Suppose the Reserve Bank raises the cash rate.Put the following changes in the order in which they occur,starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards: i.Short-term interest rates rise.
Ii)Long-term interest rate rises.
Iii)Aggregate demand decreases.
Iv)Inflation rate decreases.

Question

Quizplus · Accepted Answer

When the Reserve Bank raises the cash rate, short-term interest rates rise almost immediately. Long-term interest rates follow, then aggregate demand decreases as borrowing costs rise, and finally, the inflation rate decreases over time.

Suppose the Reserve Bank Raises the Cash Rate