Expansionary Monetary Policy in Australia and the USA free essay sample

An overview of various instruments of monetary policy, and an examination of why Australia and USA adopted an expansionary monetary policy in 2001. This paper deals with a general explanation of monetary policy and in what situations expansionary monetary policy should be used. This is further discussed by involving the role of interest rates and economic strength of the country, relating to most recent statistics. Monetary policy is the attempt to moderate the business cycle and control inflation by changing the quantity of money in circulation to change interest rates (McTaggart et al, 1999: 27.2). In another words, it is the Reserve Bank of Australia (RBA)s attempt to change the quantity of money and interest rates so as to affect aggregate demand and, ultimately, equilibrium real GDP and the price level. McDonald defines monetary policy as the governments policy on setting the level of the money supply (1996: 149).