QUESTION 28

The interest rate on overnight interbank lending will be lower than the cash rate target if the RBA underestimates the demand for reserves by the banking sector.

1. True
2. False

QUESTION 27

Which of the following components does NOT belong to the money base (M0)?

	A.	balances in central bank account owned by a foreign central bank
	B.	balances in central bank accounts owned by domestic banks
	C.	notes held by the domesticgovernment
	D.	notes held by foreigners
	E.	All of the above belong to the money base

Imagine that the collapse of Bear Sterns' hedge funds made the banks doubt the quality of the loans they would make to each other.

The effect in the market for reserves would be __________________.

	A.	a decrease in the demand for reserves
	B.	an increase in the demand for reserves
	C.	an increase in the supply of reserves due to autonomous factors
	D.	an increase in supply of reserves due to the Federal reserve policy of fed fund rate targeting
	E.	both B and D are correct