Question

The outbreak of COVID-19 has led to the Reserve Bank of Australia implementing expansionary monetary policy. Discuss the short-run and the long-run impact of such a policy on the interest rates, exchange rates, price level and economic growth in Australia.

Answer 1

The outbreak of covid-19 has led to the reserve Bank of Australia implementing expansionary monetary policy. There are various impact of expansionary monetary policy on the economy. Expansionary monetary policy deters the contractionary phase of the business cycle. But it is difficult for policymakers to catch this in time.expansionary monetary policy seeks to stimulate an economy by boosting demand through monetary and fiscal stimulus. Expansionary policy is intended to prevent a moderate economic downwards and recessions.

expansionary monetary policy is a popular tool for managing low growth periods in the business cycle but it also comes with risk.these risk include macroeconomic micro economic and political economy issues.even under ideal conditions expansionary fiscal and monetary policy raised creating microeconomic distorations through the economy. Simple economic models often portary the effects of expansionary policy as natural to the the structure of the economy as if the economy injected into the the economy where are distributed uniformly and instantaneously across the economy.

Expansionary monetary policy stimulate the economic growth in Australia. It reduces the cost of borrowing.therefore consumers tend to spend more while businesses are encouraged to make large capital investments.

Expansionary monetary policy causes increased inflation in Australia.the injection of additional money in the economy increases inflation levels.it can be both advantages and disadvantages to the economy.the excessive increase in the money supply may result in an sustainable inflation levels. On the other hand the inflation increase may prevent possible deflation and which can be more damaging than reasonable inflation.

Expansionary monetary policy causes of currency devaluation. The higher money supply reduce the value of the local currency.the devaluation is beneficial to the economy is export ability because exports become cheaper and more attractive to foreign countries with Australia.

Expansionary monetary policy causes Decreased unemployment. the stimulation of capital investments creates additional job in the economy therefore an expansionary monetary policy generally reduce unemployment in Australia.