Question

1. If the FR aims to raise interest rates and shift the AD curve to the left, the FR would conduct open market operations to reduce the money supply.

A. True

B. False

2. According to the media release by Phillip Lowe, "a gradual further increase in underlying inflation is expected as the economy strength." All else constant, inflation arises when:

A.  The expenditure plans of agents exceed the supply of output by firms
B.  The earning plans of agents fall short of what they earn in the economy
C.  The currency appreciates in the foreign exchange market
D.  The government increases unemployment benefits

3. The Australian government is concerned about inter-generational equity problems. Key problems arise from a larger number of older retired people being supported by a smaller workforce of young people, and from ever increasing budget deficits to be paid for by younger people. Encouraging older people to stay in the labour force rather than retire would help fix this problem.

A. True

B. False

Answer 1

1) if the Federal Reserve(FR) aims to raise interest rates and shift the AD Curve to the left then the FR would conduct open market operations to reduce the money supply.

FD Would conduct open market sales of the Government treasury securities. This would lead to the reduction in money supply in the economy.

In the face of unchanged the money demand, if the money supply is decreased then at the existing interest rate in the money market there is excess demand of money. This will lead to an increase in the interest rate.

Increase in the interest rate will reduce the the investment expenditure in the economy. This would lead to a shift in the aggregate demand or AD curve to the left.

Hence FR would be right in reducing money supply to raise interest rates and shift the Aggregate Demand curve to the left.

Therefore the above given statement is true.

Hence, it is TRUE that if the FR aims to raise interest rates and shift the AD curve to the left, the FR would conduct open market operations to reduce the money supply.