Monetary Policy

Monetary Policy Stances

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Christian Bien

Learning Objectives

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Expansionary
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Where cash rates are decreasing (easing) or maintained at a low level (accommodative) to encourage aggregate demand and hence, increase economic activity. Expansionary monetary policy is typically a cash rate below 3.5%.

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Neutral
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Where cash rates are at a modest level that does not stimulate or discourage aggregate demand and economic activity. These include cash rates typically between 3.5% to 4.5%.

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Contractionary
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Where cash rates are increasing or maintained at a high level to discourage aggregate demand and hence, lower economic activity. Contractionary monetary policy is typically a cash rate above 4.5%.

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