Solution-What should be the cash rate for australia

What should be the cash rate for australia

Reference no: EM131256560

Introduction to Macroeconomics

1. Which of the following statement is not true? Other things remaining the same,

(a) A fall in the price level increases both exports and imports.

(b) A rise in the price level decreases the real value of money.

(c) A fall in the price level increases the quantity of real wealth.

(d) A rise in the price level increases saving.

2. Which of the following statement is true? Other things remaining the same,

(a) A fall in the price level increases both exports and imports.

(b) A rise in the price level increases the real value of money.

(c) A fall in the price level increases the quantity of real wealth.

(d) A rise in the price level decreases saving.

3. Find an incorrect statement.

(a) The short run aggregate supply (SAS) curve slopes upward.

(b) With an inflationary gap, money wage rate begins to fall and the SAS curve shifts rightward.

(d) In the long run, the quantity of real GDP is equal to potential GDP.

4. Find an incorrect statement.

(a) The short run aggregate supply (SAS) curve slopes upward.

(b) With an inflationary gap, money wage rate begins to rise and the SAS curve shifts leftward.

(d) In the long run, the quantity of real GDP is greater than potential GDP.

5. With the given money wage rate, as the price level falls below the equilibrium price level, the quantity of real GDP supplied _______ and the real GDP is _______ than the potential GDP. The missing words are:

(a) increases; smaller

(b) decreases; greater

(d) decreases; smaller

6. With the given money wage rate, as the price level rises above the equilibrium price level, the quantity of real GDP supplied _______ and real GDP _______ potential GDP. The missing words are:

(a) decreases; exceeds

(b) decreases; does not exceed

(c) increases; does not exceed

(d) increases; exceeds

7. Find a correct statement.

(a) If real GDP is below equilibrium GDP, firms start to decrease production.

(b) A smaller increase in aggregate demand than the increase in the long-run aggregate supply (LAS) brings inflation.

(d) Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.

8. Find a correct statement.

(a) If real GDP is below equilibrium GDP, firms start to decrease production.

(b) A larger increase in aggregate demand than the increase in the long-run aggregate supply (LAS) brings inflation.

(d) Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.

9. Which of the following would lead to an increase in aggregate demand?

(a) A decrease in government expenditure

(b) An increase in exports

(d) A fall in consumption expenditure

10. Which of the following would lead to an increase in aggregate demand?

(a) A fall in interest rate

(b) An decrease in exports

(d) A fall in consumption expenditure

11. Suppose an increase in real GDP by $50 billion results in an increase in disposable income by $40 billion. This leads to an increase of consumption by $30 billion. What are the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)?

(a) 0.60, 0.40

(b) 0.75, 0.25

(c) 0.80, 0.20

(d) 0.33, 0.67

12. Suppose an increase in real GDP by $30 billion results in an increase in disposable income by $25 billion. This leads to an increase of consumption by $20.5 billion. What are the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)?

(a) 0.85, 0.15

(b) 0.82, 0.18

(d) 0.37, 0.63

13. Which of the following is autonomous expenditure (not influenced by real GDP)?

(a) Consumption (C) and Government expenditure (G)

(b) Consumption (C) and Imports (M)

(c) Investment (I) and Government expenditure (G)

(d) Exports (X) and Imports (M)

14. Which of the following is induced expenditure which is influenced by real GDP?

(a) Consumption (C) and Government expenditure (G)

(b) Consumption (C) and Imports (M)

(c) Investment (I) and Government expenditure (G)

(d) Exports (X) and Imports (M)

15. Assume that there are no changes in income tax rates and imports. What is the size of multiplier if the marginal propensity to save (MPS) is 0.25?

(a) 5

(b) 4

(c) 3

(d) 2

16. Assume that there are no changes in income tax rates and imports. What is the size of multiplier if the marginal propensity to consume (MPC) is 0.75?

(a) 5

(b) 4

(c) 3

(d) 2

17. Suppose that government expenditure increases by $0.5 billion and the slope of aggregate expenditure (AE) curve is 0.75. What would be the change in real GDP?

