If the Reserve Bank fears inflation,it ________ by ________ government securities to ________ the cash rate.

Question

Quizplus · Accepted Answer

If the Reserve Bank fears inflation, it would want to decrease aggregate demand to lower the inflationary pressure. It will sell government securities to decrease the money supply, which will increase the interest rates and reduce people's borrowing and spending. This decrease in spending will, in turn, lower the aggregate demand. Lower aggregate demand will put downward pressure on the general price level, and inflation will be controlled. Therefore, option A is the correct answer.

If the Reserve Bank Fears Inflation,it ________ by ________ Government

If the Reserve Bank Fears Inflation,it by Government