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How does the reserve bank of australia

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Reference no: EM132405739

How does the Reserve Bank of Australia set the interest rate? What are the main factors that determine its decisions?

(ii) You hear a news report that output growth and inflation are lower than expected. How do you expect that report to affect interest rates? Explain why.

(iii) The Reserve Bank faces a large contractionary gap. How would you expect it to respond? Explain step by step how its policy change is likely to affect the economy. Use the AD-AS diagram to illustrate your answer.

Suppose the government decides to have an expansionary fiscal policy. How does it do that? What are the effects on the economy? Use the AD-AS model to explain your answer. Are there any limits to fiscal policy to stimulate the economy?

Reference no: EM132405739

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