Suppose the Reserve Bank lowers the cash rate. The short-term impact is that other short-term interest rates ________, the exchange rate ________ and the quantity of money and supply of loanable funds ________.

Question

Quizplus · Accepted Answer

When the Reserve Bank lowers the cash rate, other short-term interest rates typically fall as they are influenced by the central bank's rate. This can lead to a depreciation of the exchange rate as lower interest rates make domestic assets less attractive to foreign investors, reducing demand for the domestic currency. Additionally, the quantity of money and supply of loanable funds generally increase as lower interest rates encourage borrowing and discourage saving, increasing the money supply.

Suppose the Reserve Bank Lowers the Cash Rate