its a very nitty gritty aspect of the syllabus, and one often neglected (although not specifically mentioned it is crucial to know of)
umm i guess ill start by very quickly saying that monetray policy has two instruments, the other less known one is money supply or monetary targetting and it was pre-dominatlly used mid 80s and its inaccuracy has been concluded as the catalyst which followed later....you dont need to know that but just a bit of extra knowledge cant do harm
okaii...you know the key terms and the only word your missing to the puzzle is ES...this is known as exchange settlement accounts between banks e.t.c (i wont get into this)
So...for e.g.....the RBA buys government securites and if you can just picture a demand and supply graph in your mind, and
substiutie quanity for supply of funds and price for cash rate, basically if the RBA buys SHGS it increases the supply due to an excess of borrowable funds as a result of the exchange for Government securities and hence an increase is supply = an increase in cash rate
the trick is to think this is not your regular D & S, RBA buys SHGS and IN EXCHANGE adds funds which increases the supply of ES funds
if ever confused...use demand and supply...but make sure u substitue it like i told you
so yea...supply curve shifts to the right(decrese in cash rate)...cause of the increase in funds as a result of the RBA buying SHGS
hope that helps...its actually a lot more tricky
