Question 1

Suppose the Reserve Bank of Australia (RBA) is considering whether to raise, lower, or hold the cash rate steady. Which of the following factors is most likely to prompt the RBA to increase the cash rate?

Accepted Answer

Inflation consistently above the RBA's target range

Question 2

Given the following behavioral equations for an economy: $C = 100 + 0.8Y$, $G = 150$, $I = 100$, what is the equilibrium level of GDP ($Y$)?

Accepted Answer

$Y = 1750$

Question 3

In the IS-LM model, what is the effect on output ($Y$) of an increase in taxes ($T$), assuming the marginal propensity to consume ($c$) is less than 1?

Accepted Answer

Output decreases due to reduced disposable income and consumption

Question 4

Suppose the wage-setting equation is $W = P^e F(u)$, where $W$ is the nominal wage, $P^e$ is expected price level, and $F(u)$ is a function of unemployment. If the markup of prices over costs increases, what happens to the natural rate of unemployment?

Accepted Answer

It increases because higher markups reduce real wages and raise unemployment

Question 5

The Phillips Curve is given by $\pi = \pi^e - 0.1(u - u_n)$, where $\pi$ is inflation, $\pi^e$ is expected inflation, $u$ is unemployment, and $u_n$ is the natural rate. If expected inflation rises, what is the likely effect on actual inflation?

Accepted Answer

Actual inflation will increase

Question 6

In the Solow growth model, suppose the production function is $y = k^{0.5}$ and the depreciation rate is $\delta = 0.05$. If the saving rate $s$ increases, what happens to the steady-state level of capital per worker ($k^*$)?

Accepted Answer

It increases because more output is invested

Question 7

Which of the following best describes the main difference between the MARTIN and EMMA macroeconomic models used by the RBA and Treasury?

Accepted Answer

MARTIN focuses on short-run fluctuations, while EMMA emphasizes long-run growth

Question 8

Suppose the IS curve in the IS-LM model shifts to the left. Which of the following is the most likely cause?

Accepted Answer

A fall in consumer confidence leading to reduced consumption

Question 9

If the government introduces a permanent increase in tariffs, what is the likely long-term effect on the IS-LM model equilibrium?

Accepted Answer

The IS curve shifts left, reducing output due to lower trade and investment

Question 10

In the context of the Solow model with population growth, technological progress, and depreciation, which of the following will increase the steady-state level of output per effective worker?

Accepted Answer

An increase in the rate of technological progress

Question 11

Suppose the RBA is targeting inflation and unemployment. If the unemployment rate falls below the natural rate, what is the likely effect on inflation according to the Phillips Curve?

Accepted Answer

Inflation will increase

Question 12

If the government reduces the saving rate by half in the Solow model, what is the likely effect on the steady-state level of capital per worker?

Accepted Answer

It will decrease

Question 13

In the IS-LM model, what is the effect of an increase in the risk premium ($	heta$) on output, assuming the IS curve is given by $Y = C + I(r + 	heta) + G$?

Accepted Answer

Output decreases as investment falls

Question 14

Suppose the RBA expects inflation to rise due to supply chain disruptions. Which monetary policy action is most appropriate to maintain price stability?

Accepted Answer

Raise the cash rate to reduce inflationary pressures

Question 15

If the expected price level ($P^e$) rises, what is the effect on the wage-setting equation $W = P^e F(u)$?

Accepted Answer

Nominal wages increase

Question 16

In the context of the yield curve, which of the following is most likely to cause the yield curve to invert?

Accepted Answer

Expectations of lower future interest rates due to economic slowdown

Question 17

Suppose the government increases public investment in infrastructure. What is the likely effect on the IS curve and equilibrium output in the IS-LM model?

Accepted Answer

The IS curve shifts right, increasing output

Question 18

If the RBA lowers the cash rate, what is the most direct effect on aggregate demand?

Accepted Answer

Aggregate demand increases due to lower borrowing costs

Question 19

In the Solow model, what is the 'golden rule' level of capital per worker?

Accepted Answer

The level that maximizes consumption per worker

Macroeconomics Tutorial Study Notes: Monetary Policy, IS-LM Model, Labour Market, Phillips Curve, Growth, and Open Economy

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