Module M05 Quiz: Fiscal Policy, Money and the Reserve Bank
30 questions ยท Introductory ยท Mix of multiple choice, calculation, and short answer
How to use
Attempt each question before clicking Show Answer. For calculation questions, write out your working before checking.
Question 1
Lesson L01 ยท Fiscal Policy
Which is an automatic stabilizer?
Type: Multiple Choice
- A) JobKeeper payments
- B) Income tax receipts
- C) Infrastructure spending
- D) Defense procurement
Show Answer
Answer: B) Income tax receipts
Taxes fall automatically in recessions, boosting disposable income
Question 2
Lesson L01 ยท Fiscal Policy
If revenue=500 and spending=600, the budget is:
Type: Calculation
Show Answer
Answer: -100
Balance=Revenue-Spending=500-600=-100
Question 3
Lesson L01 ยท Fiscal Policy
Define discretionary fiscal policy.
Type: Short Answer
Show Answer
Answer: Deliberate changes in spending/taxes to manage demand
Requires new legislation or executive action
Question 4
Lesson L01 ยท Fiscal Policy
A deficit must be financed by:
Type: Multiple Choice
- A) Printing money
- B) Borrowing
- C) Selling assets
- D) All of the above
Show Answer
Answer: B) Borrowing
In Australia, deficits are financed by issuing government bonds
Question 5
Lesson L01 ยท Fiscal Policy
The 2020-21 Australian budget deficit was about:
Type: Multiple Choice
- A) $50 billion
- B) $134 billion
- C) $200 billion
- D) $22 billion
Show Answer
Answer: B) $134 billion
COVID stimulus created a record $134bn deficit
Question 6
Lesson L02 ยท Fiscal Policy
Australia avoided recession in 2009 due to:
Type: Multiple Choice
- A) Fiscal stimulus
- B) Monetary policy
- C) Mining boom
- D) All of the above
Show Answer
Answer: D) All of the above
All three factors helped Australia outperform peers
Question 7
Lesson L02 ยท Fiscal Policy
The 2022-23 surplus resulted from:
Type: Multiple Choice
- A) Spending cuts
- B) Higher taxes
- C) Commodity prices
- D) All of the above
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Answer: C) Commodity prices
Surging coal/gas prices boosted company tax receipts
Question 8
Lesson L02 ยท Fiscal Policy
Why are deficits sometimes appropriate?
Type: Short Answer
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Answer: To stimulate demand during economic downturns
Counter-cyclical policy smooths the business cycle
Question 9
Lesson L02 ยท Fiscal Policy
If 2020 revenue was 490bn and spending 624bn, the deficit was:
Type: Calculation
Show Answer
Answer: 134
624-490=134
Question 10
Lesson L02 ยท Fiscal Policy
The Howard government surpluses were helped by:
Type: Multiple Choice
- A) The mining boom
- B) Tax reforms
- C) Spending restraint
- D) All of the above
Show Answer
Answer: D) All of the above
Multiple factors contributed to early 2000s surpluses
Question 11
Lesson L03 ยท Money Supply
Which is NOT a function of money?
Type: Multiple Choice
- A) Medium of exchange
- B) Store of value
- C) Unit of account
- D) Guarantee of wealth
Show Answer
Answer: D) Guarantee of wealth
Money doesn't guarantee wealth preservation (inflation erodes it)
Question 12
Lesson L03 ยท Money Supply
In Australia, most money is:
Type: Multiple Choice
- A) Physical cash
- B) Bank deposits
- C) Gold reserves
- D) Cryptocurrency
Show Answer
Answer: B) Bank deposits
Over 97% of money is electronic bank deposits
Question 13
Lesson L03 ยท Money Supply
Define 'unit of account'.
Type: Short Answer
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Answer: Money provides a common measure for pricing goods/services
Allows comparison of values using a standard metric
Question 14
Lesson L03 ยท Money Supply
If M1=1000 and M3=2500, calculate non-M1 components.
