Economics Qs - Please Help!! (1 Viewer)

[Smeegen999]

ok, if anyone could help me out with this that would be great.

What would the RBA Governor do if at the end of the year, inflation emerged as a problem?

It is either tightening or lossening the monetary policy, i'm not sure.

Could somebody explain this please?

 

[cccclaire]

Increase in interest rates (tightening) -> less borrowing -> less spending -> lower inflation
Decrease in interest rates (loosening) -> increased borring -> increased spending -> higher inflation.

So if inflation was too high they would tighten interest rates

 

[Smeegen999]

thanks heaps !

 

[williamc]

ok, if anyone could help me out with this that would be great.

What would the RBA Governor do if at the end of the year, inflation emerged as a problem?

It is either tightening or lossening the monetary policy, i'm not sure.

Could somebody explain this please?

Every 3 months a group of professional economists and a range of other professionals (RBA) have a board meeting about the state of the economy. The most relevant issue for the reserve bank is keeping inflation in the 2-3%, as they believe if they can do this other things in the economy will fix themselves.

If inflation arises above 3% the reserve bank may increase interest rates(tighten) to curb spending and therefore lower inflation. The aim is to create a 'sustainable rate' of economic growth in which inlfation is kept at a low stable level. Although seen as a short term fix, the monetary policy (interest rates) usually takes 6-18 months to change buying patterns.

 

[Crusader]

The RBA meets every MONTH (first tuesday) of the year, except January, to discuss Monetary Policy and Inflation/Interest Rates

 

[cs01001]

Hey,

Anyone got notes/questions or whatever resources for the topic Government and the Economy? I think I have covered all parts pretty well, just need additional questions/notes to fill some of the holes which I might not be aware of. I need it specifically for these parts! Thanks guys

- Reallocation of resources – type of taxes, direct and indirect, types of expenses.
- Redistribution of income – progressive, regressive, proportional taxes, welfare payments.
- Stabilization of economic activity – a brief over view of the stabilizing role of fiscal policy
- The federal Budget – the budget process, types of budgets: surplus, balanced and deficit.

 

[yiwank]

The RBA recently tightened the cash rate, which basically translates into interest rates through the transmission mechanism, to 6.50%. It would help if you looked at the RBA monthly monetary policy statements, just google them. You'll find that the RBA is tightening monetary policy because of inflationary fears as the economy approaches full capacity, basically where all its resources are used and its supply threshold is reached. In the case where full capacity is reached, increased demand will not lead to extra production or output but instead will lead to inflation. With the unemployment rate at 32 year lows, the RBA believe Australia is approaching full capacity and thus, have tightened monetary policy to stem demand because monetary policy is a macroeconomic, demand management policy.

 

[williamc]

^ also strong global economic conditions are causing increasing inflationary pressures.