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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Monetary policy to promote growth and jobs when low inflation is achieved


The RBA will adopt an expansionary monetary policy setting to stimulate the economy and create jobs once it is confident that inflation is under control.  This is currently occurring in Australia as inflation is well within the RBA's target range and the RBA has loosened policy significantly, with the target cash rate falling to 1.5% in 2016.  


A loosening of policy involves a reduction in interest rates across the economy which then works to stimulate AD via the transmission mechanisms referred to earlier (see transmission mechanisms).  As AD is stimulated via the five transmission mechanisms, as well as the associated boost in consumer and investor confidence, it results in an increase in real GDP and economic growth.  This then helps to boost the demand for labour and employment, exerting downward pressure on the unemployment/underemployment rate.  In this way, the loosening of monetary policy will help to stabilise the economy during a downturn and contribute to the achievement of both strong and sustainable growth and full employment.

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