Depository institutions (DIs) play an important role in the transmission of monetary policy from the central bank (RBA) to the rest of the economy primarily because:

Question

Quizplus · Accepted Answer

Depository institutions (DIs), such as banks and credit unions, are responsible for taking deposits from households and businesses and providing loans to them. These deposits are a major portion of the money supply as they can be used as a medium of exchange and a store of value. Therefore, when the central bank (RBA) adjusts the interest rates or conducts open market operations, it directly affects the amount of deposits held by DIs and subsequently impacts the overall money supply and economic activity.

Depository Institutions (DIs) Play an Important Role in the Transmission