cash rate diagram? (1 Viewer)

[rsingh]

hey guys, i heard that if we get a monetary policy essay questions its good to include a cash rate diagram/graph?
what is a cash rate diagram, and where can i get one from?
i can't seem to find it, haha?

 

[Sarah168]

http://community.boredofstudies.org/showthread.php?t=43374&

http://community.boredofstudies.org/showthread.php?t=45061&

 

[Haku]

i dun really get this graph really well so ill try to explain and any correction is appreciated.

start: RBA monetary policy control the supply of cash through DMO. there for theoretically because RBA cannot directly influence demand of cash the demand line will remain constant. The supply of cash is inelastic (no sure y, someone explain), therefor a decrease in quantity (f(x)) would cause an increase in cash rate....vice versa is true

sounds dodgy and crappy, please some one point out my mistake and y its the supply line inelastic.

 

[azza_3761]

Inelastic supply (which is what occurs in the graph) is the situation at which no matter wat the price does, the amount supplied in always going to be set at a fixed figure. This is represented by a vertical line.

 

[ar5ena1]

Ok, verticle access is the level of interest rates as per RBA, horizontal is the supply of money in the short term money market or the general economy, doesn't really make a difference, but for accuracy its the short term money market.

when the RBA wants to INCREASE rates, it needs to DECREASE the supply of money in the short term money market. Get you ruler, start at equilbrium S1/df now move the ruler to the left, i.e. REDUCING supply, you'll notice the % of the rate increases. that is tighening or contractionary policy. vice versa occurs

easy peasy, you'll need to know this.

 

[Haku]

for the x-axis it say QoMf, whats that stand for?

yea get the graph, thanks for explaining the inelasticity of supply

 

[Sarah168]

it's QofM not QoMf

it means quantity of money (demanded or supplied depending on which line you are reading)