Da Unit 4 Mon

Question 1

Transmission Mechanisms

Answer 1

Cost of Credit (Saving and Investment) 
Exchange Rate 
Availability of Credit 
Cash Flow 
Asset Price

Question 2

How RBA adjusts interest rates

Answer 2

Increase Interest Rates = Sells government bonds to members of the RITS, which lowers their ESA’s, lowering the amount of liquidity they have, thus forcing them to increase interest rates.
Lower Interest Rates = Buys government bonds from members of the RITS, which increase their ESA’s increasing their liquidity thus having them decrease interest rates.

Question 3

MP Stances

Answer 3

Expansionary & Contractionary

Question 4

Strengths & Weaknesses

Answer 4

S = RBA is Independent, Short Implementation Lag
W = Long Impact Lag, Cannot Target Specific Sectors