Suppose there is an RBA purchase of bonds and simultaneous tax cut. We know with certainty that this combination of policies must cause:

Question

Quizplus · Accepted Answer

The RBA purchase of bonds will increase the money supply, leading to a decrease in interest rates (i). The tax cut will increase disposable income, leading to an increase in consumption and investment expenditures. Both of these policies will lead to an increase in aggregate demand and, therefore, an increase in output (Y).

Suppose There Is an RBA Purchase of Bonds and Simultaneous