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QUESTION 1 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. QUESTION 2 Quantitative easing is a central bank policy that attempts to stimulate the economy by possibly selling short-term Treasury securities. slowly reducing the required reserve ratio. making discount loans to non financial corporations buying long-term securities Question 1 and Question 2

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Q1. Open market operation works via buying or selling of bonds in order to increase/decrease the amount of money in circulation. It can be both expansionary and contractionary.

Under contractionary open market operations, the Federal bank sells government bonds and securities in the market in order to decrease the amount of money in circulation, thus slowing the growth of the economy.

Ans. (b) Use open market operations to sell bonds and securities

Q2. Quantitative easing is the process of infusing money into the market via purchase of government bonds and other financial assets. It attempts to stimulate the economy by buying long-term securities.

Ans. (d)

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