Essays on How Monetary Policy Affects Businesses in Australia Case Study

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The paper "How Monetary Policy Affects Businesses in Australia" is a perfect example of a business case study.   Monetary policy refers to the action and procedure through which the monetary agency of the government of a country controls and monitors the supply and flow of currency in the financial system. The main goal of this policy is to control interest rates with the main aim of targeting and advancing the growth of the economy as well as maintaining the elevated stability of the economy. The other major imperative goals often include controlling inflation as well as reduced unemployment in the country.

The monetary hypothesis provides a deep perception of how to trade the maximum monetary policy. Largely, monetary policy involves anticipations management. The monetary policy balances the entire supply of money and the rates at which money is issued and released to the economy. In circumstances where control and issuance of money are monopolized or in situations where there is an ordinance of currency, issuance done by commercial banks that are linked up to the central bank the monetary policy can change and modify the supply of currency.

Therefore, directly or indirectly affecting the interests’ rates and hence attaining the major goals of the monetary policy (Friedman, 1948). Varieties of monetary policy instruments are made available to attain these goals. These include lowering the currency base, raising the rates of interests, and increasing backlog demands. All these have an impact on reducing the supply of money but can also expand the currency supply if changed by reversal. In the short run, the policy affects inflation as well as the economy’ s demand for commodities and services, and thus, the demand for workers manufacturing the goods or providing the services largely through its effect on the financial conditions confronting households and businesses (Federal Reserves, 2012). In the short and long term, in case the interest rates for central bank lending are decreased, many firms borrow more, and households are better placed to buy more goods and services.

At the same time, firms are devising ways to increase production to meet the demands of the household. This prompts them to expand their firms to increase production and cater to the demands of the household.

Because of the expansion of the firms, many opportunity chances are created resulting in the creation of employment opportunities. Similarly, when the federal currency rates are reduced, the prices of goods and services are reduced, and thus demand increases. Monetary policy can also influence and predicts future performance and state of the economy in a country. It can affect anticipations on prices of goods and services as well as those of wages. With regard to this policy, the discussion will involve how it influences the businesses in Australia and the United States. How Monetary Policy Affects Businesses in Australia In Australia, the monetary agency accountable for the policy is called the Reserve Bank.

It entails planning the interest rate on all night loans in the currency market ‘ cash rate’ . This rate affects other interests’ charges in the economy, influencing the conduct of borrowers as well as lenders, economic activity, and eventually the inflation rate (RBA, 2013).

References

Bordo, M. (2008). Monetary policy, history of, The New Palgrave Dictionary of Economics,

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Federal Reserve. (2012). How does monetary policy influence inflation and employment.

Retrieved from http://www.federalreserve.gov/faqs/money_12856.htm

Friedman, B.M. (2001). Monetary policy. International Encyclopedia of the Social &

Behavioral Sciences, 9976-9984.

Friedman, M. (1948). A monetary and fiscal framework for economic stability. American

Economic Review, 38(3), 245-264

Forder, J. (2004). Credibility in context: Do central bankers and economists interpret the term

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FTBSF. (2011). US monetary policy: An introduction. Retrieved from

http://www.frbsf.org/publications/federalreserve/monetary/index.html

Hossain, A. (2009). Central banking and monetary policy in the Asia-Pacific. Edward Elgar

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HSC. (n.d). Monetary policy. Retrieved from

http://hsc.csu.edu.au/economics/policies_mgt/2592/Topic4Tutorial1.html

RBA. (2013). Monetary policy. Retrieved from http://www.rba.gov.au/monetary-policy/

Rogoff, K. (1985). The optimal commitment to an intermediate monetary target. Quarterly

Journal Economics, 100, 1169-1189

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