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1. The quantity theory of money seeks to explain the connection between money supply and:

   		aggregate demand.
   		interest rates.
   		the price level.
   		unemployment.
   		economic growth.

1 points

QUESTION 3

1. Among potential stores of value, money:

   		offers the highest rate of return.
   		has the advantage of being the most liquid asset.
   		carries the highest risk.
   		increases in value during periods of inflation.
   		provides more services than other assets.

1 points

QUESTION 4

1. Consider the hypothetical information in Table below for potential GDP, real GDP and the price level in 2013 if the Reserve Bank of Australia does not use monetary policy. If the RBA uses monetary policy successfully to keep real GDP at its potential level in 2013, then:

   Year	Potential GDP	Real GDP	Price Level	Unemployment rate
   2013	$1.8 trillion	$1.5 trillion	152	6%

   		The price level will not be affected and the unemployment rate will be lower than 6%.
   		The price level will be lower than 152 and the unemployment rate will be higher than 6%.
   		The price level will be higher than 152 and the unemployment rate will be lower than 6%.
   		The price level will be higher than 152 and the unemployment rate will be higher than 6%.
   		The price level will be lower than 152 and the unemployment rate will be lower than 6%.

1 points

QUESTION 5

1. Why might a bank be reluctant to keep all of its assets in cash reserves?

   		Cash is expensive to store.
   		A bank makes higher returns by holding riskier assets such as loans.
   		A bank makes higher returns by holding more liquid assets such as loans.
   		Cash is very illiquid, creating a high liquidity risk for banks.
   		Cash reserves are very liquid, and it is risky for banks to have too much liquidity.

1 points

QUESTION 6

1. An automatic stabiliser is:

   		a tax or form of government expenditure that has the effect of reducing the size of business cycle fluctuations.
   		discretionary government policy used to increase the potential output of an economy.
   		a policy for growth of an economy where the current account is kept in balance.
   		the tendency for inflation to fall as unemployment rises.
   		a monetary or fiscal policy that aims to smooth out the business cycle.

1 points

QUESTION 7

1. How are unemployment and inflation related to one another?

   		When unemployment is below the natural rate of unemployment, the inflation rate is likely to fall.
   		When unemployment is at the natural rate of unemployment, the inflation rate is likely to rise.
   		There is no relationship between the unemployment rate and inflation rate.
   		When unemployment is below the natural rate of unemployment, the inflation rate is likely to rise.
   		When unemployment is above the natural rate of unemployment, the inflation rate is likely to remain unchanged.

1 points

QUESTION 8

1. Product	Quantity in 2016	Price in 2016	Quantity in 2017	Price in 2017
   Milk	100	2	120	1.5
   Textbook	50	50	40	70
   Wheat	80	3	90	4

   Based on the table above, what is the real GDP for 2016 using 2016 as the base year ?

   		2510
   		100
   		2760
   		1550
   		2940

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