Ch 3 Kidwell

CHAPTER 3 THE RESERVE BANK OF AUSTRALIA AND INTEREST order How is an increase in the notes vagabond believably to affect owe interest order? Increases lead be announced almost this instant in variable rates. How is an increase in the cash rate liable(predicate) to affect imports An increase in the cash rate may root for an additional flow in of foreign enthronisation capital which will increase the AUD ex alter rate. Foreign goods priced in a notes against which the AUD has apprehended will be cheaper in AUD terms and thus the quantity of the goods exchange may will increase.How is an increase in the cash rate likely to affect the exchange rate? An increase in the cash rate may attract an additional inflow of foreign investment gold which will increase the AUD exchange rate (appreciate the currency). 20. Will a cast off in the cash rate affect inflation? Explain. Theoretically it will. A drop in the cash rate will stimulate borrowing, investment and economic activity . The increased demand for resources will put upward constrict on the prices of resources and may lead to inflation. Answers to in-chapter questions 3. What is likely to happen to the monetary found when (a) Centrelink credits age pension to pensioners bank accounts? increase in gold supply, (b) the RBA buys government securities from Australian investors and (c) banks raise funds by an overseas production line issue?A increase in money supply B increase in money supply C no change as if the payments be received in forex, thusly they exchange the currency for AUD already in the money supply. If the payments are received in AUD, then other agents have already exchanged the forex for AUD. 3. Why do the monetary markets pay so much attention to the cash rate? The cash rate reflects the monetary policy stance and the influence the RBA is trying to drill on the level of economic activity. It also has a significant feign on consumer and business confidence, willingness to inv est and spend and ability to service their debt. 3. 4 Describe the likely consequences for GDP growth when the RBA sells CGS to raise funds for the Commonwealth Government A sale of CGS will pare the supply of money in the economy all other things macrocosm equal.This will lead to increased in interest rates as money supply reduces. Higher interest rates reduce the spend power of consumers and business. This results in less spending, investment and a general subside in asset values as spending tightens. Consumers and business are also likely to become more conservative as rates increase. This would then limit GDP growth. It also must be run into for what purpose the funds will be used and this may lessen the restrictive monetary policy position.