(a) An increase by $2 billion

(b) An increase by $4 billion

(d) A decrease by $2 billion

18. Suppose that government expenditure decreases by $1.5 billion and the slope of aggregate expenditure (AE) curve is 0.75. What would be the change in real GDP?

(a) An increase by $2 billion

(b) An increase by $6 billion

(c) A decrease by $4 billion

(d) A decrease by $6 billion

19. Which of the following is the effect of an increase in investment?

(a) In the short run, the AE curve shifts upward and the AD curve shifts rightward.

(b) The SAS curve will shift leftward and the real GDP exceeds potential GDP in the long run.

(c) There will be recessionary gap created in the short run.

(d) The multiplier is positive in the long run.

20. Which of the following is the effect of a decrease in government expenditure?

(a) In the short run, the AE curve shifts downward and the AD curve shifts leftward.

(b) The SAS curve will shift leftward and the real GDP exceeds potential GDP in the long run.

(c) There will be recessionary gap created in the short run.

(d) The multiplier is positive in the long run.

21. Which of the following factors would not lead to demand-pull inflation?

(a) An increase in government expenditure

(b) An increase in the quantity of money

(c) An increase in exports

(d) An increase in tax

22. Which of the following factors would not lead to demand-pull inflation?

(a) An increase in government expenditure

(b) An increase in the quantity of money

(d) An decrease in tax

23. A rise in the prices of crude oil would shift the short-run supply (SAS) curve ________ and this would cause _______ inflation. Find the missing words.

(a) leftward; demand-pull

(b) rightward; demand-pull

(c) leftward; cost-push

(d) rightward; cost-push

24. A rise in the prices of raw materials would shift the short-run supply (SAS) curve ________ and this would cause _______ inflation. Find the missing words.

(a) leftward; demand-pull

(b) rightward; demand-pull

(d) rightward; cost-push

25. The real business cycle theory says that a decrease in productivity would lead to a _____in labour demand and result in a _____ in real wage rate. The missing words are:

(a) decrease; fall

(b) increase; fall

(d) increase; rise

26. The real business cycle theory says that an increase in productivity would lead to ______ in labour demand and result in a _____ in real wage rate. The missing words are:

(a) decrease; fall

(b) increase; fall

(d) increase; rise

27. Which of the following factors would not lead to cost-push inflation?

(a) An increase in money wage rate

(b) An increase in imports

(c) A rise in price of raw materials

(d) A rise in oil price

28. Which of the following factors would not lead to cost-push inflation?

(a) An increase in money wage rate

(b) An increase in exports

(c) A rise in price of raw materials

(d) A rise in oil price

29. A rapid growth of trade surplus in a country would cause _______ inflation in the country as the real GDP would be _______ than the potential GDP in the short run. Find the missing words.

(a) cost-push; greater

(b) cost-push; smaller

(c) demand-pull; greater

(d) demand-pull; smaller

30. An investment boom in a country and growing world demand for the country's products would cause _______ inflation in the country as the real GDP would be _______ than the potential GDP in the short run. Find the missing words.

(a) cost-push; greater

(b) cost-push; smaller

(c) demand-pull; greater

(d) demand-pull; smaller

31. Which of the following is not a component of fiscal policy?

(a) Autonomous tax multiplier

(b) Balanced budget multiplier

(c) Government expenditure multiplier

(d) Money supply multiplier

32. Which of the following is not a component of fiscal policy?

(a) Interest rate multiplier

(b) Balanced budget multiplier

(c) Government expenditure multiplier

(d) Autonomous tax multiplier

33. Find an incorrect statement about fiscal policy instrument?

(a) The size of government expenditure multiplier is greater than the autonomous tax multiplier.

(b) A decrease in government expenditure decreases equilibrium expenditure.

(c) An increase in autonomous taxes decreases aggregate expenditure.

(d) If both government expenditure and taxes decrease by a same amount, equilibrium expenditure increases.

34. Find a correct statement about fiscal policy instrument?

(a) The size of government expenditure multiplier is greater than the autonomous tax multiplier.

