1.The Reserve Bank of Australia (RBA) is required by law to pursue:

(i)Full employment of the labour force

(ii)Low and stable inflation

(iii)A healthy rate of economic growth and economic welfare for society.

For the past three decades, (with the exception during times of economic shocks), the RBA has focussed on achieving low and stable inflation, known as inflation targeting.

(a)Explain what is meant by inflation targetingand provide Australia's target range of inflation.

(b)Explain why the RBA believes that targeting inflation will help achieve the other two goals.

2. (a)What is monetary policy?

(b) Explain how monetary policy can affect the C, I and NX components of aggregate demand.

3. (a)What is the cash rateand what role does it play in monetary policy?

(b)Question 3.6, Chapter 17, page 584, Hubbard et. al., Essentials of Economics, 4th ed..

4. Explain the difference between expansionary policy and contractionary policy.

(a) Under what economic conditions would the RBA pursue expansionary monetary policy?

(b) Under what economic conditions would the RBA pursue contractionary monetary policy?

Include the aggregate demand, short-run aggregate supply and long-run aggregate supply model in your answers.

5.Discuss why the RBA increased the cash rate in Australia in 2005 and in 2006.

6.Explain the RBA's current monetary policy stance. Include information about the current rate of economic growth, inflation and unemployment in your answer.

7.Discuss the strengths and weaknesses of the effectiveness of monetary policy.

8.Monetary policy does not affect everyone in the same way, and while it can be an effective economic policy tool, it is often not equitable. Who gains and who loses, and in what ways,during:

(a)expansionary monetary policy?

(b)contractionary monetary policy?