Discuss the effect of a fall in the cash rate on consumption

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Macroeconomics Assignment -

Question - Suppose the following table illustrates the values of real and potential GDP if the Reserve Bank of Australia (RBA) does not change its current monetary policy to be more contractionary or expansionary.

Year	Potential GDP	Real GDP	Price level
2016	$1.42 trillion	$1.42 trillion	114
2017	$1.48 trillion	$1.46 trillion	116

a) If the RBA wants to keep real GDP at its potential level in 2017, should the RBA use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?

b) Briefly discuss the effect of a fall in the cash rate on consumption, investment and net exports.

c) Suppose that the RBA uses an appropriate policy and is successful in keeping real GDP at potential in 2017. Discuss the type of monetary policy that the RBA should adopt, explaining the effect of the policy on real GDP, the price level and employment. Use a dynamic aggregate demand and supply model to illustrate your answer.

Reference no: EM131994267

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len1994267

5/24/2018 1:33:24 AM

This assignment is worth 3% of your final grade. Read the questions carefully and in your answers address the concepts and issues associated with each question. Use the word limit as a guide to the depth of answer expected. Remember DO NOT PLAGIARISE. Read the Faculty’s policy on plagiarism, which can be found at the beginning of the Unit Book. Submit electronically through Moodle (in section “Assignment Submissions& Feedback”). Files in only in PDF format are accepted. Word Limit: 500 words total (for the whole assignment). Mark Allocation: Question 1a-30 points, Question 1b- 40 points, and Question 1c- 30 points. Total is 100 points that is worth 3% of the final mark. References are not required. Use any readable font of sizes 11-12.

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