Monetary

Question 1

Who is the RBA

Answer 1

Independent central bank accountable to parliament

Question 2

What are the goals of the RBA

Answer 2

(1) Stability of currency, (2) full employment, (3) economic prosperity

Question 3

How does the RBA achieve its goals

Answer 3

Monetary policy, strong financial system, issuing banknotes

Question 4

What is monetary policy

Answer 4

Monetary Policy are the RBA’s actions to influence money supply and ultimately the interest rates

Aggregate Demand Policy

Question 5

What is the RBAs role in banking

Answer 5

Provides services to government overseas banks, manages reserves, determine the cash rate

Question 6

What is the primary authority for Australias currency

Answer 6

RBA issues and creates money

Question 7

What are the three objectives of the RBAs monetary policy

Answer 7

Currency stability full employment economic prosperity

Question 8

What is the Cash Rate

Answer 8

Interest rate for overnight bank loans

Question 9

How does changing interest rates affect the economy

Answer 9

Influences consumption investment net exports

Question 10

How does the RBA act during an economic slowdown

Answer 10

Lowers interest rates to boost spending

Question 11

Is monetary policy a demand-side or supply-side policy

Answer 11

Demand-side policy

Question 12

What is the RBAs main goal

Answer 12

Low inflation

Question 13

What does the RBA do when inflation is under control

Answer 13

Focuses on growth and full employment

Question 14

What has been the RBAs recent stance

Answer 14

Expansionary monetary policy

Question 15

What are three strengths of monetary policy

Answer 15

Short implementation lag effective at controlling inflation fewer political constraints

Question 16

What are three weaknesses of monetary policy

Answer 16

Long induced expenditure lag imprecise impact less effective in recessions

Question 17

What is a key time lag in monetary policy

Answer 17

Induced expenditure lag effects felt over time 40 percent after 12 months 100 percent after 3 years

Question 18

How can monetary policy become pro-cyclical

Answer 18

Long lags might cause policy to worsen cyclical instability

Question 19

Why is monetary policy effective at controlling inflation

Answer 19

Borrowers face higher repayments reducing spending

Question 20

What is the relationship between monetary and fiscal policy

Answer 20

Fiscal policy can undermine or complement monetary policy

Question 21

Why might monetary policy be less effective in a recession

Answer 21

Low rates dont force spending relies on indirect effects

Question 22

What are the psychological constraints of monetary policy

Answer 22

Depends on consumer and business confidence which can reduce or amplify effects

Question 23

How does political independence benefit monetary policy

Answer 23

RBA can raise rates without direct political fallout

Question 24

Why is monetary policy blunt in impact

Answer 24

Affects overall economy not specific sectors

Question 25

What can reduce the preciseness of monetary policy

Answer 25

Banks may not fully follow the cash rate target

Question 26

What is the trade-off in pursuing multiple economic goals

Answer 26

Lowering cash rate for growth and employment may increase inflation

Question 27

What does procyclical mean

Answer 27

A condition of positive correlation between the value of a good service or economic indicator and the overall state of the economy