Question

1. How exactly can the RBA conduct an expansionary policy, and how can it be represented...

1. How exactly can the RBA conduct an expansionary policy, and how can it be represented in AD-AS model? a. the RBA buys government bonds and Treasury bills, and AD curve shifts right. b. the RBA sells government bonds and Treasure bills, and AS curve shift right. c. the RBA increase the required-reserve ratio, and AD curve shift left. d. the RBA decrease income taxes, and AD curve shift right.

2. If the RBA is very sensitive to changes in the inflation rate and adjusts the target cash rate accordingly to keep inflation rate within a particular band, how would this affect AD curve in AD-AS model? a. AD curve will shift right. b. AD curve will shift left. c. AD curve is relatively steep. d. AD curve is relatively flat.

3. Suppose the Australian economy is currently at the long-run macroeconomic equilibrium. Using the AD-AS model, if the RBA anticipates that next year the aggregate supply would grow significantly slower than aggregate demand , then the RBA would most likely

a. increase interest rates

b. decrease interest rates

c. increase income tax rates

d. decrease income tax rates

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Answer #1

1) option A. The reserve Bank can use monetary expansion by by purchasing government securities from the commercial banks and increasing the money supply in the economy. this is going to decrease the interest rate and increase investment and ultimately shift the aggregate demand curve to the right. It can not influence taxes. it should not increase the required reserve ratio because that will shift the aggregate demand curve to the left

2) option D

3) option C

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