Unit 2: The effect of changing interest rates on the Australian economy (Monetary policy)

An interesting, short article from the BBC

http://news.bbc.co.uk/1/hi/business/7593189.stm

The Australian govt seems to face the same dilemma as the UK govt does!
a) Using an AS/AD diagram, explain how the cut in interest rates may lead to increased economic growth with little additional inflation
b) Using an AS/AD diagram, explain how the cut in interest rates may lead to increased inflation with little additional growth