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The Relevant Market

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Economics ECF1110 Assignment 3 A Collect, organize, present and analyse a range of data which describes the current state of the Australian economy(with respect to the trade cycle). B Describe and analyse the monetary policy stance which has been adopted by the RBA over the past 2 years. How effective is monetary policy in achieving the policy objectives of the government? Assignment Due: Week 13 Student Mark Etherton -2030088 Tutor Greg Parry Introduction Part A This report contains an informed and balanced analysis of a range of data which assists in depicting the current state of the Australian economy in relation to the trade cycle. Relevant Data For various reasons, economic activity fluctuates from year to year. Periods of rising activity, output and income are called booms and periods of slower activity are called a trough. Generally when real GDP is above 4 per cent p.a. it would be considered a boom year and when there are technically, two consecutive quarters of negative economic growth it would be considered a trough or a recession. In the short term the level of economic activity fluctuates. ...read more.


Low interest rates coupled with uncertainty with the share market has continued to blow this bubble. The housing boom has assisted in counteracting the effects of negative factors on economic growth such as the decline in tourism due to terrorism and SARS along with the effect of the drought on agricultural yields. Value of new residential building commencements trends $ M |7000 |6000 |5000 |4000 |-----------------|------------------|------------------|-----------------|-----------------| 3000 Jun Jun Jun Jun Jun Jun 1992 1994 1996 1998 2000 2002 Australian Cash/Interest rates The reserve banks monetary policy appears to have been quite successful in keeping interest rates at a low level to ensure that there is economic growth whilst still keeping the inflation rate at a manageable level. The record low cash rate has remained unchanged at 4.75% for almost a full year ensuring that strong investment in the housing sector mainly, but also in industry continues. The Australian cash rate although low is relatively high in comparison to the international economy. This again would lend to the believe that the Australian economy remains solid amidst global uncertainty. Australian Cash Rate % 6 | 5 | 4 | 3 | ---M----J----S----D----M----J----S----D----M----J----S----D-- Quarters 2001 2002 2003 Sales of New Motor Vehicles Sales of new motor vehicles is another factor which assists in reflecting the state of the economy. ...read more.


Credit to the household sector has been growing at an exceptionally fast rate, but borrowing by businesses has been more subdued, even though profits have generally bee healthy and they appear to have ample funding available for their investment plans. Over all the Reserve Bank believes that conditions in Australian financial markets continue to be supportive of growth in spending and activity. Even though the Australian dollar has been appreciating, and this can impact on the export market, the dollar has been quite subdued and is appreciating from a fairly low base so the impact should be nominal at this stage. I consider that the Reserve Bank Monetary policy has been quite successful over the last couple of years, as the Australian Economy has fared well considering this time of global uncertainly, not to mention that I have a number of home loans and appreciate the affordability and option of low fixed rate terms. Reference List 1. ECU 'Economics 1', guide, pages 78, 79, 80. 2. Gans Joshua, King Stephen, Stonecash Robin, "Principles of Economics". 2000, Ch. 17, pages 366 to 379. Harcourt. Australia. 3. Australia Bureau of Statistics internet site address http://www.abs.gov.au/ausstats/abs 4. Hobbs, Dr Brad, Florida Gulf Coast University - Economics internet entry. 2002, site address http://itech.fgce. ...read more.

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