Describe, in general terms, the strategy of monetary policy in approximately. There is an upper limit of for your answer. Your essay must follow the structure and suggested word count given below.

Begin by describing the three key objectives of the Reserve Bank Board.

1.) What are the four monetary policy tools that are used to achieve these objectives?

2.) Does the RBA target money supply or a short-term interest rate? Can it target both? Explain.

3.) What is the primary tool that the RBA uses for its day to day operation to meet this target?

4.) Does the RBA also have an objective to achieve an inflation rate of 2-3 per cent, on average, over time? If yes, is this target a policy rule, in the strict sense? What are the potential disadvantages of a policy of inflation targeting?