The cash rate is the interest rate on:

loans to commercial banks by the RBA.

Which of the following would not have an exchange settlement account in the interbank market?

Colonial Mutual Building Society

An easing of monetary policy would involve:

an increase in the money supply.

the RBA buying fewer securities than are demanded in the short-term money market.

A contractionary monetary policy stance would:

be appropriate in an economic boom.

involve a reduction in the cash rate.

reduce levels of foreign investment in Australia.

Which of the following is an accurate description of the effect of an increase in the cash rate?

Local demand for housing in Australia would fall.

Interest rates would fall, causing an outflow of foreign investment.

Consumer spending would increase.

The level of business investment would increase.

An expansionary monetary policy stance would:

be likely to increase the rate of inflation.

be appropriate for an economy in which GDP was increasing at 3.5 per cent.

be an appropriate response to an unemployment rate of 4.5 per cent.

A decrease in the cash rate would be transmitted through:

the asset prices and wealth channel.

the savings and investment channel

Which of the following would be most likely as a result of an increase in the cash rate?

an increase in overseas investment

a depreciation in the exchange rate

Which of the following would be expected after a decrease in the cash rate?

increased demand for consumer durables

a decline in business investment

a fall in the underlying rate of inflation

Which of the following statements about deposits in the short-term money market is not accurate?

They are notes and coins that can be used to meet the consumer transactions at their branches during the next day’s trading.

Financial institutions deposit funds by buying short-term government bonds

They can only be transferred to other banks, the RBA or the government.

Changes to the level of these does not change the supply of cash in the market.

Why might a financial institution buy government securities off the RBA in the money market?

to meet their exchange settlement needs

to earn interest on surplus funds in their exchange settlement accounts

to get money at the cash rate that they can lend later at commercial rates of interest

to make required payments to the Australian Taxation Office

Which of the following transmission mechanisms is accurate?

D ↓ cash rate → ↓ interest rates → ↓ exchange rate → ↑ exports → ↑ aggregate demand → ↑inflation

↓ cash rate → ↓ interest rates → ↑ spending and ↑ investment → ↑ aggregate demand → ↓ inflation

B ↑ cash rate → ↑ interest rates → ↑ spending and ↑ investment → ↑ aggregate demand → ↑ inflation

C ↓ cash rate → ↓ interest rates → ↑ exchange rate → ↑ import prices → imported inflation → ↑ inflation

Which of the following channels for transmitting changes in the cash rate to changes in the level of economic activity is also known as the inter-temporal substitution channel?

the savings and investment channel

the asset prices and wealth channel

The time it takes for a change in the cash rate to have its effect on the targeted economic variables and the level of economic activity is known as:

the autonomous expenditure lag.

It is estimated that lowering the cash rate by 100 basis points leads to (ceteris paribus):

a ½ to ¾ percentage point rise in GDP over the course of two years.

a rise of almost 1 percentage point in the rate of inflation per year over two to three years.

a fall of almost ¼ of a percentage point in the rate of inflation per year over two to three years.

a 1 to 2 percentage point rise in GDP over the course of two years.

Economic management: Monetary policy

Authored by Damian Lowrie

Social Studies

10th - 12th Grade

Used 32+ times

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34 questions

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MULTIPLE CHOICE QUESTION

5 mins • 1 pt

The cash rate and the cash-rate target are different names for the same thing.

True

False

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

Monetary policy is an instrument of economic policy.

True

False

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

The cash rate is a monetary policy tool.

True

False

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

The RBA Board meets to make monetary policy decisions 12 times per year.

True

False

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

A decrease in the cash-rate target is an appropriate response in a recession.

True

False

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

An expansionary monetary policy stance aims to increase the level of economic activity in the Australian economy.

True

False

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

An expansionary fiscal stance would cause interest rates to fall.

True

False

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Economic management: Monetary policy

The cash rate and the cash-rate target are different names for the same thing.

Monetary policy is an instrument of economic policy.

The cash rate is a monetary policy tool.

The RBA Board meets to make monetary policy decisions 12 times per year.

A decrease in the cash-rate target is an appropriate response in a recession.

An expansionary monetary policy stance aims to increase the level of economic activity in the Australian economy.

An expansionary fiscal stance would cause interest rates to fall.

Monetary policy has a greater time lag than fiscal policy decisions.

Monetary policy is an instrument for demand management, whereas fiscal policy is more effective in managing supply.

Wealth is a stock and income is a flow.

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