10 CommerceRBA Worksheet –Our Economy
Go to the Reserve Bank website and answer the following questions ( )
1)What is the current inflation rate?
2)What has the government and the RBA agreed it should range between?
3)Why did they choose that particular range?
4)Copy the table “Table 1: Inflation”
5)What do you notice about Australia’s rate compared to others?
6)What is monetary policy?
7)How/when is it decided?
8)What is the government’s relationship with the RBA?
9)What is the cash rate?
10)Who uses the cash rate and what for?
11)Monetary policy affects the economy in 6 ways.Match the correct explanations to the terms:
a)Saving and investment /- Upbeat demand with the economy means that producers can widen their margins, which also means that a strong demand for labour tends to give employees more power to bargain for higher wages.. Price increases encourage demands for higher wages, while wage increases add to costs, which in turn are often passed on in higher prices. This relationshipcan cause inflationary pressures to start to develop
b)Money and credit /
- First, they directly affect the price level. For example, if it is depreciated it makes imported goods more expensive, and, since imported goods make up a significant proportion of domestic spending, this will have an effect on the average price of goods purchased. Secondly,by making imports more expensive and exports cheaper, it will tend to increase demand both for domestic import-competing goods and for exports. This would represent an expansionary impact on the economy.
c)Exchange rate /
- These changes can affect asset values, which in turn affect people’s wealth and therefore their spending decisions. E.g. they may affect: houses, property investments, shares or other financial investment. A fall in asset prices, in turn, could dampen spending by reducing wealth, and also by reducing borrowing capacity as the assets concerned could have been used as collateral for further loans
d)Cashflow /
- The standard description of this mechanism is that a tightening of monetary policy makes it more difficult for borrowers to obtain loans, and thereby directly constrains their spending
e)Asset prices /
- It refers the amount of cash available for spending. Those households who have debt will notice that their interest payments are a much higher proportion of their own incomes, the net effect of a rise in interest rates is likely to be to reduce total household spending and, by the same reasoning, a fall in rates will increase total household spending.
f)Inflation /
- Higher interest rates increase the cost of borrowing to finance expenditure. They increase the incentive to save, or to delay spending, and they reduce the net (after-interest) returns to investment
12)Go to - using the following data calculate how much a basket of groceries would cost
a)Basket of goods value: $50
b)Year: the year you were born
c)End year: 2010
i)What is the:
(1)Cost in 2010?$
(2)Total change in cost?%
(3)Over how many years?Years
(4)What is the average annual inflation rate %
13)Go to What country had the highest monthly inflation rate in history?
14)What was it?
15)Now try out the game – Fling Your teacher – link is on