Assume that the Board of the Reserve Bank of Australia decides to decrease the cash rate by 25 basis points to 1.25 per cent.
(a) Describe the monetary policy objectives of the Reserve Bank of Australia (2 marks)
(b) Using diagrams (market for bank reserves, loanable funds and AD/AS diagrams), explain how a decrease in cash rate might affect real GDP. (3 marks)
(c) Discuss the circumstances that would have led to a decrease in cash rate. What circumstances make the monetary policy less effective? (3 marks)
(d) Explain Australia’s inflation targeting policy to achieve macroeconomic stability and comment on its effectiveness over time. Describe two alternative monetary strategies
Please provide a detailed answer, thank you very much
Australia, like other countries, came to inflation targeting after trying a number of alternative approaches to monetary policy. These approaches had not delivered either the desired price stability nor acceptable macroeconomic outcomes. Inflation targeting was the next attempt to try and better achieve these outcomes. There was no guarantee of success. Now, after 25 years, there is considerably greater confidence that the regime can contribute to sound macroeconomic outcomes in terms of both inflation and growth. The proof of the pudding has been in the eating. There is greater confidence and understanding about the framework from the public, from the political process, from financial markets and from the policymakers themselves.
Two alternative monetary strategies would be:
Assume that the Board of the Reserve Bank of Australia decides to decrease the cash rate by 25 basis points to 1.25 per...
The Reserve Bank of Australia manages the supply of cash on a daily basis to: ensure that every bank has sufficient cash to meet the demand for funds sterilise deficits and surpluses of cash in the financial system ensure that there are no large injections of cash into or withdrawals of cash out of the financial system ensure that the interest rate changes to create equilibrium in the money market. If the Reserve Bank of Australia sells bonds and securities...
The Reserve Bank of Australia can increase the cash rate by ________. offering to buy back repurchase agreements lending cash to banks using repurchase agreements purchasing bonds and securities from banks, which decreases banks' reserves purchasing bonds and securities from banks, which increases banks' reserves selling bonds and securities to banks, which decreases banks' reserves
2.9 If the Reserve Bank of Australia increased the overnight cash rate, what accompanying fiscal policy do you think would be appropriate?
Which of the following describes what the Reserve Bank of Australia would do to pursue an contractionary monetary policy? Use open market operations to buy bonds and securities. Use open market operations to sell bonds and securities Use open market operations to increase the overnight cash rate. Increase interest rates on mortgages and corporate loans. The Reserve Bank of Australia manages the supply of cash on a daily basis to ensure that every bank has sufficient cash to meet the...
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Part 1: Background knowledge: what is the role and objectives of the RBA (reserve bank of Australia) ? Using a graph created in a package like Excel, show how the cash rate has changed over time starting from 1990. Part 2: What are the current domestic conditions you think are relevant for deciding what to do to the cash rate? Part 3: What are the current external (foreign) conditions you think are relevant for deciding what to do to the...
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