BFB1001 Lecture Notes - Lecture 2: Deflation, Money Supply, Australian Prudential Regulation Authority
2 Aug 2018
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Document Summary
Prices are freely set by supply and demand without. All prices and trade are the in uence of government policy or rules set by the government. Under/over regulation inhibits the ef cient ow of funds. Conclusion neither is desirable to maximise economic growth and an ef cient ow of funds. Rba: responsible for monetary policy, payments system and stability of the entire nancial system. The of cial cash rate: the overnight money market interest rate at which australian banks borrow and lend to one another. It is set by the rba, and is a key source of funds for banks. This sets the benchmark cost of debt in the economy. When the economy overheats, the rba can enact contractionary monetary policy by the cash rate, which the cost of debt, dampening consumption and investment. When the economy weakens, the rba can enact expansionary monetary policy by the cash rate, which the cost of debt, stimulating consumption and investment.
