1. The price at which the central bank provides reserves to the commercial banks is restricted by its target monetary policy rate.

Answer: True

2. The Australian dollar is currently appreciating strongly against many key currencies and this has put pressure on our international competitiveness. Given the terms of trade are so strong, a cut in wages and the rate of inflation would be the way to restore competitiveness. This would help maintain strong export growth.

Answer: Maybe

3. If the budget deficit rises then government policy is becoming more expansionary and this carries the risk that nominal aggregate spending growth might exceed the real capacity of the economy to respond by increasing real output.

Answer: False

4. If all national governments simultaneously run public surpluses then it is not possible for all their private domestic sectors to save overall.

Answer: True

5. Premium question: From the US National Accounts, you find that in 2006, the share of Personal consumption expenditure in real GDP was 69.9 per cent and by 2008 it had fallen to 69.8 per cent. Similarly, the share of Gross private domestic investment on real GDP was 17.2 per cent in 2006 and by 2008 had fallen to 14.9 per cent (and further to 11.8 per cent in 2009). The net export deficit over the same period (2006 to 2008) fell from -5.7 per cent of real GDP to -4.9 per cent in 2008. Finally, the share of Government consumption expenditures and gross investment in real GDP rose from 18.8 per cent in 2006 to 18.9 per cent in 2008 (and 19.7 per cent in 2009). These relative changes tell you that real GDP was lower in 2008 compared to 2006 because the increase in Government spending and the falling negative contribution of net exports were not sufficient to offset the declining contribution from consumption and investment.

Answer: False