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But with neither issue developing, the governor said the high level of mortgage debt by many Australians might be playing a part. One possible explanation

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But with neither issue developing, the governor said the high level of mortgage debt by many Australians might be playing a part. \"One possible explanation for this is the uncertainty that many people feel about the future. This uncertainty means that if you have a job you want to keep it rather than take a risk with a new employer," he said. \"This might be especially so if you also have a large mortgage. So it is possible that the high level of household debt is also affecting labour market dynamics." Dr Lowe said there was also evidence that where businesses were facing a shortage of staff, in areas such as specialist IT, a lack of investment in training might be a factor. He said almost 60 per cent of rms were reporting that a shortage of available labour was a minor or major constraint. "One contributing factor here is an underinvestment in staff training. In the shadow of the global nancial crisis, many rms cut back training to reduce costs,\" he said. "We are now seeing some evidence of the adverse longer-term implications of this. As the labour market tightens timber, I would hope that more rms are prepared to hire workers and provide the\" necessary training." Refer to the above article to answer the following questions? a) According to the article, what has RBA done to the ofcial cash rate in the June 2019 meeting? What type of monetary policy has RBA implemented? (1 mark) b) According to the article, what is the main cause that affects labour market dynamics? (1 mark) 0) According to the article. apart from monetary policy, what other actions Dr Lowe is suggesting to implement to get closer to lll employment? (1 mark) d) How can RBA implement monetary policy? Explain how expansionary and contractionary monetary policies could be implemented? (1.5 marks) e) Draw a demand and supply graph showing equilibrium in the money market (short-run). Suppose the RBA wants to lower the equilibrium interest rate. Show on the graph how the RBA Would accomplish this objective. Explain. (2.5 marks) t) Use the dynamic aggregate demand and aggregate supply model to explain what monetary policy stance the Reserve Bank of Australia should take if the economy is entering a period of recession. (5 marks) g) Explain one reason for keeping a central bank independent oor the government? (1 mark) Section C: Analytical Questions (25 marks) Question 1 (13 marks) Read the article below and answer the following questions. Lower rates on the table but governments must do their part: RBA By Shane Wright June 20, 2019 12.35pm Official interest rates are likely to be out even further, the Reserve Bank of Australia governor has signalled in a speech that also calls on all levels of government to fast-track infrastrucmre spending and structural reforms to help drive down the jobless rate. Philip Lowe, in an address to the Committee for Economic Development of Australia in Adelaide on Thursday, said despite strong employment growth over recent years there was still \"considerable spare capacity" across the jobs market. He said there was "signican " underemployment and nther room for more people to pick up work, which was hampering efforts to get wages growing and ination to lift. The RBA earlier this month sliced the ocial cash rate to 1.25 per cent, its lowest level on record, with Dr Lowe saying further cuts were likely. "The most recent data including the GDP and labour market data do not suggest we are making any inroads into the economy's spare capacity. Given this, the possibility of lower interest rates remains on the table," he said. "It is not unrealistic to expect a further reduction in the cash rate as the [RBA] board seeks to wind back spare capacity in the economy and deliver ination outcomes in line with the medium-term target." But Dr Lowe said it was unrealistic to expect a modest cut in the cash rate to deliver a major boost to the economy and jobs market. He said there were limitations to what low interest rates could achieve, urging governments of all persuasions to boost their own efforts. "As a country, we should also be looking at other ways to get closer to ll] employment. One option is scal policy, including through spending on infrastructure," he said. "Another is structural policies that support rms expanding, investing, innovating and employing people. Both of these options need to be kept in mind as the various arms of public policy seek to maximise the economic prosperity of the people of Australia." Dr Lowe said in a tight jobs market there should be "strong" wages growrh or frequent job changing as businesses tried to nd the workers they needed

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