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The Treasury has been paying close attention to the policy actions taken by Australia's central bank, the Reserve Bank of Australia (RBA), which also plays

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The Treasury has been paying close attention to the policy actions taken by Australia's central bank, the Reserve Bank of Australia (RBA), which also plays an important role in managing the Australian economy. a) For your Policy Brief, you have been asked to write some background information on the role of monetary policy in managing the economy. Explain the difference between 'expansionary monetary policy' and 'contractionary monetary policy'? As part of your explanation, identify the conditions in which a central bank would implement expansionary monetary policy and the conditions in which it would implement contractionary monetary policy? In your answer, refer to the macroeconomic objectives that the RBA is responsible for in its charter. (3-4 sentences) b) Based on the most recent announcement made by the RBA Governor (see the RBA Statement on the Monetary Policy Decision for October 2022 below), identify what type of monetary policy did the RBA implement in its most recent announcement? Which part of the AD-AS model is this policy aiming to shift? What does the RBA's decision tell us about which phase of the business cycle we are currently in, and which economic indicator the RBA is most concerned about? (3-4 sentences) Statement by Philip Lowe, Governor: Monetary Policy Decision Number 2022-33 Date 4 October 2022 At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 2.60 per cent. It also increased the interest rate on Exchange Settlement balances by 25 basis points to 2.50 per cent. The Board is committed to returning inflation to the 2-3 per cent range over time. Today's increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead. The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia. As is the case in most countries, inflation in Australia is too high. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role. Source: RBA, Statement by Philip Lowe, Governor: Monetary Policy Decision https://www.rba.gov.au/media- releases/2022/ (Accessed 4 October 2022)

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