If the Reserve Bank of Australia lowers its target for the cash rate, this indicates that it is: a. pursuing a contractionary monetary policy. b. attempting to combat inflation. c. pursuing an expansionary monetary policy. d. concerned that the growth in aggregate demand will exceed potential GDP.
Question
If the Reserve Bank of Australia lowers its target for the cash rate, this indicates that it is:
a. pursuing a contractionary monetary policy.
b. attempting to combat inflation.
c. pursuing an expansionary monetary policy.
d. concerned that the growth in aggregate demand will exceed potential GDP.
Solution
The correct answer is:
c. pursuing an expansionary monetary policy.
Lowering the target for the cash rate is a form of expansionary monetary policy. By lowering the cash rate, the Reserve Bank of Australia is effectively lowering interest rates, which encourages borrowing and spending, and thus stimulates economic activity. This is typically done when the economy is in a downturn or when inflation is too low. The other options (a, b, and d) are associated with contractionary monetary policy, which is implemented when the economy is overheating or when inflation is too high.
Similar Questions
If the Reserve Bank of Australia aims to lower the cash rate, it will:
The Reserve Bank of Australia can decrease the cash rate by: borrowing cash from the banks using reverse repurchase agreements. selling bonds and securities to households. transferring money from banks to the RBA. lending cash to banks using repurchase agreements. purchasing bonds and securities from banks, which decreases banks' reserves.
The Reserve Bank of Australia raises the interest rate toGroup of answer choicesIncrease aggregate demandSpeed up inflationSlow down inflationTo reduce unemployment
If the Reserve Bank of Australia (RBA) decides to raise the cash rate, the reserves will _______, the monetary base will _______, and the money supply will _______.A.increase, decrease, decreaseB.increase, incresase, increaseC.decrease, increase, increaseD.decrease, decrease, decrease
The 'cash rate' is the interest rate: a. the Reserve Bank of Australia charges commercial banks. b. banks charge each other for overnight loans. c. banks charge their largest customers. d. on a government bond or security.
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