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The Effects of Reduction in the Federal Cash Rates

   

Added on  2020-04-07

10 Pages2013 Words40 Views
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Contents1.Introduction.........................................................................................................................................42.The Demand and Supply of Money.....................................................................................................42.1 Supply of Money...............................................................................................................................42.2 Demand for Money............................................................................................................................43.The Effects of Reduction in the Federal Cash Rates in Aggregate Demand........................................64.The Effects of Lower Interest Rates on GDP in the Short Run............................................................65. Multiplier Effects Due to low Interest Rates: A Rise in Wages and Price Level........................................86.Conclusion.........................................................................................................................................10References.................................................................................................................................................10Figure 1 Interest Rate, Demand and Supply of Money................................................................................4Figure 2 The Impact of Lower Interest Rate on Investment and GDP.........................................................6Figure 3 Effects of an Expansionary Monetary Policy on Aggregate Supply in Long Run.........................8

SummaryThe Government of Australia recently announced that the Reserve Bank would keep Cash Rates low for the Australian economy. The following paper analyses the effects of this policy on households, firms and the GDP of Australia

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