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Discuss the type of monetary policies implemented
Course:- Macroeconomics
Length:
Reference No.:- EM13732835




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The following table shows the movements of the cash rate in Australia since 2008. Discuss why the Reserve Bank of Australia (RBA) has moved the cash rate from 7% to an all-time low of 2.5 % in August 2013, and since than it has maintained this rate.

In your discussion, highlight the economic environment which influenced the rate determination, and discuss the type of monetary policies implemented. In your discussion, you are required to explain how the altering of the cash rate will influence key macroeconomic aggregates. Use the AD - AS framework to help illustrate your discussion.

Do you think the cash rate is likely to fall lower in the future, or do you think it is time the rate was lifted? Explain your reason(s).

Effective

Change in cash
rate

New cash
rate
target

 

Effective

Change in
cash rate

New cash
rate
target

Date

Percentage
points

Per cent

 

Date

Percentage
points

Per cent

6-Feb-C6

0.25

7

 

8-Feb-12

0

4.25

5-Mar-08

0.25

7.25

 

7-Mar-12

0

4.25

2-Apr-08

0

7.25

 

4-Apr-12

0

4.25

7-May-08

0

7.25

 

2-May-12

-0.5

3.75

4-Jun-08

0

7.25

 

6-Jun-12

-0.25

as

2-Jul-08

0

7.25

 

4-Jul-12

0

3.5

6-Aug-08

0

7.25

 

8-Aug-12

0

3.5

3-Sep-C6

-0.25

7

 

5-Sep-12

0

3.5

8-Oct-08

-1

6

 

3-Oct-12

-0.25

3.25

5-Nov-03

-0.75

5.25

 

7-Nov-12

0

3.25

3-Dec-03

-1

4.25

 

5-Dec-12

-0.25

3

4-Feb-09

-1

3.25

 

6-Feb-13

0

3

4-Mar-09

0

3.25

 

6-Mar-13

0

3

8-Apr-09

-0.25

3

 

3-Apr-13

0

3

6-May-09

0

3

 

8-May-13

-0.25

2.75

3-Jun-09

0

3

 

5-Jun-13

0

2.75

8-Jul-09

0

3

 

3-Jul-13

0

2.75

5-Aug-09

0

3

 

7-Aug-13

-0.25

2.5

2-Sep-09

0

3

 

4-Sep-13

0

2.5

7-Oct-09

0.25

3.25

 

2-Oct-13

0

2.5

4-Nov-09

0.25

3.5

 

6-Nov-13

0

25

2-Dec-09

0.25

3.75

 

4-Dec-13

0

25

3-Feb-10

0

3.75

 

5-Feb-14

0

25

3-Mar-10

0.25

4

 

5-Mar-14

0

25

7-Apr-10

0.25

4.25

 

2-Apr-14

0

25

5-May-10

0.25

4.5

 

7-May-14

0

25

2-Jun-10

0

4.5

 

4-Jun-14

0

25

7-Jul-10

0

4.5

 

2-Jul-14

0

25

4-Aug-10

0

4.5

 

6-Aug-14

0

25

8-Sep-10

0

4.5

 

3-Sep-14

0

2.5

6-Oct-10

0

4.5

 

8-Oct-14

0

2.5

3-Nov-10

0.25

4.75

 

5-Nov-14

0

2.5

8-Dec-10

0

4.75

 

3-Dec-14

0

25

2-Feb-11

0

4.75

 

 

 

 

2-Mar-11

0

4.75

 

 

 

 

6-Apr-11

0

4.75

 

 

 

 

4-May-11

0

4.75

 

 

 

 

8-Jun-11

0

4.75

 

 

 

 

6-Jul-11

0

4.75

 

 

 

 

3-Aug-11

0

4.75

 

 

 

 

7-Sep-11

0

4.75

 

 

 

 

5-Oct-11

0

4.75

 

 

 

 

2-Nov-11

-0.25

4.5

 

 

 

 

7-Dec-11

-0.25

4.25

 

 

 

 

 

 

 

 

 

 

 

Answered:-

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It is the responsibility of Reserve Bank of Australia to formulate and implement the monetary policy. RBA is held responsible to control the money supply and price level and thereby bring economic stability in the economy.

Like Fed, RBA also sets the targeted inflation rate at the 2-3% level. RBA is accountable to monitor the economic performance of the economy and make a change in the interest rate if they feel spending level needs a change. Tightening or loosening the monetary policy is known as the “Monetary Stance”.




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