When the RBA uses contractionary policy:

Question

Quizplus · Accepted Answer

Contractionary policy aims to decrease aggregate demand and reduce inflationary pressures. One of the ways the RBA achieves this is by increasing interest rates, which makes borrowing more expensive and reduces consumer and business spending. As a result, the economy slows down, and prices rise at a slower rate than they would if the RBA did nothing. Therefore, the correct answer is B) the price level rises by less than it would if the RBA did not pursue policy.

When the RBA Uses Contractionary Policy