Consider the following five people and businesses:

I. Angela injured herself at work and is no longer working. The government pays her a fixed dollar amount in disability benefits each week.

II. Arti has a just bought a house. She paid for the house by taking out a large mortgage.

III. Farmer’s Bank has given out large loans to dairy farmers.

IV. Christian is saving money to buy a house.

V. Yi is a retired gardener who has a pension that adjust with inflation. For example, her pension rises with inflation and falls with deflation. 

Which of the following statements is true?

The following diagram shows the channel system of Cash Rate use by the Central Bank. 

Suppose the cash rate is at the policy target rate. 

In the below diagram, policy target rate equals i^T, IOR stands for Interest on Reserves, ES funds stands for exchange settlement funds.

Suppose that there is an increase

in money supply and the actual value of the cash rate is different from the Central

Bank target rate. Following this change, the Central Bank undertakes open

market operations (OMO) to return the actual rate to the target rate.

Given that the actions of the Central Bank are successful, which diagram can illustrate the impact of OMO of the Central Bank?

1. 

2. 

3. 

4. 

The following equations describe an economy, where Y* is potential GDP.

• C=20+0.8×(Y-T)
• I^p=100
• G=200
• T=210
• X=60
• M=0.2×Y
• Y*=600

What is the value of net exports in this economy in equilibrium?

Suppose the policy reaction function for the RBA shifts upwards from the solid line to the dashed line. What could have produced this movement?

In response to the COVID19 pandemic the Australian government announced a large fiscal stimulus package. Consider the following statements:

i. The government had some warning that COVID19 was likely to slow down output growth as it saw what happened in other countries

ii. Interest rates in Australia were close to zero, which left the Federal Reserve with little ability to cut interest rates further.

iii. Interest rates in Australia were close to zero, which left the RBA with little ability to cut interest rates further.

iv. Fiscal policy benefits the economy through big infrastructure projects.

v. The government was able to easily borrow cash from bank’s exchange settlement account funds.

Which of the above statements are TRUE as to why fiscal policy was timely in response to dealing with the economic consequences of the COVID19 pandemic:

A macroeconomist is likely to be most concerned about the increase of public debt when:

China has a fixed exchange rate. Its currency is called Yuan. Assume that income growth in China will be faster than that in other countries. 

In order to maintain a fixed exchange rate the Chinese government would need to:

If the Reserve Bank sells $40 million worth of government securities, the money supply will: 

Consider a closed economy model where consumption spending is given by C = A + bY^d, disposable income Y^d = Y – T – tY, where Y is output, T is lump-sum taxes, t is the proportional tax rate and b is the marginal propensity to consume. Planned investment is given by I^P and government spending is G. Planned investment and government spending do not depend on Y. Suppose A = 100, b = 0.8, T = 50, t = 0.5, I^P = 100 and G = 140. The multiplier is equal to:

The Cobb-Douglas production function takes the form (for 0<a<1):