Question

In: Economics

a) Explain why Australia's currency is suitable to use as a medium of exchange. b) An...

a) Explain why Australia's currency is suitable to use as a medium of exchange.

b) An economy has the following financial data by the end of December 2018:

Type of Money	S Billion
Currency in Circulation	$98
Current deposits at banks	$458
Other deposits at banks, building societies and credit unions	$2230
Deposits at other financial institutions (NBFIs)	$52

Calculate M1, M3 and broad money by the end of December 2018.

c) What role does the Reserve Bank of Australia (RBA) have in the economy?

Expert Solution

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Question:

Answer:

a). why Australia's currency is suitable to use as a medium of exchange?

Medium of exchange refers to anything generally accepted as representing a standard of value and exchangeable for goods or services. The following are the main functions of money - medium of exchange, store of value, or unit of account, it must possess six characteristics: divisible, portable, acceptable, scarce, durable, and stable in value. It means the medium of exchange that is capable of being divided, long lasting, widely accepted, and stable in value is suitable to use as a medium of exchage. AUD has all the required features and a good and suitable medium of exchamge.

b) An economy has the following financial data by the end of December 2018:

Type of Money	S Billion
Currency in Circulation	$98
Current deposits at banks	$458
Other deposits at banks, building societies and credit unions	$2230
Deposits at other financial institutions (NBFIs)	$52

M1 = currency in circulation + bank current deposits from the private non-bank sector

M1 = 98 + 458 = $556

M1 = $556

M3= M1 + all other bank deposits from the private non-bank sector + bank certificate of deposits - inter-bank deposits

M3 = 556 + 2230 + 52 = $2838

M3 = $2838

c) What role does the Reserve Bank of Australia (RBA) have in the economy?

RBA is a apex or the central bank of Australia and play an important role in Australian economy. The main role of RBA are following as -

a). Implement monetary policy in Australia

b). Maintaing fincial stability in Australia

c). The of the government of Australia

d). Monitoring, regulating and guing to the payment system

e). Issuing banknotes

Thanks

Rahul Sunny answered 2 years ago

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