If the Reserve Bank buys government securities, other things the same, the exchange rate ________ and Australian exports ________.

Question

Quizplus · Accepted Answer

When the Reserve Bank buys government securities, it increases the money supply, leading to a depreciation of the currency (the exchange rate falls). A lower exchange rate makes Australian exports cheaper and more competitive internationally, leading to an increase in exports.

If the Reserve Bank Buys Government Securities, Other Things the Same