Question 1

1. The following article was published in Australian Financial Review 2021. Read this excerpt to answer the question given below.

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Budget could bring forward RBA rate rises, UBS says

Monetary policy

William McInnes

The larger than expected fiscal stimulus in Treasurer Josh Frydenberg's budget could force the Reserve Bank of Australia to bring forward its rate hike plans as the economy and the labour market are jolted back to life.

More stimulus from the government and an upgraded near-term economic outlook suggest the RBA will need to reduce bond purchases under its quantitative easing program before the end of this year and may need to lift rates ahead of its own guidance of 2024 at the earliest.

''The persistence of stimulus - for several years ahead despite approaching NAIRU - will put upward pressure on wages and inflation,'' said UBS chief economist George Tharenou. NAIRU is the non-accelerating inflation rate of unemployment.

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1.Based on your understanding of Government's macro-economic policies, identify two possible economic stimuli that the treasurer might have announced?

2.Briefly explain why the chief economist of UBS thinks larger than expected economic stimulus announced in the budget might affect RBA's future interest rate decisions?

3.Identify two monetary policy tools mentioned in this article and briefly discuss how these tools are generally used to influence economic activities?