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How can rba influence the economy wide interest rates

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Keynesian model presumes an inverse relationship between real interest rate and household consumption expenditure which partly justifies the monetary easing policy to fend off economic weakness in recession periods.

Please describe the transmission mechanism of interest rate through the economy in general.

b) How can RBA influence the economy wide interest rates? 

c) It  seems that the RBA followed this textbook prescription and cut the cashrate several rounds in the aftermath of GFC.

Currently, as shown in thefigure, the real interest rate in Australia is at record low levels. Yet, thehousehold saving ratio has been stubbornly high. Why does this monetary policy transmission channel fail to work? Please discuss the underlyingforces.

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Reference no: EM13852329

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