The Reserve Bank fights inflation via open market operations, the supply of loanable funds curve shifts and the aggregate demand curve shifts .

Question

Quizplus · Accepted Answer

When the Reserve Bank conducts open market operations to fight inflation, it sells government securities, which reduces the money supply. This causes the supply of loanable funds curve to shift leftward, leading to higher interest rates. Higher interest rates reduce investment and consumption, causing the aggregate demand curve to shift leftward.

The Reserve Bank Fights Inflation Via Open Market Operations, the Supply