Based on the material discussed in this unit, explain in your own words whether real Gross Domestic Product (GDP) is above or below potential GDP in the Australian Economy during the aforementioned period. Furthermore, explain how the first component (i.e., reduction in the cash rate to 0.25 per cent) of the RBAs package is supposed to support the Australian economy during this challenging period.

Media Release Statement by Philip Lowe, Governor: Monetary Policy Decision Number 2020-08 Date 19 March 2020 The coronavirus is first and foremost a public health issue, but it is also having a very major impact on the economy and the financial system. As the virus has spread, countries have restricted the movement of people across borders and have implemented social distancing measures, including restricting movements within countries and within cities. The result has been major disruptions to economic activity across the world. This is likely to remain the case for some time yet as efforts continue to contain the virus. Financial market volatility has been very high. Equity prices have experienced large declines. Government bond yields have declined to historic lows. However, the functioning of major government bond markets has been impaired, which has disrupted other markets given their important role as a financial benchmark. Funding markets are open to only the highest quality borrowers. The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus. At some point, the virus will be contained and the Australian economy will recover. In the interim, a priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly. At a meeting yesterday, the Reserve Bank Board agreed to the following comprehensive package to support the Australian economy through this challenging period: 1. A reduction in the cash rate target to 0.25 per cent. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 23 per cent target band. 2. A target for the yield on 3-year Australian Government bonds of around 0.25 per cent. Media Release Statement by Philip Lowe, Governor: Monetary Policy Decision Number 2020-08 Date 19 March 2020 The coronavirus is first and foremost a public health issue, but it is also having a very major impact on the economy and the financial system. As the virus has spread, countries have restricted the movement of people across borders and have implemented social distancing measures, including restricting movements within countries and within cities. The result has been major disruptions to economic activity across the world. This is likely to remain the case for some time yet as efforts continue to contain the virus. Financial market volatility has been very high. Equity prices have experienced large declines. Government bond yields have declined to historic lows. However, the functioning of major government bond markets has been impaired, which has disrupted other markets given their important role as a financial benchmark. Funding markets are open to only the highest quality borrowers. The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus. At some point, the virus will be contained and the Australian economy will recover. In the interim, a priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly. At a meeting yesterday, the Reserve Bank Board agreed to the following comprehensive package to support the Australian economy through this challenging period: 1. A reduction in the cash rate target to 0.25 per cent. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 23 per cent target band. 2. A target for the yield on 3-year Australian Government bonds of around 0.25 per cent