Suppose there is a simultaneous RBA sale of bonds and increase in government spending. We know with certainty that this combination of policies must cause:

Question

Quizplus · Accepted Answer

The RBA sale of bonds will decrease money supply, which will put upward pressure on interest rates. The increase in government spending will increase aggregate demand, which will put upward pressure on interest rates. Therefore, the combination of these two policies will cause an increase in interest rates (i).

Suppose There Is a Simultaneous RBA Sale of Bonds and Increase