This assessment task requires you to write an essay that demonstrates your theoretical and applied knowledge relating to the macro economy and monetary policy. It focuses on the macroeconomic section of the unit and builds on the economic fundamentals that you learnt in the first half of the term. You will need a sound understanding of the GDP, economic growth, business cycle, unemployment, inflation, and macroeconomic stabilisation monetary policy. In this essay, you will refer to the chapters outlined in the prescribed text book, relevant journal articles, and relevant reports of the Australian government websites including the Reserve Bank of Australia (RBA). The purpose of this assessment is to develop skills in interpreting current macroeconomic indicators, analysing RBA functions and role of monetary policy management, its strengths, weaknesses and its implications on consumption, investment, government expenditure, housing market and the wider economy.
Discuss the current macroeconomic environment in Australia, and critically discuss the use of Monetary Policy as a stabilising tool by the Reserve Bank of Australia.
Task Description: In this task, you will write an essay dealing with macro-economic objectives, functions of RBA and on role of monetary policy based on the RBA decision 6th August 2019, provided along with the link. Guiding questions, will help you structure your response. Do not forget to apply the DADA framework, using data and graphs to support your response. A marking rubric is posted on the Moodle site, which can help you understand what is required to reach your desired level of achievement.
The body of the essay contains the main sections. Please divide the body section into sub-sections by including sub-headings as suggested below from Q1 to Q5.
However, your arguments and diagrams should be organised in a logical and coherent manner.
Question 1: List and explain the key macro-economic goals, and provide an overview of the Australian economy? Discuss with tables and graphs the main macroeconomic indicators for the Australian economy. (i) conduct research on the current trend in economic growth, GDP, inflation rate, unemployment rate, exchange rate, government debt and other macroeconomic indicators using multiple sources. (ii) Identify the stage of business cycle based on the current Australian macro-economic indicators.
Question 2: Explain the main objectives of the monetary policy. List and describe the main functions of the Reserve Bank of Australia. Discuss the limitations of the monetary policy to stabilise the economy.
Question 3: On 6-August-2019, the Governor of the RBA, Dr Philip Lowe, decided to leave the official cash rate unchanged at 1 percent as house prices continue to fall. Explain why the Reserve Bank of Australia kept the official cash rate unchanged from August 2016 to 1.5% until May 2019. It was revised in June to 1.25% and July 2019, when official cash rate was dropped to 1%? Justify your answer with reasons and evidence. Note: Information is available in the monthly minutes of RBA. https://www.rba.gov.au/monetary-policy/rba-board- minutes/2019/
Question 4: Illustrate and explain the expansionary and contractionary monetary policy graphs as to how an increase in the cash rate from 1 % to 1.5% would help to keep inflation within the target rate, and how a further decrease from 1% to 0.75 % in the cash rate would help to stimulate the economy. Describe the circumstances in which the RBA Board might decrease and/or increase the cash rate in the future.
Question 5: Define economic growth. What are the determinants of long-run economic growth? Is the historically low interest rate of 1.50 % (from August 2016 until May 2019) to 1 % percent until the August 2019) sustainable to achieve long-run economic growth? Discuss the effect of low interest rate on household consumption, business investment, inflation and housing market. Note: Use GDP, inflation, unemployment, fiscal deficit, and housing market data, which can be obtained from the Australian Bureau of Statistics and RBA websites for the last 5 years to see the trends, when answering this question.
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