ECON 11026 Importance of Global Macroeconomic Assessment 3

Added on -2020-02-19

| ECON 11026| 14 pages| 3449 words| 84 views

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Running head: PRINCIPLES OF ECONOMICSPRINCIPLES OF ECONOMICSName of the StudentName of the UniversityAuthors Note
1PRINCIPLES OF ECONOMICSTable of ContentsIntroduction......................................................................................................................................3Question 1........................................................................................................................................3Question 2........................................................................................................................................6Question 3........................................................................................................................................7Question 4......................................................................................................................................10Conclusion.....................................................................................................................................11References......................................................................................................................................12
2PRINCIPLES OF ECONOMICSIntroductionThe study reflects that how change in cash rate impeoves the conditions of the economy ofAustralia. The objectives of monetary policy and the functions of RBA is illustrated in relationto this change in cash rate. The importance of global macroeconomic indicators in makingdecision for change in cash rate set by RBA is also highlighted in this study. Globalmacroeconomic indicators in China and USA has been considered before setting the cash rate asthe financial market of Australia is largely dependent in these two economies. Moreover, thereasons behind keeping the cash rate unchanged by RBA are also discussed in this paper. Therelation between cash rate and inflation is also discussed in this study. The effect on theconsumption, GDP , inflation rate and housing market are also explained in this study. Question 1Objectives of monetary policy and functions of Reserve Bank of AustraliaThe monetary policy refers to the discretionary action that has been taken by respectivepolicymakers for influencing money supply, value of money and availability of money (Cúrdia,and Woodford, 2014). The monetary policy adopted by the central bank of the respectivecountries helps in stabilizing as well as maintaining equilibrium in the system of the economy.The basic purpose of monetary policy differs from nation to nation , which includes:Neutrality of money- Monetary change is the main reason behind fluctuations in theeconomy. It has been stated by Fiore and Tristani, (2013), monetary variation createsdistortion as well as disturbances of nation economic system operation. Thus, stability inmoney helps in stopping fluctuations in the economy.
3PRINCIPLES OF ECONOMICSExchange rate stability- Exchange rate stability plays a crucial role in trade. Thepolicymakers tend to bring stability in exchange rate of a country in order to avoidviolent fluctuations that results in speculative market activities (Kiyotaki and Moore,2012). Stability in price-Price stabilization repose confidence of the individual and promotesactivities in business. It also helps in distributing income as well as wealth equally.Moreover, it depresses exports but encourages imports of the nation.Full employment- The main aim of the Australian government is to achieve fullemployment with the help of increased investment. The accomplishment of fullemployment mainly involves exchange stability as well as prices. The beneficial effectsof full employment includes-a)It is a vital instrument in providing economic as well as social welfare.b)It also aids in solving the business fluctuations problem.c)It facilitates government of the respective nation in solving acute unemploymentproblem.Economic growth- Monetary policy helps to promote sustained economic growth throughattainment of equilibrium between total demand for production capacity and money.Therefore, it means proper utilization of human as well as capital resources for ensuringincrease in per capita income and national income.Balance of Payment (BOP) equilibrium- Another objective of monetary policy is to attainequilibrium in BOP owing to the issue of international liquidity with respect to worldtrade growth at higher speed as compared to the world liquidity.The functions of RBA includes-

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