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.     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).     Ans in detail.

Identify a newspaper article in Bahamas(link to article) that provides a situation in which an expansionary monetary policy was implemented by the central bank.

Q2: Using the three-equation model of an inflation targeting central bank and a banking system, explain what factors determine the mark-up of the lending rate over the policy rate. Does the introduction of banks into the model change the way in which monetary policy is conducted in the 3-equation model? Use diagrams to illustrate how the central bank responds to an aggregate demand shock.

The primary instrument of monetary policy for the Fed is the discount rate.     True   False

"If a central bank's desired intermediate target is a monetary aggregate (money supply), then its policy instrument will most likely be a reserve aggregate variable like the monetary base." Explain this based on the conduct of monetary policy in practice.

Reflections on a classic: A Monetary History of the United States, 1867 to 1960, by Milton Friedman and Anna Schwartz, is a classic study of monetary policy and was published in 1963. Read the interview with Anna Schwartz available at www.minneapolisfed.org/pubs/region/93-09/int939.cfm, and explain what you think was the main contribution of this book. (Other interesting interviews with famous macroeconomists are gathered at http://minneapolisfed.org /pubs/region.)  

Consider a hypothetical economy where: • C(Ya) = 12 + 0.75 × (Y – T) • I(r) = 124 – 1 x r • G = 120 • t = 20% 3. Assume that inflation is zero, so that i = r. This economy's central bank follows a given Monetary Policy Rule:r =i= 0.025 ×Y+0.0003 × P , where P is the price level. Given this and the expression for the IS Curve, write down an expression for the Aggregate Demand Curve. (Hint: Remember that the AD Curve takes the form P =....)

EconomyRead the following premise carefully and answer the questions specifically and in detail. "Faced with instability in economic growth due to a recession or accelerated inflation, the Fed uses the open market operation to increase or decrease the available reserves of commercial banks which, in turn, will affect the amount of money available in the economy. economy In addition to open market operation, the Fed has other tools available to promote the growth, sustainment and economic stability of a country.These tools have been used historically; "A good example was the mortgage debt crisis of 2008." 1. Explain in detail monetary policy, its function and its effects on short- and long-term economic fluctuations. Use the aggregate demand and supply model presented in the course. 2. Explain each of the tools that exist in expansionary monetary policy and contractionary monetary policy.

Imagine that you are the leader of Bank of Canada's economic policy advisory board. Explain why expansionary and contractionary monetary policy strategies would be implemented.

Briefly outline two reasons for a central bank choosing to purse a contractionary monetary policy, and indicate whether you consider that these apply widely at the present time.