The paper "Factors Considered in Determining Interbank Interest Rates" is a great example of a report on macro and microeconomics. The report brings an analysis of an article that concern with cut rates by RBA. Policy instruments are defined as the available options that can be utilized by the government to run economic activities. Instruments are classified as either monetary policy or fiscal policy. Fiscal policy refers to those actions undertaken by the government in relation to its level and composition of expenditure, borrowing, and taxation with the main objectives being to spur economic growth, lower the unemployment rate, manipulate growth and level of output, and aggregate demand. Monetary policy refers to the actions pursued by the central bank of a country to regulate the amount of money supply in the economy.
The actions can be either on interest rates or on exchange rates. The main objective is to check on the rate and level of expansion of AD (aggregate demand) in the nation. Specifically, it is used to control the rate of inflation and the unemployment rate. Monetary policy can classify as expansionary or contractionary policy.
Therefore, a target is also referred to as an objective. It is the aim of any economic policy and it can be measured in reference to an economic variable like the unemployment rate, growth of Gross Domestic Product (GDP), or rate of inflation. To achieve these targets we use policy instruments. A change in economic policy (instruments) used will lead to a change in the other variable (the target). This indicates if the relationship existing among economic variables. The expansionary monetary policy has a positive effect on the challenges that an economy is going through in a sub-prime crisis.
The challenges include a low growth rate and skyrocketing interest rates. The policy will reduce the interest rate which is a recipe for increased capital investment, hence an improvement in economic growth. The use of discretionary monetary policy is suitable for the reserve bank of Australia in control of the prevailing economic crisis. The result of a sub-prime crisis is ballooning inflation rates; the households find it difficult to meet their daily needs. To reduce the high inflation rates, which are closely related to the deficiencies within the financial sector, is to adopt monetary policies that are geared towards reducing the interest rates and stability of commodity prices.
Staff reporter. RBA cash rate cut ups pressure on banks. Retrieved from