If the RBA believes the economy is likely to fall into a recession over the next two quarters,its likely response to this will be to:

Question

Quizplus · Accepted Answer

To prevent a recession, the RBA is likely to respond by decreasing interest rates. To achieve this, it would buy government securities from banks, which would inject cash into the economy and reduce interest rates. So, option C is the correct choice. Options A, B, and D suggest that RBA would sell government securities, which would not have the desired effect of reducing interest rates. Option E would contract the money supply, making the recession worse, so it is incorrect.

If the RBA Believes the Economy Is Likely to Fall