Please help me check that if my answer is correct, logical and be in detail based on the grading rubric.

QuestionRead the RBA's May 2020 interest rate decision, available at a link here:

https://www.rba.gov.au/monetary-policy/int-rate-decisions/2020/

Question and my answer

1.Your understanding of why the RBA made the decision that they did, with respect to the content of the interest rate decision statement itself and also the RBA's policy objectives

Regarding information in the RBA's interest rate decision statement, RBA decides to decreases the interest, and the long-term bond rate would hit an all-time low. It means that RBA provides lower borrowing costs to business or person and which would let them have adequate cash flow. It is a kind of method that stimulates supply and demand because people would be confident about the economy. The business would return to normal operations level and customers would also be willing to consume. In this case, Australia's output would not continually decrease and therefore, the employment rate would increase.

For the three objectives of monetary policy, it is to remain reasonable price stability, increase the employment rate and improve the economic growth and welfare for Australian. RBA can achieve the targets by controlling the supply of bank credit, interest rate and the supply of money. For example, RBA could low interest rates to reduce the cost of financing. This can help the enterprise owns adequate cash flow and achieve a high production level, making it unnecessary to reduce operating costs through layoffs. It means that Australia's production levels and employment rates will rise.

2.What the RBA's monetary policy decision means in terms of practical implementation

Firstly, under the downturn in the economy, RBA falls cash rate and which can help banks borrow money from RBA at a relatively low cost. Furthermore, enterprises also can benefit from the lower borrowing costs provided by the bank and obtain sufficient cash liquidity. Unemployment rate and output can be controlled as business and organization can normally operate.

Additionally, setting inflation targeting at 2%~3% by RBA is also a monetary policy. RBA does this to make people believe that prices will continue rising. It spurs the economy by making people buy things now before they cost more. It means that the demand would improve and it would bring a positive effect to the Australian economy. If the inflation rate achieves and remains in the target level by 2%-3%, the price level would also be in controlled.

3. The expected transmission of the monetary policy decision to economic outcomes

RBA need to reduce the cash rate, and it can stimulate the economy and help Australia achieves the inflation rate target. In more detail, a lower cash rate can encourage people to spend and investment throughout increasing the cash flow of households. Furthermore, it can also result in a depreciation of the exchange rate, leading to higher net exports and imported inflation, which means that Australia's GDP would improve. Additionally, the inflation rate would achieve the target since decreasing the cash rate could stimulate demand.

Grading rubric:

1Evidence of understanding of the RBA's interest rate decision statement

2Evidence of understanding of the objectives of monetary policy

3Evidence of understanding of how monetary policy is conducted in Australia

4 Evidence of understanding of the mechanisms through which monetary policy decisions impact the economy