Which of the following is an incorrect explanation for how a loosening of monetary is likely to cause AD to increase
There should be an increase in wages, causing Consumption to increase
There should be an increase in Investment as businesses are more likely to borrow and purchase capital equipment
There should be an increase in net exports following an increase in capital outflow and a lower value of the $A
There should be an increase in cash flows for businesses and households given that it costs less to service existing loans which results in higher C and I
Which of the following is the most likely monetary policy response in the event that the value of the exchange rate declines rapidly to levels that are considered too low
Tightening monetary policy to increase interest rates and attract capital inflow
Purchasing the $A on foreign currency markets
Loosening monetary policy to decrease interest rates and attract capital inflow
Delivering a budget deficit to assist in raising the value of the $A.
Assuming that inflation is close to the top and of the RBA’s target range, which of the following economic statistics is unlikely to provide an additional reason for tightening monetary
Strong credit growth
Strong growth in employment
Strong growth in Job vacancy rates
Strong growth in mortgage defaults
Which of the following best describes the effect that a tightening of monetary policy will have on a current account balance
Uncertain effect because the effects of slower national spending is somewhat offset by the effects of a higher currency
The current account deficit will fall because higher interest rates reduce spending and reduces the gap between spending and income, which is the primary cause of any current account deficit
A current account surplus is likely to increase because higher interest rates reduces national spending and consequently results in less input spending
The current account deficit is likely to increase because the higher interest rates cause the $A to increase which damages international competitiveness and net exports
When the RBA purchases the $A on foreign currency markets it will tend to
have little impact on the cash rate
increase pressure on the cash rate
decrease pressure on the cash rate
increase pressure on the cash rate and then decrease pressure on the cash rate
When the RBA manipulates the foreign exchange market to reduce the value of the dollar, it will typically attempt to sterilize the effect on the cash market. This means that
the RBA will allow the cash rate to increase effectively tightening monetary policy
the RBA will allow the cash rate to decrease effectively loosening monetary policy
the RBA will prevent the cash rate from falling by purchasing government securities
the RBA will prevent the cash rate from falling by selling government securities
Which of the following statements is incorrect in relation to RBA efforts to manipulate the value of the $A
The RBA will increase interest rates in order to attract capital inflow and raise the demand and value of the $A
The RBA will not use a change in the cash rate to manipulate the $A
A change in interest rates is likely to have an impact on the value of the $A
Efforts to manipulate the $A via RBA purchases or sales of the dollar will impact on the cash rate
In relation to monetary policy and equity in the distribution of income, which of the following statements is incorrect
A tightening of monetary policy can improve equity in the long term via the favourable impact on economic growth and employment
A tightening of monetary policy can make it more difficult to achieve the government's equity objective in the short term because of the negative effect on growth and employment.
A tightening of monetary policy can assist lower income earners as the lower interest rates assist those who are more likely to be net borrowers
The government does not use monetary policy to directly target its equity objective
An increase in the target cash rate is least likely to be a response to
higher levels of confidence in Australia
A large rise in the trade weighted index
a resurgence of economic growth in China
higher rates of capacity utilisation reported by businesses
Which of the following is a relative weaknesses of monetary policy
inability of monetary policy to influence price pressure in the economy
inability of monetary policy to influence the value of $A
inability of monetary policy to affect employment growth
inability of monetary policy to focus on particular industries