Part 1:
The Reserve Bank of Australia utilises the monetary policy and sets the target for the overnight cash interest rate to ensure a stable financial system and maximise the safety and efficiency of the payments system. It aims to affect the entire nations range of interest rates in order to influence the level of planned aggregate spending. These changes in the overnight cash interest rate impacts the demand and supply of all financial assets. Their main objectives include the stability of currency, full employment, welfare and prosperity and the target of 2-3% inflation per annum.
Part 2:
Current domestic conditions that are relevant have been reorganised below under subheadings.
Household Consumption Household consumption within Australia has grown since early 2017 and remains constant within the March quarter. However, in
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Growth in household consumption has picked up since early 2017 which shifts the AD Curve towards the right as cost of living decreases because of tax cuts which encourages households to spend more. In Australia, household consumption has picked up in December as low interest rates support spending.
Growth in business investments would also shift the AD Curve towards the right as conditions in all industries are above average (including mining and retail which previously were much weaker). Australia’s strength in investment spending is associated with the mining industry however investments in the non-mining sector in Australia is weak as expectations for future demand were high however expectations of demand in non-mining sectors have not been as strong. Non-mining business investment has increased by around 3.5 per cent over 2016 but has been subdued for several years and remains low. Furthermore, expansionary fiscal policy shifts the AD Curve towards the right due to tax cuts to increase government spending to fix a budget