Question

In: Economics

1) What is the cash rate? Provide a definition and its current value. (1 mark) 2)...

1) What is the cash rate? Provide a definition and its current value. (1 mark)

2) If there is an expected surplus of reserves in the banking system today, what will the Reserve Bank do?

3) What would happen to the cash rate if the Reserve Bank chose not to act? (1 mark)

4) What is quantitative easing, and how might quantitative easing affect the cash rate?

Solutions

Expert Solution

Q-1 Cash rate is the Interest Rate at which central banks such as reserve bank of Australia or federal reserve will charge commercial banks for loans. it's also known as Bank Rate.

​​​​​the current cash rate as on March 2020 is 0.25% which is determined by CENTRAL BANK OF AUSTRALIA.

Q-2 Expected surplus of reserve is the amount of Excess money of required reserve which the commercial banks should maintain at Central banks. reserve bank will lends the surplus of reserve to the people because the inflation over time decrease the value of money.

Q-3 if central bank choose not to act then the it's should not understand what influenced the interest rate and how your home loan change over time.

Q-4 Quantitative easing is the monetory policy by central bank by purchasing the Long term government bonds from the open market for increasing the supply of money and encourage the investment. Quantitative easing will decrease the cash rate as people have more money to spend so they not borrow from banks so the cash will decrease.


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