i need help with some eco questions

[mand3e]

I'm kind of stumped on some of these questions so any kind of help would be much appreciated

1. Discuss what is meant by the 'adverse interest rate' and 'exchange rate effects' of deficit financing.

2. Australia's central bank-the reserve Bank-gained 'operational independence' in 1996.
   a. Explain the meaning of this term (operational independence)
   b. Discuss one advantage and one disadvantage associated with the Reserve Bank having 'operational independence' in its pursuit of medium-term price stability.

3. During 2001, the Reserve Bank reduced the target cash rate 6 times from 6.25% to 4.25%. In 2002 it raised the target cash rate twice to 4.75%.
   a. Explain why this turnaround in policy direction occurred. How effective was each policy phase?
   b. What has been the position on interest rates in 2007-2008?

4. Discuss the nature of the 2 dilemmas involved in implementing microeconomic policy reforms.


i hope i'm allowed to just list questions and (hopefully) get answers.

alright thats it i suppose. thanks for reading? LOL

[Collin Li]

The operational independence of the RBA refers to the freedom of the RBA to set interest rates without the approval of the Treasurer. One advantage is that now the RBA is not held hostage by political pandering (i.e: near election times, interest rates would stay low), so that an inflation target can be properly pursued regardless of political agenda. A disadvantage (not sure if this answers the question about price stability), is that the RBA is not directly held accountable by the people.

I guess one disadvantage is that now the RBA is unable to cooperate with the government in installing inflation (perhaps not only using monetary policy). I'd personally argue that the negative effects of political pandering far outweigh this possibility though. Inflation targeting is simply not an attractive political platform when it results in high costs of borrowing for Australian voters.

[Collin Li]

Deficit financing is the practice of putting Australia into debt. This puts a higher demand on cash (as debt is the act of borrowing cash), which leads to an increase in the interest rate (which is sort of like the "price" of borrowing cash). This is what is meant by an 'adverse interest rate.' Higher interest rates make the country's money worth more, as foreign investors seek to get higher returns on their money, so the 'exchange rate effects' increase the value of Australian dollars.

[Collin Li]

I am not sure about what happened in 2001 and 2002. You have to do your own research on the RBA and its actions. The "yearly history" of Australian central banking doesn't interest me enough to help you out with that, sorry.

To answer the question about dilemmas faced by microeconomic reform:

Microeconomic reform is about improving efficiency, rather than focusing on statistics such as equity and employment. Equity is often in opposition to microeconomic reform because equity often requires tax policy that creates perverse incentives for individuals. The welfare system gives people an incentive to stay home rather than work, which can be a big problem for efficiency if welfare causes a lot of people who would have otherwise been working to start slacking. Employment can also be in opposition to microeconomic reform because changes to competition policy require making jobs less secure in order to invoke more efficient firms.

[mand3e]

wow thanks heaps coblin-the only person to respond to my post! LOL

what can i say, your so smart thank-you so much and the part where you said "The "yearly history" of Australian central banking doesn't interest me enough to help you out with that, sorry." made me LOL

and thanks again for the help. (P.S: feel free to answer question 3 if you feel like it )

[AppleXY]

OHSHI- I DIDNT SEE THIS THREAD TIL NOW

damn, collin bet me.

For Q3.), I did it for a sac as well (i got full marks XD), can't remember exactly, but I slightly remember that the RBA had a massive expansionary phase to increase GDP growth as it was declining sharply (also, partly for unemployment, but monetary policy isn't the right weapon for it, more BP). 

I want to ans 4 but I dunno if Collins already done it, and I have to get back to my spec

[Collin Li]

OHSHI- I DIDNT SEE THIS THREAD TIL NOW

damn, collin bet me.

For Q3.), I did it for a sac as well (i got full marks XD), can't remember exactly, but I slightly remember that the RBA had a massive expansionary phase to increase GDP growth as it was declining sharply (also, partly for unemployment, but monetary policy isn't the right weapon for it, more BP). 

I want to ans 4 but I dunno if Collins already done it, and I have to get back to my spec

Dunno if I answered it the way VCE would like it answered, but I answered it my way.

[AppleXY]

haha ok. I just realised I typed a massive sentence without any periods LOL . There's English at work for ya.

But yeah, Collin answered Q4 about Microeconomic reform quite nicely . It's main goal is to cultivate an environment for Efficient Resource Allocation (ERA) by privatisation, deregulation, tariff reform (reductions) and other govt reforms. The dilemma of MC reform [don't write MC in the exam anyway ] is that  it conflicts with the objective of Equitable Income Distribution coupled with Full Employment. INCR in ERA leads to DEC in welfare --> DECR in  EID. INCR in ERA ---> INCR in structural Unemployment --> DECR. Full Employment objective success.

[Collin Li]

God that pisses me off. You love acronyms, I love simple principles combined with a bit of simple logic.

Why do you need pretentious terms like ERA and EID?

[AppleXY]

God that pisses me off. You love acronyms, I love simple principles combined with a bit of simple logic.

Why do you need pretentious terms like ERA and EID?

Me too. But it's easier for me to type ERA than efficient resource allocation or equitable income distribution -- especially when I should be doing some spec exam prac (FUCKING DYNAMICS I'M GOING TO KILL IT, I ALWAYS GET IT WRONG  LOL ).

And oh btw, I like finance and there is 99% chance that ill work in a corp. bank, so they use acronyms alot [especially EBITDA lol]

[mand3e]

you guys make me laugh a lot because i have idea what happening. LOL

aww.. you guys make me feel all warm and fuzzy inside-people fighting over answering my questions! LOL

[mand3e]

OMG Apple XY i think possibly you could be Praveen or something, i use your Accounting notes! LOL really really good notes btw very very concise, so good work.

[Collin Li]

And oh btw, I like finance and there is 99% chance that ill work in a corp. bank, so they use acronyms alot [especially EBITDA lol]

Yeah, heh although that's really shitty accounting stuff, haha.

[AppleXY]

OMG Apple XY i think possibly you could be Praveen or something, i use your Accounting notes! LOL really really good notes btw very very concise, so good work.

haha thanks, Mandy (i'm guessing?). Glad you liked them

[Collin Li]

Necromancy because this is a low traffic board, so it doesn't hurt:

I guess one disadvantage is that now the RBA is unable to cooperate with the government in installing inflation (perhaps not only using monetary policy). I'd personally argue that the negative effects of political pandering far outweigh this possibility though. Inflation targeting is simply not an attractive political platform when it results in high costs of borrowing for Australian voters.

I'm actually studying this now. I basically got it right (surprisingly). A disadvantage is the government (in control of fiscal policy) cannot cooperate very well with the central bank (monetary policy), and hence cannot use the fiscal-monetary mix to its full advantage.