.

(3 marks)