fins1612_wk8-12 - ? ? ? ? ? ? ? ? ? ? ? ? ? ?

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪ ⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪ ⨪⨪⨪ ⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪ ? ⨪⨪⨪⨪ Ǜ ? ? ⨪⨪⨪ ? ⨪⨪⨪⨪⨪⨪⨪⨪ Ǜ ? ? ⨪⨪⨪ ? ⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪ Ǜ ⨪⨪ ⨪⨪⨪⨪⨪ ? ⨪⨪⨪⨪ Ǜ ? ? ⨪⨪⨪ ? ⨪⨪⨪⨪⨪⨪⨪⨪ Ǜ ? ? ⨪⨪⨪ ? ⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪ Ǜ ⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪ ⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪⨪bt levels are expanding too rapidly - the currency is under excessive downward pressure in the FX markets The tightening of the monetary policy (increase in interest rates) leads to - eventually increase in long term rates - slow consumer spending (reduce inflation and demand for imports) - decrease the size of the current account - possibly attract foreign investment causing domestic currency to appreciate There are three effects of changes in interest rates: Liquidity effect The affect of the RBA’s market operations on the money supply and system liquidity i.e. RBA increases rates by tightening the monetary policy, selling of CGS. Income effect This is the flow on effect from the initial liquidity impact on interest rates. The increased interest rates reduce spending in the economy which results in lower incomes in all sectors of the economy: the household, business and the government sector. Inflation effect As the rate of growth in economic activity slows, the demand for loans also slows thus this eases the rate of inflation Forecasting interest rates requires “how” and “to what extent”: - the central bank will response to the current and prospective rates of growth in the economy, the rate of inflation and the balance of payments, all of which will determine the liquidity effect on interest rates -The demand for money will adjust to changes in the level of economic activity that is the income effect on rates. -The rate of inflation will change, resulting in the inflation effect on interest rates.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

fins1612_wk8-12 - ? ? ? ? ? ? ? ? ? ? ? ? ? ?

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online