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Short Answer Questions:简短回答问题：
1澳大利亚储备银行（RBA）有以下三个选项来影响澳大利亚金融市场的货币供应。简要描述每种操作方式。
a) Open market operations(2 marks)公开市场业务（2分）
公开市场业务是指澳大利亚储备银行（RBA）通过在金融市场上买卖政府债券来控制货币供应量和利率的政策行为。具体来说，在RBA通过公开市场操作购买政府证券时，基础货币供应量将扩大，这将直接增加金融机构的可用资金数量。当RBA通过公开市场业务出售政府证券时，RBA将收回部分基础货币，并减少可用资金金融机构的数量。换言之，购买或出售政府债券的过程可以改变商业银行和其他存款货币机构的存款准备金要求，从而影响货币供应量和利率。因此，公开市场操作是RBA控制货币供应量、调节商业银行流动性、引领利率走势的重要工具。
Open market operations refer to the policy behaviour of Reserve Bank of Australia (RBA) for controlling money supply and interest rate by buying or selling government bonds as agents in financial markets. In specific, when RBA purchasesgovernment securitiesthrough the open market operations, the base money supply will be expanded, which can directly increase the number of available funds of financial institutions. When RBA sells government securitiesthrough the open market operations, the RBA will recover parts of the base currency, and reduce the amount of available funds financial institutions. In other words, the process of buying or selling government bonds can change the reserve requirements of commercial bank and other deposit money institutions, which can affect the money supply and interest rates. Thus, open market operations is an important tool for RBA to control the money supply, regulate the liquidity of commercial banks, and lead the trend of interest rate.
b) Reserve ratio(2 marks)准备金率（2分）
准备金率是指银行必须将存款余额中的一部分作为现金持有，具体来说，通过调整准备金率，澳大利亚储备银行可以影响金融机构的信贷扩张能力，影响澳大利亚金融机构的货币供应量。市场。例如，当RBA提高存款准备金率时，货币乘数会变小，从而降低商业银行系统的信用创造和扩大信贷规模的能力。因此，货币供应量将下降，利率将上升，投资和社会支出将萎缩。因此，存款准备金率可以间接调节货币供应量。
Reserve ratio refers to the portion of depositors’ balances that banks must have on hand as cash.In specific, by regulating the reserve ratio, the Reserve Bank of Australiacan affect the credit expansion capability of financial institutions and affect the money supply in the Australian financial market. For example, when the RBA raises the reserve ratio, the money multiplier will become smaller, which can reduce the credit creation of the commercial banking system and the ability of expanding credit scale. Thus, the money supply will decline, rate of interest will increase, and investment and social spending will shrink. Therefore, the reserve ratio can indirectly regulate the money supply.
c) Cash rate (2 marks)
The cash rate is the interest rate of overnight money market, which determine themarket interaction between demand and supply of overnight money. In other words, the RBA can indirectly regulate the reserves and the supply of market by adjusting cash rate. In specific, the RBA has a right to make overnight cash rate. As the most important interest rate in market, the cash rate can guide the circulation of cash in short term and long term market. Moreover, using the supply and demand relation, the cash rate can lead the both the short term and long term interest rates.
2 Now demonstrate what happens to value of money, the price level and the real interest rate using the money supply (MS) and money demand (MD) diagram shown below.
a) The Reserve Bank of Australia (RBA) increases the reserve ratio in the fractional banking system. (2 marks)
Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)
When the RBA raises the reserve ratio, the money multiplier will become smaller, which can reduce the credit creation of the commercial banking system and the ability of expanding credit scale. Thus, the money supply will decline and rate of interest will increase.
b) RBA purchases government securities through the open market operations. (2 marks)
Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)
When RBA purchases government securitiesthrough the open market operations, the base money supply will be expanded, which can directly increase the number of available funds of financial institutions.
3 Consider an economy that is initially in long run equilibrium in the Aggregate Demand and Aggregate Supply (AD-AS) diagram that we covered in lectures. Suppose many Australian firms mistakenly expect that there will be an increase in the relative price of their own products as compared to others (including relative to the input costs and wages they pay). Start with the equilibrium point shown in the Figure below and use it to demonstrate the following changes.
a) How does this change the aggregate price level, real income and unemployment in the short run? Explain and illustrate in the AD-AS diagram (3 marks)
Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)
This economy is initially in long run equilibrium in the Aggregate Demand and Aggregate Supply (AD-AS). If many firms claimed that the price of their output has increased relative to the price of their inputs, they will increase their supply at any price level. Thus, the short run aggregate supply will increase, and shifts to the right. The new short run aggregate supply is the SRAR1 in the above diagram. Therefore, there will be a short run increase in output and a decrease in the price level and unemployment.
b) Explain the adjustment process to long run equilibrium (assuming that real potential output remains unchanged, so no change in LRAS), and what happens to the price level. No need to demonstrate it in Figure but it may be helpful. (3 marks)
In thelong run equilibrium, the price level will restore the original long run equilibrium, that is, the price level is P0. In specific, in the long run, producers and employees will adjust their expectations on the relative price of their own products as compared to others, that is, they will decrease their expectations of prices. Correspondingly, they will adjust the wage and aggregate supply, and the equilibrium will restore the original long run equilibrium.
4 Some economists hold the views that Australia is heading to a recession (for such a view, read herehttp://www.abc.net.au/news/2016-07-29/australia-headed-for-recession-next-year,-professor-keen-says/7674154
One such scenario may come from a crash in the Australian housing market. Keeping in mind of the Aggregate Demand and Supply (AD-AS) framework, elaborate how such a shock may affect the Australian economy. Also, discuss what policy instruments the government have in response, and how they work in practice?
The summary should be at least half a page in length (again,please do not write in the form of the bullet points). Showing the effects in AD-AS is not required. Attaching a list of references is preferred but not required. Please do not copy and paste from whatever you found on the web. We can easily detect this in our system! (4 marks)
(Answer here)
According to Professor Steve Keen, the credit binge of Australia will cause the declination on price of house. The aggregate demand is made up of consumption, investment, government purchases and net exports. Moreover, the housing plays an important role on the GDP of Australia. The decline in the house price will make the decline of GDP (aggregated demand), that is, the AD curve will shift to the left. The price level of will decrease, which make the expected price of both firms and workers higher than the price level. Thus, the costs will fall and the short run aggregated supply will shift to the right. The equilibrium will move from the point in higher price level to the lower price level. In the new equilibrium, the real incomes will decline and the unemployment rate will increase.When the price level falls, households try to reduce their holdings of house, which cause slow economic activity. Moreover, when the price level falls, firms will become pessimistic about future business conditions, they may cut back on investment spending. Moreover, the housing plays an important role on the GDP of Australia.Thus, the economics of Australia is heading to a recession. Therefore, the shock of decline of house price can significant negatively affect the Australian economy. #p#分页标题#e#
The government should have the investment tax credit on the real estate, and cut taxes on buying house.
The investment tax credit increases the quantity of investment on real estate, which can increase the GDP of Australia. Cutting taxes on buying house can encourage people to spend more, which also can increase the aggregate demand for house.
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