Refer to Figure 17.4 for the following question.
Figure 17.4
-Refer to Figure 17.4.In this figure,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Reserve Bank of Australia would be to

Question

Refer to Figure 17.4 for the following question.
Figure 17.4 
-Refer to Figure 17.4.In this figure,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Reserve Bank of Australia would be to

Quizplus · Accepted Answer

Point B indicates higher inflation and the Reserve Bank of Australia might respond by raising interest rates to slow down aggregate demand and prevent further inflation. Lowering interest rates would only exacerbate inflationary pressures. Lowering income taxes is a fiscal policy action and may also increase aggregate demand, leading to further inflation. Raising income taxes would likely have a negative impact on aggregate demand and would not be appropriate in response to anticipated inflation.

Refer to Figure 17.4 for the Following Question