Type: Calculation
Show Answer
Answer: 1500
2500-1000=1500
Question 15
Lesson L03 ยท Money Supply
During hyperinflation, money fails as:
Type: Multiple Choice
- A) Medium of exchange
- B) Store of value
- C) Unit of account
- D) All of the above
Show Answer
Answer: B) Store of value
Rapid price erosion destroys money's value storage function
Question 16
Lesson L04 ยท Monetary Policy
The RBA's two main roles are:
Type: Multiple Choice
- A) Monetary policy and bank regulation
- B) Monetary policy and payments system
- C) Fiscal policy and bank regulation
- D) Tax collection and currency issuance
Show Answer
Answer: B) Monetary policy and payments system
RBA sets monetary policy and oversees payments; APRA handles regulation
Question 17
Lesson L04 ยท Monetary Policy
APRA supervises:
Type: Multiple Choice
- A) Banks
- B) Insurers
- C) Super funds
- D) All of the above
Show Answer
Answer: D) All of the above
APRA oversees all three types of financial institutions
Question 18
Lesson L04 ยท Monetary Policy
What is an Exchange Settlement Account?
Type: Short Answer
Show Answer
Answer: An RBA account banks use for real-time interbank payments
Enables final settlement of transactions between financial institutions
Question 19
Lesson L04 ยท Monetary Policy
If CBA transfers 1M to NAB via ES, what happens?
Type: Short Answer
Show Answer
Answer: RBA debits CBA's ESA by 1M, credits NAB's ESA by 1M
Electronic adjustment of reserve balances at the central bank
Question 20
Lesson L04 ยท Monetary Policy
The cash rate is the interest rate on:
Type: Multiple Choice
- A) Mortgages
- B) Government bonds
- C) Overnight interbank loans
- D) Term deposits
Show Answer
Answer: C) Overnight interbank loans
The RBA targets the rate banks charge each other for overnight loans
Question 21
Lesson L05 ยท Money Supply
With 10% reserves, a $1000 deposit can support max loans of:
Type: Calculation
Show Answer
Answer: 9000
Money multiplier=10, total deposits=10000, so loans=9000
Question 22
Lesson L05 ยท Money Supply
Banks create money by:
Type: Multiple Choice
- A) Printing notes
- B) Making loans
- C) Buying gold
- D) Issuing shares
Show Answer
Answer: B) Making loans
Loans create new deposits, expanding the money supply
Question 23
Lesson L05 ยท Money Supply
Explain fractional reserve banking.
Type: Short Answer
Show Answer
Answer: Banks hold only a fraction of deposits as reserves, lending the rest
Enables money creation through the lending process
Question 24
Lesson L05 ยท Money Supply
If reserve ratio=0.1 and new deposit=500, calculate money multiplier.
Type: Calculation
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Answer: 10
Multiplier=1/reserve ratio=1/0.1=10
Question 25
Lesson L05 ยท Money Supply
Why do actual multipliers fall short of theoretical maximums?
Type: Short Answer
Show Answer
Answer: Due to excess reserves and cash leakages
Not all money is relent in practice
Question 26
Lesson L06 ยท Monetary Policy
The equation of exchange is:
Type: Multiple Choice
- A) MV=PY
- B) MC=MR
- C) C+I+G=Y
- D) S=I
Show Answer
Answer: A) MV=PY
MV=PY relates money supply to nominal GDP
Question 27
Lesson L06 ยท Monetary Policy
If M grows 10%, V is stable, and Y grows 3%, inflation is:
Type: Calculation
Show Answer
Answer: 7
%ฮM + %ฮV = %ฮP + %ฮY โ 10+0=%ฮP+3 โ %ฮP=7
Question 28
Lesson L06 ยท Monetary Policy
What assumption makes MV=PY predict proportional inflation?
Type: Short Answer
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Answer: That velocity and real output are constant
If V and Y don't change, ฮM leads to proportional ฮP
Question 29
Lesson L06 ยท Monetary Policy
During crises, why might money growth not cause inflation?
Type: Short Answer
Show Answer
Answer: Because velocity falls as people hoard cash
Reduced spending offsets money supply growth
Question 30
Lesson L06 ยท Monetary Policy
The quantity theory is most reliable for:
Type: Multiple Choice
- A) Short-run forecasts
- B) Long-run trends
- C) Sectoral analysis
- D) Microeconomic behavior
Show Answer
Answer: B) Long-run trends
Works best over long periods when V and Y trends stabilize