Question:

(a) If the Bank Negara Malaysia sold RM800 million of government securities to private sector money markets, holding other things being held constant, what is the effect on:

(i) The economy's monetary base;

(ii) Short-term money market interest rates;

(iii) Longer-term maturity interest rates;

(iv) Aggregate demand, economic activity and inflation.

(b) Explain what happens (if anything) to the economy's monetary base when the Bank Negara Malaysia sells RM800 million in foreign currency to one of the banks operating in the country.

(c)  Which policy is more expansionary: RM200 billion increase in government spending for goods and services or a RM200 billion cut in taxes?  Explain why.