Monetary policy is one of the key responsibilities of the Reserve Bank of Australia

i) What is Monetary policy? (1 mark)

ii) If inflation next quarter is predicated to fall to 1% p.a. due to the impact of Covid-19, how would the RBA adjust the official cash rate in response to this situation? Briefly explain the reason for this adjustment (Include in your answer the inflation target of monetary policy, the expected effect of any suggested change in cash rate on consumption, investment and the likely change to net export). (4 marks)