If the RBA believes inflation will rise to 7 per cent over the next few months,its likely response will be to:

Question

Quizplus · Accepted Answer

If the RBA believes that inflation will rise to 7%, it is likely that they will increase interest rates in order to decrease spending and decrease inflationary pressures. To do this, they would sell government securities to banks, which would decrease the amount of money available in the market and lead to an increase in interest rates. Buying government securities would have the opposite effect, which is why choice A and B are incorrect. Increasing the money supply (choice E) would also be counterproductive in this scenario as it would further inflate the economy.

If the RBA Believes Inflation Will Rise to 7 Per