- What is the main monetary policy tool used by the Reserve Bank of Australia (RBA) and
- Briefly discuss the effect of a fall in the cash rate on consumption.
- Suppose the following table illustrates the values of real and potential GDP and the price
level, if the Reserve Bank of Australia (RBA) does not change its current policy to be more
contractionary or expansionary. Suppose that the RBA uses an appropriate policy and is
successful in keeping real GDP at its potential level in 2014.
Year Potential GDP Real GDP Price level
2013 $1.44 trillion $1.44 trillion 144
2014 $1.47 trillion $1.45 trillion 146
State whether each of the following will be higher or lower than if the RBA had taken no
3a. Real GDP
3b. Potential GDP
3c. The price level
3d. The unemployment rate
- How does monetary policy affect the share market?
- Suppose that Australia’s price level is 125, the British price level is 100, and the nominal
exchange rate of pounds to the dollar is £0.60 = $1. Calculate the real exchange rate of
pounds to the dollar. Show all workings.