Economic Policy Objectives plus recap quiz

If the MPC is .7 and gross investment spending increase by $3 billion, GDP will

• increase by $10 billion
• increase by 2.1 billion
• decrease by $4.29 billion
• increase by $4.29 billion

If real output exceeds expenditure

• inventories will fall
• inventories will rise
• inventories will remain unchanged
• aggregate expenditure will rise

Which of the following is an objective of monetary policy, as defined by the Reserve Bank Act?

• maintaining and improving the economic welfare of the people of Australia
• maintaining the stability of the Australian currency by reducing fluctuations in the exchange rate
• achieving an efficient allocation of resources within the Australian economy
• reducing the level of the current account deficit

Assume that the government increases its spending by $15 billion. If the marginal propensity to consume is 0.7, what will be the total increase in income?

• $10.5 billion
• $15 billion
• $45 billion
• $50 billion

Which one of the following events is most likely to have an effect on aggregate demand that is different from the other three events?

• an increase in the income tax free threshold
• an appreciation of the Australian dollar
• an increase in the terms of trade
• an improvement in the business expectations

The consumption function will tend to shift upwards as a result of an increase in the 

• level of income
• marginal propensity to save
• level of consumer confidence
• value of net exports

Which of the following would increase Australia's international competitiveness?

• An increase in Australian tariffs
• An increase in Australian wage rates
• An increase in productivity
• An increase in inflation in Australia

Which of the following would not tend to improve Australia's overall international competitiveness?

• An increase in productivity growth
• a decrease in the cash rate
• an increase in spending on education and training
• an increase in tariff protection for the domestic motor vehicle industry

At the start of an upswing of economic activity, which of the following pairs of events would most likely be occurring?

• Falling employment AND rising interest rates

• Improving business expectations AND rising private investment

• Inflationary pressure AND excess capacity in manufacturing industry

• A reduction in inventory levels AND low levels of consumption on durable goods.

The Reserve Bank (RBA) try to achieve an inflation rate of around 2% - 3% because

• both lenders and borrowers have come to expect these levels of inflation.
• this ensures the economy will run at full employment.
• it is high enough to avoid the problens associated with low economic growth, but low enough to avoid most problems associated with inflation.
• it is ideal to have expected inflation equal unexpected inflation.