If we assume that at the end of any given day the actual cash rate sits below the target cash rate. Which of the following actions is the RBA most likely to undertake?
buy government securities or repos from cash market participants by offering to pay a higher price for the securities
sell government securities or repos to cash market participants by offering to sell the securities at a cheaper price
buy government securities or repos from cash market participants by offering to pay a low price for the securities
sell government securities or repos to cash market participants by offering to sell the securities at a higher price
In relation to the operation of monetary policy, banks with surplus balances in their ESAs with the RBA earn a rate of interest at 25 basis points below the prevailing cash rate. Similarly, ESAs in deficit will be charged a rate of interest at 25 basis points higher than the prevailing market rate of interest. The RBA does this to:
Penalise the banks because their collective profits are huge
Profit from the banks because they have no choice but to hold these accounts with the RBA
Ensure that banks will invest any surplus cash in the cash market and borrow any deficits from the cash market.
Ensure that it can better manipulate the value of the currency
With respect to the actual cash rate and the target cash rate
The actual cash rate will always equal the target cash rate
The actual cash rate will always be below the target cash rate
The actual cash rate will always be above the target cash rate
The actual cash rate will always be close to the target cash rate
An expansionary monetary policy will often involve the RBA
Loosening monetary policy, reducing the cash rate which then flows on to reduce other interest rates in the economy
Loosening monetary policy, increasing the cash rate which then flows on to increase other interest rates in the economy
Tightening monetary policy, increasing the cash rate which then flows on to increase other interest rates in the economy
Tightening monetary policy, reducing the cash rate which then flows on to reduce other interest rates in the economy
Which of the following statements in relation to monetary policy is incorrect
Monetary policy can become more expansionary or accomodative without a loosening of monetary policy (or reduction in the cash rate)
Monetary policy can become more restrictive or less accomodative without a tightening of monetary policy (or increase in the cash rate)
A less accomodative monetary policy setting requires the RBA to increase the cash rate in order to restrict growth.
Monetary policy neutrality means that the effects of the current monetary policy settings are neither expansionary or contractionary
Which of the following is not a valid transmission channel describing how a change in monetary policy settings affect aggregate demand and economic growth?
The cash flow channel
The availability of credit channel
The exchange rate channel
The Terms of Trade channel
One transmission channel by which a decrease in interest rates affects economic activity is via the 'Cost of Credit' channel. This is best explained by which of the following:
Lower interest rates work to increase consumer and business confidence, lifting C, I, AD and economic growth
Lower interest rates work to increase C and I as households and businesses are encouraged by lowering borrowing costs, which then lifts AD and economic growth
Lower interest rates work to increase international competitiveness and boost (X-M), AD and economic growth
Lower interest rates work to lower the costs to service existing loans for businesses and households, which encourages them to lift C and I, causing AD and economic growth to increase
One transmission channel by which an increase in interest rates affects economic activity is via the 'Asset Value' or 'Asset Prices' channel. This is best explained by which of the following:
Assets prices increase (such as the price of houses and shares), causing households to suffer a drop in net wealth, which negatively affects Consumption, AD and economic growth.
Assets prices increase (such as the price of houses and shares), causing households to experience an increase in net wealth, which negatively affects Consumption, AD and economic growth.
Assets prices decrease (such as the price of houses and shares), causing households to experience an increase in net wealth, which negatively affects Consumption, AD and economic growth.
Assets prices decrease (such as the price of houses and shares), causing households to suffer a drop in net wealth, which negatively affects Consumption, AD and economic growth.
Which of the following statistics is least likely to cause the RBA Board to consider tightening monetary policy
A higher Terms of Trade
Higher levels of capacity utilisation in the economy
A higher number business bankruptcies
A higher value for the Australian dollar
Which of the following statistics is most likely to cause the RBA Board to consider loosening monetary policy