7. External Balance r M s0 M D M 0 r 0 M p AD 0 Y 0 p 0 RGDP AS D FX0 Quantity Exchange rate e 0 S AUD0
8.
9. External Balance r M 0 M s0 M D r 0 M p Y 0 p 0 RGDP AS AD 0 Quantity Exchange rate S AUD0 e 0 D FX0
10.
11.
12.
13.
14. Internal Balance – Contractionary Policy A policy aimed at increasing interest rates and to restrict AD D AUD0 Quantity Exchange rate S AUD e 0 Q 0 r M 0 M s0 M D r 1 r 0 M p Y 0 p 0 RGDP AS AD 0
15. Internal Balance – Expansionary Policy Policy aimed at reducing interest rates and raising the level of AD. Quantity Exchange rate e 0 Q 0 D AUD0 r M s0 M D M 0 r 0 M p AD 0 Y 0 p 0 RGDP AS S AUD0
16.
17. Application Question 11 Suppose you are the monetary policy adviser for the government. The economy is experiencing a large and prolonged inflationary trend. What change in open market operations would you recommend?
