MAF202 Lecture Notes - Lecture 4: Liquidity Preference, Demand Curve, Monetary Policy
Document Summary
Week 4: interest rate determination: liquidity preference and loanable funds. Rba monetary policy objectives: manage inflation, stability of currency, maintenance of full employment in australia, economics prosperity and welfare of the people of australia. Monetary policy actions are directed at influencing interest rates. Monetary policy decisions are expressed in terms of a target for the cash rate, which is the overnight money market interest rate. If this short term cash rate changes, there is an expectation that in an efficient market, medium to long term interest rates will change over time to establish a new equilibrium. Financial market participants can anticipate changes in a governments interest rates policy. Lenders and borrowers can make better informed decisions. A central bank may increase interest rates if there is: Inflation above target range: excessive growth in gdp, a large deficit in the balance of payments, rapid growth in credit and debt levels, e(cid:454)(cid:272)essi(cid:448)e (cid:858)do(cid:449)(cid:374)(cid:449)a(cid:396)d(cid:859) p(cid:396)essu(cid:396)e o(cid:374) fx (cid:373)a(cid:396)kets.
