Question 1

Which organisation is in charge of conducting monetary policy in Australia?

The Australian federal government

Each state and territory government sets their own monetary policy independently

The Reserve Bank of Australia (RBA)

Conducting monetary policy is the joint effort of all parties mentioned above

Question 2

Which of the following is the number ONE goal of monetary policy in Australia?

Keeping the inflation rate low and stable

Stabilising the value of our domestic currency, the Australian dollar

Generating economic growth and achieving full employment

The three goals mentioned in (a), (b) and (c) are to be treated equally

Question 3

In which of the following situations would the Reserve Bank of Australia conduct contractionary monetary policy?

The RBA believes that aggregate demand was growing too slowly to keep up with potential GDP.

The RBA fears that unemployment is climbing above the natural rate of unemployment.

The RBA is worried that deflation will become a problem.

The RBA is concerned that aggregate demand would continue to exceed the growth in potential GDP.

Question 4

From an initial long-run macroeconomic equilibrium, if the Reserve Bank of Australia anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the RBA would most likely

Decrease personal income tax rates

Buy government securities from commercial banks

Sell government securities to commercial banks

Cut the interest rates on mortgage loans so that homeowners bring home a greater amount of disposable income.

Question 5

Which of the following is NOT true about monetary policy?

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.

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

Contractionary monetary policy can reduce export earnings.

The full effect of monetary policy impacts the economy immediately as, unlike fiscal policy, monetary policy is not subject to time lags.

Question 6

Fiscal policy refers to the

government's ability to regulate the functioning of financial markets.

policy applied by the Reserve Bank of Australia to affect the cash rate.

techniques used by firms to reduce their tax liabilities.

spending and taxing policies used by the government to influence the level of economy activity.

Question 7

Which of the following does NOT function as an automatic stabiliser?

Unemployment benefit payments

Government expenditure on road building programs

The Goods and Services Tax (GST)

The personal income tax system

Question 8

Crowding out will be greater

the less sensitive consumption spending is to changes in the interest rate.

the further equilibrium GDP is below potential GDP.

the more sensitive investment spending is to changes in the interest rate.

None of the above

Question 9

Suppose the current real GDP is $400 billion and potential GDP is $480 billion. The marginal propensity to consume is constant at 0.75. What should the government do with its discretionary fiscal policy given the situation?

The government should increase government purchases by $80 billion.

The government should increase government purchases by $20 billion.

The government should cut personal income taxes by $40 billion

The government does NOT have to conduct discretionary fiscal policy in this case. The forces of automatic stabilisers will help bring the economy back to potential GDP.

Question 10

To counteract the effect of automatic stabilisers during a recession and keep the budget balanced, the federal government would need to ________ government spending, or ________ taxes, which would ________ aggregate demand.

increase; decrease; increase

increase; increase; reduce

decrease; decrease; increase

decrease; increase; reduce