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Economy > Monetary/Fiscal + Interest Rates > Flashcards

Monetary/Fiscal + Interest Rates Flashcards

1
Q

What is monetary policy?

A

Increasing or decreasing the money supply to speed up or slow down the overall economy

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2
Q

Who runs the monetary policy?

A

The central bank of a country (RBA)

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3
Q

What is contractionary monetary policy?

A

Less money supply = higher interest rates = borrowing and spending decreasing

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4
Q

What is expansionary monetary policy?

A

More money = lower interest rates = borrowing and spending increases

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5
Q

What are the ways to change money supply? (3)

A
  • changing reserve requirement
  • changing cash rate
  • open market operations
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6
Q

What are open market operations?

A

When a central bank bus or sells short term government bonds

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7
Q

What is fiscal policy?

A

Changing government spending or taxes

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8
Q

What is the effect of fiscal policy?

A

Contracts/expands the economy

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9
Q

What is an interest rate?

A

The amount charged, expressed as a percentage of the principal, by a lender to a borrower

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10
Q

How is interest both a reward and cost?

A

Reward- receiving interest in savings/deposits

Cost- paying interest on loans

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11
Q

What are factors that make interest rates vary over time? (4)

A
  • change in supply and demand
  • inflation and deflation
  • housing market
  • wanting to smooth out fluctuations in business cycle
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12
Q

What is a fixed interest rate?

A

Interest rate charged on loan remains the same over term, no matter what the market does

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13
Q

What is a variable interest rate?

A

Interest rate on the outstanding balance varies as market interest rates change

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14
Q

What are the advantages of a fixed interest rate? (3)

A
  • borrower always knows how much is due
  • helps plan finances
  • safeguards against further interest rate rises
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15
Q

What are the disadvantages of a fixed interest rate? (2)

A
  • if interest rates drop, the borrower still pays the higher rate
  • hard to obtain from lender due to higher payments
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16
Q

What are the advantages of a variable interest rate? (2)

A
  • can allow you to borrow a larger amount of money if credit is not good
  • can lower payment in short term
17
Q

What are the disadvantages of a variable interest rate? (2)

A
  • risk that the rate could rise

- might not be able to make payment

18
Q

What is Australia’s central bank?

A

Reserve Bank of Australia (RBA)

19
Q

Who is the RBA owned by?

A

The commonwealth of Australia

20
Q

When does the RBA meet?

A

The first Tuesday of the month, except in January

21
Q

Is the RBA connected to the government?

A

No, it makes decisions independently of the political process

22
Q

Who is the current governor of the RBA?

A

Phillip Lowe

23
Q

What are the four economic goals of the RBA?

A
  • stability of Australian currency
  • maintenance of full employment
  • economic prosperity and welfare of the people
  • controlling risk and promoting efficiency
24
Q

What is compound interest?

A

Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan

25
Q

What is the cash rate?

A

The interest rate which banks pay to borrow funds from other banks in the money market on an overnight basis

26
Q

Who is the cash rate set by?

A

The RBA

27
Q

What are surplus funds?

A

Funds left over from a person’s income which they don’t spend

28
Q

What are deficit funds?

A

When someone needs funds they don’t have

29
Q

What are some reasons to borrow money? (5)

A
  • to buy goods, services and luxury items
  • to finance buying a house
  • to fund expansions
  • to finance deficits
  • to loan money to overseas borrowers
30
Q

What is an example of a short term loan/interest rate?

A

Using a credit card or taking out a personal loan

31
Q

What is an example of a long term interest rate?

A

Fixed rate on a home loan for 20 years

32
Q

What is the general rule when comparing short and long term interest rates?

A

Short term interest rates tend to be higher than long term interest rates

Economy (8 decks)

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