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Suppose that inflation moves above the Reserve Bank of Australia's (RBA) target rate. (a) What monetary policy would you advise the RBA to implement? Explain

Suppose that inflation moves above the Reserve Bank of Australia's (RBA) target rate.

(a) What monetary policy would you advise the RBA to implement? Explain in words how this policy would affect output and inflation (i.e. explain the transmission channel of monetary policy).

[5 marks]

(b) Explain in words how the RBA conducts open market operations to implement its policy.

[3 marks]

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