Not directly applicable due to different weights on

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Not directly applicable due to different weights on the output gap [( Y*-Y)/Y* ] and inflation ( ). Until recently likely higher weight on inflation (due to specific inflation target of 2-3%), although global financial crisis has required consideration of recessionary output gap. 69
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70 Inflation ( ) real interest rate set by RBA ( r ) RBA’s policy reaction function 0.02 0.04 0.06 0.03 0.05 0 0.01 0.02 0.03 0.04 *Captures tendency to raise cash rate when economy is ‘overheating’ (expansionary gap) and reduce cash rate when economy is sluggish (recessionary gap) Movement along policy reaction function If change in r in response to change in Shift of policy reaction function If change in r in absence of change in
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RBA reacts to changes in actual inflation rates, inflationary expectations and a broad range of domestic and international economic variables Decisions made using both formal policy reaction functions and judgement Does not have a precise measure of the output gap Only has an approximate idea of the impact of interest rate changes on planned spending (or the lag before impacts will occur) Changes in monetary policy settings can be taken frequently, but RBA has tended to be cautious 71
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Test pool questions now available on Blackboard Test is 20 marks (20 % assessment) 30 minutes during tutorial time Different tutorial questions will have different tests Calculation questions will have different numbers You must sit test in your enrolled tutorial group Answer sheet provided, bring a calculator NO Supplementary exam ( illness or misadventure must fill in special consideration application on myunsw within 3 days)
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