The essay topic:
The impact, mechanics and the effectiveness of the RBA’s monetary policy decision
Questions to be addressed in your essay:
1: Describe monetary policy and its intended objectives. Discuss the functions of the Reserve Bank of Australia (RBA).
2: At the March meeting, the RBA Board decided to leave the cash rate unchanged at 1.5%. In the past, the Board had changed the cash rate. Using money market equilibrium model and the transmission mechanism, illustrate and explain how a change in cash rate might help to control inflation or stimulate the economy. Describe the circumstances in which the Board might increase and decrease the cash rate.
3: Discuss the main factors, including the current inflation rate that influenced the RBA Board’s March decision to leave the cash rate unchanged. Comment on the trends in key macroeconomic indicators mentioned in this media release. Using diagrams/graphs, support the arguments put forward by the RBA monetary policy decision.
4: The RBA Board considered the conditions of the housing market when deciding on the cash rate. Discuss the impacts of changing the cash rate on housing market participants. Why should the RBA be concerned about the rapid property price growth and investor borrowing? Comment on the supervisory measures (also known as macro-prudential measures) mentioned in the RBA media release?
5: Discuss the limitations to conventional monetary policy and its implementation. Explain why some economists believe that monetary rules are a better policy option than discretionary inflation targeting.