When there is a threat of inflation in the economy,the Reserve Bank can ________ the cash rate to ________ aggregate demand and ________ the price level.

Question

Quizplus · Accepted Answer

When there is a threat of inflation in the economy, the Reserve Bank raises the cash rate to decrease aggregate demand and ultimately decrease the price level. This is because higher cash rates increase the cost of borrowing, making it more expensive for consumers and businesses to spend money, and leading to lower aggregate demand in the economy. Additionally, as demand decreases, there is lower pressure on prices, leading to a decrease in the price level.

When There Is a Threat of Inflation in the Economy,the