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Central bank and commercial banks

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1. What do you think happens to the money multiplier in a financial crisis (like the one we had in year 2008), and why?

2. What is the role of the central bank and commercial banks in the process of money multiplication?

3. Through what instrument does the central bank carry out monetary policy? How do the bank's actions transmit through the economy?

4. Suppose that the price level in Australia is expected to rise by 7% in 2017.

a) Why do some economists claim that we should not worry too much about inflation at this level?

b) Other economists think that there are significant costs associated with inflation above 2-3%. What are they?

c) What are the other costs be to consider if the inflation rate unexpectedly turns out to be higher than 7%?

Reference no: EM131218318

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