RBA Decrease Rates for Christmas Essay Example | Topics and Well Written Essays - 1750 words

RBA Decrease Rates for Christmas - Essay Example The economy is made up of various components and each and every single component affects the economy differently. In the explanation and analysis of the â€Å"RBA Decrease Rates for Christmas† article, a number of economic components are considered. These components aid intensive analysis of the article based on the context of actions taken by the RBA, Central Bank and the economic responses experienced in the financial markets and the economy at large. Aggregate demand and supply plays a central role in the economy, determining the overall level of performance of the economy1. Unemployment and inflation are key determinants of the direction that the economy takes and they both affect decisions made within the economic context. Monetary policy on the other hand is undertaken by the Central Bank as a measure to manage the economy alongside fiscal policy. The two measures are crucial in managing currency trends that further determine the level of inflation in the economy. Analys is in the Context of Economic Concepts/Theories Aggregate demand and Supply The economic model is made of different sectors and industries. Each constituent sector or industry contributes towards the overall welfare of the economy. Aggregate demand and supply denotes the entire economy’s output. ... Aggregate demand brings on board total spending in the economy. The different levels of spending in the economy are made up of consumption, investment, government purchases and net exports3. The aggregate supply curve comprises of an inflationary and a non-inflationary region. This factor provides a basic principle for the required analysis in this paper. Different factors affect both aggregate demand and aggregate supply. However the interaction of the two is critical to any given analysis in the economy. National output can be either nominal or real, depending on the price base used in their computation. Where more stable prices are used to compute national output given an identified base year, real national output is computed. On the other hand, where current prices are used, nominal national output is computed. Real GDP is obtained when the aggregate demand and aggregate supply interact. On the same point, the resultant equilibrium results in the national inflation rate4. The fig ure below shows an aggregate demand-aggregate supply model: A number of factors affect both aggregate demand and aggregate supply. Only the factors that are important to this analysis will be highlighted. Income, wealth, credit availability, government demand, investment and future expectations on inflation, income, wealth and interest rates causes the aggregate demand curve to shift to the right upon an increase in any of them. An increase in some other factors causes the aggregate demand curve to shift leftwards. These are: interest rates and taxation. On the other hand, a rightward shift is observed on the aggregate supply when prior investment,