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ECON350 Tue or False Practice Questions (week 5)1. It is often the case that purchasing a five-year bonds orfive one-year bonds always results in the same returns, henceinvestors are indifferent between these two options.2. The YC under the liquidity premium theory is normally upwardsloping, but it might kink downward at the very long end ofmaturity.3. As debtors are more sensitive to interest rate changes thancreditors, higher interest rates would lead to a negative net cashflow.4. In conducting Open Market Operations, the Reserve Bank ofAustralia buys or sells only short-dated commonwealth governmentsecurities.5. Central banks conduct their micro function via the regulationand supervision, and the lender of last resort facility.6. On most days, the RBA conducts OMO to keep the cash rate inthe overnight market near the target cash rate.7. As banks in Australia are required to hold an ES account atthe RBA while no individuals or firms have such an account, achange in the target cash rate announced by the RBA will onlyaffect commercial banks, not the broader economy.8. The RBA does not set the inflation target at zero because itbelieves that some inflation āgreases the wheelsā for relativeprice flexibility.9. The metaphor āA horse could be led to water, but it could notbe made to drinkā implies that if the CB floods the market withliquidity to push the interest rate down, firms would increasetheir borrowings to build factories and buy machines.10. The issue of central bank independence emerged withstagflation and the collapse of Bretton Woods system in the1970s.