From an initial long-run macroeconomic equilibrium, if the Reserve Bank of Australia anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the RBA would most likely:

Question

Quizplus · Accepted Answer

If the RBA anticipates that next year aggregate demand would grow significantly slower than long-run aggregate supply, it means that there is likely to be a surplus of goods and services in the market, which will lead to deflationary pressure. To stimulate demand and prevent deflation, the RBA would reduce interest rates, making borrowing cheaper for businesses and consumers, which would increase spending and investment, thereby boosting aggregate demand. Therefore, the correct answer is to decrease interest rates (Choice D).

From an Initial Long-Run Macroeconomic Equilibrium, If the Reserve Bank