Question

Which of the following describes what the Reserve Bank of Australia would do to pursue an contractionary monetary policy? Use open market operations to buy bonds and securities. Use open market operations to sell bonds and securities Use open market operations to increase the overnight cash rate. Increase interest rates on mortgages and corporate loans.

The Reserve Bank of Australia manages the supply of cash on a daily basis to ensure that every bank has sufficient cash to meet the demand for funds. sterilise deficits and surpluses of cash in the financial system. ensure that there are no large injections of cash into or withdrawals of cash out of the financial system ensure that the interest rate changes to create equilibrium in the money market.

If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to a: rise in interest rates and an appreciation of the Australian dollar. rise in interest rates and a depreciation of the Australian dollar. fall in interest rates and an appreciation of the Australian dollar. fall in interest rates and a depreciation of the Australian dollar,

Consider the hypothetical information in Table below for potential GDP, real GDP and the price level in 2013 if the Reserve Bank of Australia does not use monetary policy. If the RBA uses monetary policy successfully to keep real GDP at its potential level in 2013, which of the following will be higher than if the RBA had taken no action? Year Potential GDP Real GDF Price Level 2013 $1.8 trillion $1.4 trillion 152 Real GDP and the unemployment rate. Real GDP and potential GDP Real GDP and the price level. Potential GDP and the price level

If contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand? Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports. Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports. Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports. Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports

If the economy is close to full employment, an increase in government spending may increase GDP in the short run, but in the long run, this policy may reduce investment in new capital. make domestic businesses less competitive in international markets if the dollar appreciates in value raise interest rates and reduce consumer expenditures on cars and new houses All of these options are correct.

Which of the following is considered contractionary fiscal policy? The government increases defense spending due to a change in priorities. The government increases the income tax rate The government reduces family benefit for high-income families to reduce inequality. state (not federal) government cuts highway spending to balance its budget

Suppose that the government allocates $1 billion for new roads. It also raises taxes by $1 billion to keep the deficit from growing. The absolute value of the government purchase multiplier is 3.33 and that of the tax multiplier is 2.33. What is the effect on equilibrium GDP? GDP does not change. GDP increases by $ 2.33 billion. GDP increases by $3.33 billion. GDP increases by $1 bilion

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Answer #1

1).

Reserve Bank of Australia would pursue “open market operation” for contractionary monetary policy, => will sell bonds and securities in exchange of money, => the money supply in an economy decreases. So, “B” is the correct answer.

2).

The Reserve Bank of Australia manages the supply of cash on daily basis to ensure that there are no large injections of cash into or withdrawals of cash out of the financial system. So, here the correct “is C”.

3).

So, as the Reserve Bank of Australia sells bonds and securities in the open market in exchange of cash, => money supply decreases, => domestic interest rate increases, => under UIP exchange rate have to decrease, => appreciation of home currency. Under UIP the following condition must hold.

=> ih = if + d, where “d=(Ee-E)/E” is the expected depreciation of home currency, => if “ih” increases implied “E” should decrease to maintain the above equality. So, here the correct answer is “A”.

4).

So, here we can see that “real GDP” is less than the “potential GDP”, => is RBA take expansionary monetary policy, => that will increase the “AD”, => given the “AS” both “P” and “real GDP” both increases. So, here the correct answer is “C”.

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