a) Give the formula for the simple deposit multiplier. If the reserve ratio is 20 per cent, what is the maximum increase in demand account deposits that will result from an increase in bank reserves of $20 000? (3 marks)

b) How does the RBA control liquidity in the overnight money market? (2 marks)

c) The Reserve Bank of Australia (RBA) has stated that: The principal medium-term objective of monetary policy is to control inflation, so an inflation target is thus the centerpiece of the monetary policy framework .i Explain why the RBA is targeting inflation in Australia. (2 marks)

d) In the aftermath of the global financial crisis, the Australian government gave cash hand-outs of up to $900 to most tax payers, as part of a policy aimed to stimulate economic growth. What impact would this have had on the cash rate if there were no intervention on the overnight money market by the RBA? Briefly explain. (3 marks)