Economic Principle

Chapter 16—Macroeconomic policy I: monetary policy

MULTIPLE CHOICE

The goals of monetary policy

1. The RBA believes that by keeping inflation low and steady it can assist with:
A.|the achievement of low prices over the medium to long term.|
B.|the achievement of slow and steady economic growth over the medium to long term.|
C.|the achievement of full unemployment and slow and steady economic growth over the medium to long term.|
D.|the achievement of full employment and high economic growth over the medium to long term.|


ANS: D PTS: 1 DIF: Moderate REF: The goals of monetary policy

2. The primary goal of the RBA is to:
A.|keep inflation low.|
B.|maintain full employment.|
C.|ensure the economic prosperity of Australian people.|
D.|keep interest rates low.|
E.|reduce unemployment.|


ANS: A PTS: 1 DIF: Easy REF: The goals of monetary policy

3. The inflation target of the RBA is:
A.|2–3 per cent at all times.|
B.|2–3 per cent over the course of the business cycle.|
C.|zero per cent at all times.|
D.|zero per cent over the course of the business cycle.|
E.|0–5 per cent over the course of the business cycle.|


ANS: B PTS: 1 DIF: Moderate REF: The goals of monetary policy

4. The goal of the monetary policy in Australia:
A.|is to help low-income earners find a better job.|
B.|is to provide everyone with a high income.|
C.|is to keep the interest rates as high as possible.|
D.|is to keep inflation between 2 and 3 per cent.|


ANS: D PTS: 1 DIF: Moderate REF: The goals of monetary policy

Two views of the monetary policy transmission mechanism

5. The Keynesian cause-and-effect sequence predicts that a decrease in the money supply will cause interest rates to:
A.|fall, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.|
B.|fall, boosting investment and shifting the AD curve rightward, leading to a decrease in real GDP.|
C.|rise, cutting investment and shifting the AD...