Monetary policy test 5 economicstutor.com.au

The Reserve Bank of Australia will conduct monetary policy primarily via the manipulation of
1. interest rates
2. exchange rates
3. wage rates
4. the volume of the money supply in the economy (e.g. M3)
If the RBA decides to tighten monetary policy 0.25 per cent it will
1. announce a reduction in the target cash rate and then move the policy interest rate corridor up by 25 basis points
2. announce a reduction in the target cash rate and then move the policy interest rate corridor down by 25 basis points
3. announce an increase in the target cash rate and then move the policy interest rate corridor up by 25 basis points
4. announce an increase in the target cash rate and then move the policy interest rate corridor down by 25 basis points
The RBA will not necessarily wait for inflation to fall before loosening monetary policy. This illustrates that monetary policy is used
1. effectively
2. pre-emptively
3. selectively
4. retrospectively
If the RBA increases the target cash rate by 100 basis points, but average home loan/mortgage interest rates increased by more than 100 basis points, this is most likely due to:
1. Tighter conditions in global financial markets due to another financial crisis
2. an increase in competitive pressures amongst financial institutions
3. An increase in the actual cash rate by more than 100 basis points
4. the higher value of the Australian dollar
If there is a reduction in the rate of economic growth then
1. the rate of unemployment is likely to increase and the RBA is likely to consider a loosening of monetary policy if the latest annual rate of inflation was 3%
2. the rate of unemployment is likely to increase and the RBA is likely to consider a loosening of monetary policy if the latest annual rate of inflation was 2%
3. the rate of unemployment is likely to increase and the RBA is likely to consider a tightening of monetary policy if inflation is 2% the latest annual rate of inflation was 3%
4. the rate of unemployment is likely to decrease and the RBA is likely to consider a loosening of monetary policy the latest annual rate of inflation was 2%
When the economy is experiencing the problem of imported inflation, which of the following transmission channels best addresses this problem following a tightening of monetary policy
1. Cost of credit channel
2. Asset values channel
3. Cash flow channel
4. Exchange rate channel
Which of the following statements provides the least likely reason for the RBA loosening MP
1. Relatively sluggish economic growth
2. Growth in the unemployment rate
3. Growth in inflationary pressure
4. Growth in bankruptcy rates
Which of the following statements is false in relation to weaknesses of monetary policy actions
1. MP is unable to target external stability
2. MP is subject to political bias
3. Changes in the target cash rate do not always fully reflectechanges in general interest rates
4. Long impact lags have meant that MP may have been tightened for too long
The medium term objective of monetary policy is to achieve
1. Economic growth
2. Price Stability
3. Full Employment
4. Maximum economic welfare and prosperity
If the economy is operating close to the peak of the business cycle and the government implements stimulatory income tax cuts to win favour with the electorate, the RBA is likely to do which of the following?
1. Tighten monetary policy by increasing the target cash rate
2. Loosen monetary policy by decreasing the target cash rate
3. Tighten monetary policy by decreasing the target cash rate
4. Loosen monetary policy by increasing the target cash rate

Monetary policy test 5 economicstutor.com.au

Multiple choice