a. Suppose the economy is operating at full employment equilibrium and the Reserve Bank of Australia increased the official cash rate and, as a result, the Australian economy fell into a recession. With the aid of the Keynesian PAE diagram, explain the link between the RBA's policy and the recession.

b. The actual interest rate in the overnight money market is lower than the RBA's target cash rate. Explain how an open market sale of commonwealth government securities (CGS) would affect funds in the Exchange Settlement Accounts (ESA) and cause the actual rate to equal the RBA's target rate.