Statement by Glenn Stevens, Governor: Monetary Policy Decision At its meeting to

Question

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per

cent.

Recent information is consistent with global growth running a bit below average this

year, with reasonable prospects of a pick-up next year. Commodity prices have

declined from their peaks, but generally remain at high levels by historical standards.

Inflation in most countries remains well contained.

Overall, global financial conditions remain very accommodative. Changes in the

outlook for US monetary policy have increased volatility in financial markets, but

long-term interest rates remain very low and there is ample funding available for

creditworthy borrowers.

In Australia, the economy has been growing a bit below trend over the past year. This

is expected to continue in the near term as the economy adjusts to lower levels of

mining investment. The unemployment rate has edged higher. There has been an

improvement in indicators of household and business sentiment recently, though it is

too soon to judge how persistent this will be. Inflation has been consistent with the

medium-term target. With growth in labour costs moderating, this is expected to

remain the case over the next one to two years, even with the effects of the lower

exchange rate.

The easing in monetary policy since late 2011 has supported interest-sensitive

spending and asset values. The full effects of these decisions are still coming through,

and will be for a while yet. The pace of borrowing has remained relatively subdued to

date, though recently there have been signs of increased demand for finance by

households. There is also continuing evidence of a shift in savers' behaviour in

response to declining returns on low-risk assets.

The Australian dollar rose recently, but is still about 10 per cent below its level in

April. A lower level of the currency than seen at present would assist in rebalancing

growth in the economy.

At today's meeting, the Board judged that the setting of monetary policy remained

appropriate. The Board will continue to assess the outlook and adjust policy as needed

to foster sustainable growth in demand and inflation outcomes consistent with the

target.

Q) If consumers change their saving and spending plans, there will be:
1.a movement along the aggregate-demand curve
2.a shift of the aggregate-supply curve
3.a shift of the aggregate-demand curve
4.no effect on the aggregate-demand curve

Q) If the price level decreases, this would cause the aggregate supply curve to _____ in the short run

1.fall

2.Keep constant

3.Fluctuate

4.Increase

Q) The article mentions that the easing in monetary policy since late 2011 has supported interest sensitive spending and asset values. If people's expectations about future price levels chage:
1. the short-run aggregate- supply curve becomes horizontal
2.the short-run aggregate- supply curve bcomes vertical
3.the short-run aggregate- supply curve is not affected
4.the short-run aggregate- supply curve shifts
5.All the above the possible

Q) The components of aggregate demand are:

1. consumption, investment, transfer payments and imports

2. consumption,, investment, government purchases and foreign exchange

3. consumption,, money supply, government purchases and exports

4. consumption, investment, government purchases and net exports

Explanation / Answer

1) If consumers change their saving and spending plans, there will be

ans:.3 shift of the aggregate-demand curve

Reason : As consumers change their plans, then intercept of aggregate demand curve changes shifting the aggregate demand curve

2) If the price level decreases, this would cause the aggregate supply curve to --- in short run

ans:1 .fall

Reason; As price level decreases,suppliers will be unwilling to sell more quantity in short run, hence aggregate supply falls

3)The article mentions that the easing in monetary policy since late 2011 has supported interest sensitive spending and asset values. If people's expectations about future price levels chage:

ans:5.all are possible

Reason:As it depends on how future price level changes.So all the above are possible depending on change

4)The components of aggregate demand are:

ans:4. consumption, investment, government purchases and net exports

Reason: As Y = C+I+G+(X-M)

where Y-aggregate demand, C- consumption, I-investment, G- government purchase, (X-M) - net exports

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.