Question

What happens if the central bank wants to react to more than just inflation ?

What about if the RBA want to care about output/unemployment too?

Answer 1

lower intation inflation falls and econonomic output decline the cent eral bank will lower که when the center al bank wants interest rates to be wig her, it sels obb bonds, pulling money out of the money market and deme asing the money sepply, more recently, the federal resere has aused a relatively new tool of monetary policy i interest on reseres. centeral banks today primarily we intration targeting in order to keep economic growth steady and prices stable with a 2-3% inflation target, when prices in an economy deviate the renteral bank can enact monetary policy and to try sestuse that target. Ib Inflation heats up rai interest rates or restrictional the money supply are both contractionary moerary policies. clesimeel sing to interest rates and mace borrowing checuperialong several other possible expansionary policy with tools. CS Scanned with CamScanner

as a reelt or - Ib real wages increase at half te economy. Thus potentical outpcet is not a maximum an 2 2 1 An unemployment rate in Australia has risen from len than and arerage of over 81 over there a large increase in labour supply corch has not been matched by an equivalant increase in labour demand. Tu caules of wigh unemplyment in Deustralia. :) Economic growth rcete of economic growth we get l'. lower unemployment out one in four years than if they increase at tesame rate w output youwth. 1 Real wage :- iii) institution arrangement. collapse in the demand for onstilled waters. Jb we reduce unemploys me is to remorcel works that will not impact the output of production. There will almost always be some unemployment in the economica could theortically pood uce, beer sustainable numbers to care care unemployment and output. of the extra thats why a lower RBA wants CS scanned with CamScanner