If the Reserve Bank of Australia buys bonds and securities in the open market, this is likely to lead to a ______ in interest rates and a(n)_______ of the Australian dollar.

Question

Quizplus · Accepted Answer

When the central bank buys bonds and securities in the open market, it injects more money into the economy, which leads to an increase in the supply of money. As a result, interest rates fall due to the increased availability of credit for borrowing. A lower interest rate also reduces the demand for that currency, which leads to a depreciation of the currency in question. Therefore, a likely outcome of the Reserve Bank of Australia buying bonds and securities in the open market would be a fall in interest rates and a depreciation of the Australian dollar.

If the Reserve Bank of Australia Buys Bonds and Securities