Monetary Policy Stances

Question 1

Contractionary: what is the efect on savings retrun and cost of borrowing

Answer 1

increases incentive to save over spend and cost of borrowing increases so laons and investment falls

Question 2

Contractionary: what is the efect on cash flow

Answer 2

DECREASES as mortgage payments take up more spending

- firms are usually net borrowers so less free cash for expansion (employment/investment)

Question 3

Contractionary: what is the efect on percieved wealth

Answer 3

FALLS

- if asset prices fall, percieved wealth falls, reducing discretionary spending and equity offered if wanting loan

Question 4

Contractionary: what is the efect on Exchange Rates

Answer 4

APPRECIATES

• if aus interest rates are higher than overseas, capital inflow increases so demand for AUD increases
• exports less comp and imports more so money leaves

Question 5

drawt the AE and AD/AS graph for contractionary

Answer 5

yep

Question 6

Expansionary: what is the efect on savings retrun and cost of borrowing

Answer 6

• lower return on savings and cheaper to borrow

- increased potential return on investment as business loans are cheap

Question 7

Expanionary: what is the efect on cash flow

Answer 7

• mortgage falls so households spend more, less savings

- less of business profit going to paying back loans so more investment

Question 8

Expansionary: what is the efect on Exchange Rates

Answer 8

AUD depreciates as capital inflow decreases,

exports more comp and imports less

Question 9

draw the AE / AD?AS graph for expansionary

Answer 9

love

Question 10

what is a neutral MP stance

Answer 10

real rate needed to bring full employment and stable inflation over medium run ( cash rate = 3-4%)