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1.10. Fiscal policy Which of the following is most likely to initially influence aggregate supply in the Greek economy? A. An increase in saving B. New infrastructure projects paid for by the government C. Changes in personal income tax rates D. Changes in expected inflation

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One of the central objectives of monetary policy is to reduce income inequality. True or False?

2.9.  According to the RBA statement, this low interest rate environment has had no impact on housing prices. True or False?

2.6 According to the RBA, resources sector investment spending is set to decline significantly. If resources instead became more productive, this would increase aggregate demand. True or False? 2.7.  

One of the central objectives of monetary policy is to reduce income inequality. True or False?

2.8.   "Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments". If the RBA decides to further cut interest rates, bond prices are likely to: A.  Remain the same B.  Increase C.  Decrease D.  Become negative

Explanation / Answer

(1.10) (B)

New infrastructure projects will improve infrasructure and enhance resource availability for firms, so firms will increase their supply, and aggregate supply will increase.

(2.6) False

Higher productivity of resources will increase aggregate supply, not aggregate demand.

(2.7) False

Objectives of monetary policy are: To reduce inflation, to reduce unemployment and to keep the economy on the path of economic growth.

(2.8) (B)

Bond price is inversely related to interest rate, so when interest rate falls, bond price rises.

(2.9) False

Lower interest rate will increase mortgage loans (since equated loan repayment amount will fall), and housing prices will rise fuelled by this rise in demand for housing.

(2.10) False.

Lower nominal wage will encourage firms to hire more labor, which will raise output level. Higher output supplied will lower the price level in short run and aggregate demand will increase as a result. So borrowing (to finance higher consumption demand) will rise, and nominal interest rate will rise. Higher nominal interest rate and lower price level will together increase real interest rate.

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