hsc eco topic 4

Question 1

What is the primary objective of monetary policy?

Answer 1

The primary objective of monetary policy is to achieve price stability, full employment, and economic growth.

Question 2

What is the role of the Reserve Bank of Australia (RBA) in monetary policy?

Answer 2

The RBA implements monetary policy by setting the cash rate, which influences interest rates and overall economic activity.

Question 3

Define the cash rate.

Answer 3

The cash rate is the interest rate on overnight loans in the money market.

Question 4

How does the RBA implement monetary policy?

Answer 4

The RBA implements monetary policy by conducting open market operations, buying or selling government securities to influence the cash rate.

Question 5

What is the transmission mechanism of monetary policy?

Answer 5

The transmission mechanism describes how changes in the cash rate affect economic activity and inflation through various channels such as interest rates, exchange rates, and asset prices.

Question 6

What is the inflation target range set by the RBA?

Answer 6

The RBA aims to keep inflation within the target range of 2-3% over the medium term.

Question 7

What is expansionary monetary policy?

Answer 7

Expansionary monetary policy involves lowering the cash rate to stimulate economic activity and increase inflation.

Question 8

What is contractionary monetary policy?

Answer 8

Contractionary monetary policy involves raising the cash rate to reduce economic activity and control inflation.

Question 9

How does monetary policy affect consumer spending?

Answer 9

Changes in interest rates influence borrowing costs and disposable income, thereby affecting consumer spending.

Question 10

What is the effect of monetary policy on business investment?

Answer 10

Lower interest rates reduce borrowing costs, encouraging business investment, while higher rates increase costs and deter investment.

Question 11

How does monetary policy influence the exchange rate?

Answer 11

Lower interest rates tend to depreciate the exchange rate, making exports cheaper and imports more expensive, while higher rates have the opposite effect.

Question 12

What is quantitative easing (QE)?

Answer 12

QE is a non-traditional monetary policy tool where the central bank buys long-term securities to increase the money supply and lower interest rates.

Question 13

What are the limitations of monetary policy?

Answer 13

Limitations include time lags, ineffective during liquidity traps, and the potential to cause asset bubbles.

Question 14

Define fiscal policy.

Answer 14

Fiscal policy involves government decisions on taxation and spending to influence economic activity.

Question 15

What are the two main tools of fiscal policy?

Answer 15

Government spending and taxation.

Question 16

How does expansionary fiscal policy work?

Answer 16

Expansionary fiscal policy increases government spending or decreases taxes to boost aggregate demand and economic activity.

Question 17

What is contractionary fiscal policy?

Answer 17

Contractionary fiscal policy involves decreasing government spending or increasing taxes to reduce aggregate demand and control inflation.

Question 18

What is a budget deficit?

Answer 18

A budget deficit occurs when government expenditures exceed revenue.

Question 19

What is a budget surplus?

Answer 19

A budget surplus occurs when government revenue exceeds expenditures.

Question 20

What is counter-cyclical fiscal policy?

Answer 20

Counter-cyclical fiscal policy aims to counteract economic fluctuations by increasing spending during recessions and decreasing spending during booms.

Question 21

What is an automatic stabilizer?

Answer 21

Automatic stabilizers are government programs that automatically increase spending or decrease taxes in response to economic conditions without additional government action.

Question 22

Give an example of an automatic stabilizer.

Answer 22

Unemployment benefits are an example of an automatic stabilizer.

Question 23

How does fiscal policy impact aggregate demand?

Answer 23

Fiscal policy impacts aggregate demand by influencing the amount of disposable income available to consumers and the level of government spending in the economy.

Question 24

What is microeconomic policy?

Answer 24

Microeconomic policy involves measures aimed at improving the efficiency and productivity of individual sectors and markets within the economy.

Question 25

What is deregulation?

Answer 25

Deregulation is the removal or reduction of government regulations to increase efficiency and competition in markets.

Question 26

What is privatization?

Answer 26

Privatization involves transferring ownership of government enterprises to the private sector to improve efficiency.

Question 27

What are subsidies?

Answer 27

Subsidies are financial support provided by the government to reduce the cost of goods and services, encourage production, and support specific industries.

Question 28

What is competition policy?

Answer 28

Competition policy involves measures to promote competition and prevent anti-competitive behavior in markets.

Question 29

Give an example of a microeconomic reform.

Answer 29

Trade liberalization, such as reducing tariffs and import quotas, is an example of a microeconomic reform.

Question 30

What is the goal of microeconomic policy?

Answer 30

The goal of microeconomic policy is to enhance productivity, increase efficiency, and foster economic growth.

Question 31

How do microeconomic policies affect consumers?

Answer 31

Microeconomic policies can lead to lower prices, greater choice, and improved quality of goods and services for consumers.

Question 32

What is labor market flexibility?

Answer 32

Labor market flexibility refers to the ease with which labor markets can adjust to changes in economic conditions, including the ability to hire and fire workers.

Question 33

What is the effect of infrastructure investment on the economy?

Answer 33

Infrastructure investment improves productivity, reduces costs, and enhances economic growth by providing better facilities and services.

Question 34

What is labor market policy?

Answer 34

Labor market policy involves government interventions aimed at improving the functioning and outcomes of the labor market.

Question 35

What are active labor market policies (ALMPs)?

Answer 35

ALMPs are measures designed to improve the employability of workers, such as training programs, job search assistance, and employment subsidies.

Question 36

What is the purpose of minimum wage laws?

Answer 36

Minimum wage laws set the lowest legal wage that can be paid to workers, aiming to protect low-income workers from exploitation.

Question 37

What is the role of industrial relations policy?

Answer 37

Industrial relations policy governs the relationship between employers, employees, and their representatives, focusing on collective bargaining, dispute resolution, and workplace rights.

Question 38

How do labor market policies impact unemployment?

Answer 38

Labor market policies can reduce unemployment by improving job matching, enhancing worker skills, and providing incentives for employment.

Question 39

What is structural unemployment?

Answer 39

Structural unemployment occurs when there is a mismatch between the skills of workers and the needs of employers, often due to technological changes or shifts in the economy.

Question 40

What is cyclical unemployment?

Answer 40

Cyclical unemployment is caused by fluctuations in the economic cycle, such as recessions, leading to a decrease in demand for labor.

Question 41

What is the effect of employment protection legislation?

Answer 41

Employment protection legislation provides job security for workers by setting rules for hiring and firing, but it can also reduce labor market flexibility.

Question 42

What is labor market segmentation?

Answer 42

Labor market segmentation refers to the division of the labor market into distinct sub-markets or segments, often leading to differences in job conditions, wages, and career prospects.

Question 43

What is the role of vocational education and training (VET)?

Answer 43

VET programs provide skills and training to workers, enhancing their employability and addressing skill shortages in the labor market.