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The essay topis is: Explain why differing schools of economic thought offer a different perspective on the use of monetary policy. In particular, you should address the different perspective offered by Keynesian and Monetarist schools. How do these views relate to the implementation of monetary policy in 2003? What are some of the limitations of monetary policy in Australia in 2003? Achieving macroeconomic stability is the major problem facing the economist. The fluctuations in the business cycle where employment is high then low, output soars then declines, and inflation joins the rollercoaster ride. Monetary policy is a way in which we can influence our economy towards desirable goals and stabilise these fluctuations. The Reserve Bank of Australia (RBA) has the responsibility delegated to them by the Federal government. The RBA’s obligations with respect to monetary policy are laid out in the Reserve Bank Act. Section 10(2) of the Act, which is often referred to as the Bank's 'charter', says: "It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to: (a) the stability of the currency of Australia; (b) the maintenance of full employment in Australia; and (c) the economic prosperity and welfare of the people of Australia." Monetary policy persuades the economy to achieve full employment and inflationary level of total output. Monetary policy influences the economy by setting the cash rate, which is the cost of funds to the banks. The influencing of a banks costs, influences what they charge the private sector for the use of that money.
Approximate Word count = 1214
Approximate Pages = 4.9
(250 words per page double spaced)
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