Interest rates - various qs (1 Viewer)

[stargaze]

I really can't find clear info on some stuff about interest rates. Hoping ppl could clarify some stuff about interest rates.. Or recommend sources..

1. The factors that influenced the equilibrium level of interest rates
- Are these basically the factors that determine the demand & supply of cash? If so, what are these factors?

2. The factors that determine how interest rates are determined in the deregulated Aus economy
- Level of domestic saving and investment
- General factors: gov policy, level of economic activity, inflation rate, etc..
There has to be more?!

3. How interest rates vary in regard to inflationary and deflationary periods
- I have no ideas on this one

Thanks =) Any help would be greatly appreciated

 

[AGB]

I really can't find clear info on some stuff about interest rates. Hoping ppl could clarify some stuff about interest rates.. Or recommend sources..

1. The factors that influenced the equilibrium level of interest rates
- Are these basically the factors that determine the demand & supply of cash? If so, what are these factors?

2. The factors that determine how interest rates are determined in the deregulated Aus economy
- Level of domestic saving and investment
- General factors: gov policy, level of economic activity, inflation rate, etc..
There has to be more?!

3. How interest rates vary in regard to inflationary and deflationary periods
- I have no ideas on this one

Thanks =) Any help would be greatly appreciated

In response to your questions....

1. Sort of. The equilibrium level of interest rates is determined by the RBA and they enter the market to ensure the official cash rate stays at their predetermined level

2. There are hundreds... to name a few: growth, unemployment, inflation, savings, investment, housing prices etc. The syllabus does not require you to know all of the different factors. Basically, you need to understand that interest rates are used to control the economy. If inflation is significantly outside of the 2-3% target range, it is likely interest rates will rise. On the other hand, if unemployment is rising, the RBA may lower interest rates in order to stimulate the economy, thereby creating more jobs. That is the gist of the understanding you need according to the syllabus

3. The RBA has a target inflation range of 2-3%, and they strive to maintain an inflation rate between this band. Therefore, if the rate of inflation is say 5%, the RBA will raise interest rates to slow spending, which in turn reduces the demand for goods and services, thus prices do not rise as fast. The same applies for the converse situation - if inflation is in the 2-3% target band and the cash rate is high, the RBA will lower the cash rate back to a more acceptable level.

I hope I have answered your questions sufficiently If you need any more help just ask

 

[stargaze]

Hmmm.. thanks agb
A few things that I still I'm pretty unclear about...

I'm getting impression that a lot of these interest rate qs can be simply answered - because the RBA.... so and so.. So a few thing to clear up;;

1) If equilibrium interest rates are determined by the :
- RBA which does it to maintain the cash rate [liquidity management isit]
- Supply & Demand of Cash
- Overseas (international) factors; e.g. investment
- What overseas factors besides investment into the Aus economy will affect i rates?
Then....
2) What determines the supply and demand of cash?
- Supply reduced: when banks buy CGS from the RBA, their ESA falls hence causing the amount of cash in the market to decrease
- Supply increased: when the RBA buys existing CGS from banks-

Ok, thats what I have. Please tell me if that is wrong. What would increase/decrease the demand for cash? Also, are there any more (more complex maybe) reasons for the demand and supply or cash?

I'm in yr11 and using the 2002 yr11 Eco book by Tim Riley & as well as some internet stuff. If anyone could recommend any other books which would have this type of info, it would be greatly appreciated. Just really frustrating when u cant find what u need.. Thanks

Oh.. one more thing:
3) Domestic Market Operations can be defined as the RBA's implementation of the Monetary Policy (or is this way off?)