Monetary policy   Goals of monetary policy   RBA Charter   Role of underlying inflation   Implementing monetary policy   Tightening of MP   Loosening of MP   How other rates change   Pre-emptive decisions   'Open mouth operations' Exchange rate intervention  Monetary policy stance   Expansionary policy  Monetary policy neutrality    Restrictive MP   Transmission mechanisms   MP and economic goals   low inflation Growth/jobs  MP strengths and weaknesses

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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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‘Open mouth operations’

It is important to note that mere comments by the RBA Governor can have an impact on economic activity.  For example, in recent years the RBA Governor expressed a concern about the high rate of household debt levels, this was interpreted in financial markets as a sign that the RBA was contemplating a tightening of monetary policy.  This immediately caused some market interest rates to rise in the economy, as well as contributing to a higher household savings ratio, both factors working to restrain growth in AD and economic activity.  This type of action on behalf of the RBA is sometimes referred to as 'open mouth operations' and has a powerful effect on the behaviour of economic agents by persuading them to behave in ways that don’t create or add to economic problems.

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