The Reserve Bank fears that the Australian economy is growing too slowly and in danger of experiencing a recession.To move the economy back to its potential GDP,the most likely policy action for the Reserve Bank is to ________ the target cash rate and thus ________.

Question

Quizplus · Accepted Answer

To move the economy back to its potential GDP, the Reserve Bank needs to increase aggregate demand through the implementation of expansionary monetary policy. This involves lowering the target cash rate, which decreases borrowing costs for businesses and consumers, encouraging them to spend more and invest in new projects. This increased spending and investment drives up demand for goods and services, which in turn stimulates economic growth and helps to prevent a recession. Therefore, the correct policy action for the Reserve Bank in this scenario is to lower the target cash rate and increase aggregate demand.

The Reserve Bank Fears That the Australian Economy Is Growing