On May 3, 2023, the Australian central bank, RBA changed the target cash rate (TCR) by 25 basis points, from 3.6% to 3.85%. Explain the specific operational steps that the RBA must have taken to implement this change. (Hint: explain the change in the RBA lending rate, the RBA borrowing rate, and any open market operations that may be needed to support a change of this nature. Support your answer with a clearly labelled diagram).       

 

B. In November 2020, RBA announced that it would introduce a $100 Billion QE (Quantitative Easing) program in Australia. Assuming that money-multiplier in Australia is 2.5, what are the equilibrium implications in terms of new loans and new checkable deposits on the Australian banking sector? Explain with the help of relevant t-account entries on the balance sheets of RBA and the aggregate banking system.          

 

 

Q2) 

A. Suppose the CBDC version of the Australian dollar (AUD) has been successful launched in Australia (assume that effective steps have been taken to mitigate the chances of a banking crisis). By using the AD/AS framework, show the positive impacts that will likely follow. Explain. 

 

B. Suppose the CBDC version of AUD has been launched; however, some people in Australia start using CBDC wallets as an alternative to keeping money in their transaction deposit accounts; however, a banking crisis does not follow (there are no major bank runs only orderly transfer of funds by some people from their bank accounts to their CBDC wallets). By using the AD/AS framework, show the negative impacts that will likely follow. 

 

 

C. Suppose the CBDC version of AUD has been launched and this leads to a banking crisis, which the RBA could not prevent. By using the AD/AS framework, show the negative impacts that will likely follow.