Activity 11(e)

1.  Simply because it caused an increase in the demand for resources (such as oil, iron ore, copper, etc that are needed to fuel the growth in global economic activity.

2. Stronger growth in wages and higher job vacancy rates.

3. As the labour market tightens, the demand for labour rises relative to the supply of labour, contributing to pressure for the price of labour (wages) to rise.

4. As the labour market tightens, the higher wages will add to inflationary pressures (on both the demand and supply side) which encourages the RBA to consider a less expansionary MP stance.

5. This is because a trade war between China/USA (which could grow into a broader trade war) will impact negatively on growth in those economies. Given that these are the two major economies in the world, it will negatively impact on global rates of growth in real GDP.

6. Higher IRs in the USA will lead to capital outflow from Australia, causing the AUD to depreciate, which stimulates our economy and _ increases inflationary pressures. As a consequence, the RBA is more likely to adopt a less expansionary MP stance by raising the cash rate.

7. The drought is negatively impacting upon economic growth and employment which is likely to cause the RBA to consider a loosening of MP in order to stimulate growth and protect jobs. In contrast, higher vacancy rates indicate a tighter labour market, causing the RBA to consider a tightening of MP in order to prevent inflationary pressures from becoming excessive. Lower house prices might influence the RBA to consider a loosening of MP (or not tighten MP) to protect against the negative wealth effect’ that lower house prices might have on AD, economic growth and employment.

8. Tighter lending standards is likely to reduce pressure on house prices because it effectively reduces the demand for houses as fewer prospective buyers will be able to attain the finance from a financial institution.

9. Because all things considered, it believes that growth is returning to normal and the labour market is tightening, which adds to inflationary pressures.