(b) An increase in government expenditure decreases equilibrium expenditure.

(c) A decrease in autonomous taxes decreases aggregate expenditure.

(d) If both government expenditure and taxes decrease by a same amount, equilibrium expenditure increases.

35. Which of the following statement is not true?

(a) A increase in tax on interest income would increase saving

(b) A decrease in tax on interest income would increase the supply curve of loanable funds

(c) A increase in tax on interest income would shift the supply curve of loanable funds leftward

(d) A tax on consumption would raise prices paid for consumption goods

36. Which of the following statement is not true?

(a) An increase in tax on interest income would decrease saving

(b) A decrease in tax on interest income would decrease the supply curve of loanable funds

(d) A tax on consumption would raise prices paid for consumption goods

37. A presence of automatic stabiliser ______ induced taxes on incomes and ______ transfer payments when the economy is in recession. The missing words are:

(a) raises; decrease

(b) lowers; increase

(d) lowers; decrease

38. A presence of automatic stabiliser ______ induced taxes on incomes and ______ transfer payments when the economy is in expansion. The missing words are:

(a) raises; decrease

(b) lowers; increase

(d) lowers; decrease

39. The supply side effects of a decrease in income tax would be:

(a) Increase in aggregate supply but decrease in potential GDP

(b) Decrease in aggregate supply but no change in potential GDP

(c) Increase in both aggregate supply and potential GDP

(d) Decrease in both aggregate supply and potential GDP

40. The supply side effects of an increase in income tax would be:

(a) Increase in aggregate supply but decrease in potential GDP

(b) Decrease in aggregate supply but no change in potential GDP

(d) Decrease in both labour supply and potential GDP

41. Which of the following is a monetary policy instrument that RBA can directly control or closely target?

(a) The exchange rate

(b) The monetary base

(d) All of the above

42. Which of the following is not a monetary policy instrument that RBA can directly control or closely target?

(a) Tax rate on interest income

(b) The monetary base

(c) The short-term interest rate

(d) The exchange rate

43. The open market purchase ______ money supply and ______ interest rate. The missing words are:

(a) decrease; lowers

(b) increases; lowers

(d) increases; raises

44. The open market sale ______ money supply and ______ interest rate. The missing words are:

(a) decrease; lowers

(b) increases; lowers

(d) increases; raises

45. When the RBA lowers the cash rate, which of the following is not true?

(a) The quantity of money and the supply of loanable funds decrease.

(b) The exchange rate and the long-term real interest rate fall.

(d) The real GDP increase and price level rises.

46. When the RBA lowers the cash rate, which of the following is true?

(a) The quantity of money and the supply of loanable funds decrease.

(b) The exchange rate and the long-term real interest rate rise.

(c) Consumption expenditure, investment, and net exports decrease.

(d) The real GDP increase and price level rises.

47. If the RBA raises the cash rate, which of the following is true?

(a) Aggregate demand increases

(b) Real GDP increases

(d) Price level rises

48. If the RBA raises the cash rate, which of the following is not true?

(a) Aggregate demand increases

(b) Real GDP decreases

(c) Unemployment increases

(d) Price level falls

49. Suppose in Australia that the neutral real cash rate is 2 per cent a year, the actual inflation rate is 1.5 per cent while the target inflation rate is 2.5 per cent a year, and the output gap is -1.5 per cent. Using the Taylor rule, what should be the cash rate for Australia?

(a) 3.00 per cent

(b) 2.75 per cent

(c) 2.50 per cent

(d) 2.25 per cent

50. Suppose that, in Australia, the neutral real cash rate is 2 per cent a year, and the actual inflation rate is 1 per cent while the target inflation rate is 2 per cent a year. The output gap is -2 per cent. Using the Taylor rule, what should be the cash rate for Australia?

(a) 1.50 per cent

(b) 1.75 per cent

(d) 2.50 per cent

Reference no: EM131256560

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What should be the cash rate for australia

Reference no: EM131256560

Reference no: EM131256560

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