Explain the arguments economists make in support for and aga

Explain the arguments economists make in support for and against the independence of the RBA.

Solution

Arguments in favour

Monetary policy is too important to be left to politicians and public. The Govt can use it to further its agenda of winning elections by following cheap interest rates, easy monetary policy etc. The public might want to contain more inflation. This will kill growth and jobs and discourage investment. Further monetary policy needs well trained economists who know working of economy quite well. Politicians do not have sufficient economic knowledge

The arguments against are

Monetary policy is too important not to subject to democratic process. It affects welfare of electorate. Not only that-even Govt is criticized for monetary policies and electorate quite often votes in reaction. Further only technocrats can\'t determine its objective. E. G unemployment vs inflation tradeoff should represent views of public.