The Reserve Bank is concerned about inflation and alters the target cash rate. Its policy will ________ short-term interest rates and, in the foreign exchange market, lead to the value of the Australian dollar ________.

Question

Quizplus · Accepted Answer

When the Reserve Bank is concerned about inflation, it typically raises the target cash rate to cool down the economy. This action increases short-term interest rates. Higher interest rates make Australian financial assets more attractive, leading to an inflow of foreign capital, which increases the demand for the Australian dollar, causing its value to rise.

The Reserve Bank Is Concerned About Inflation and Alters the Target