If the economy is inflationary, the RBA would most likely:
A) encourage banks to provide loans by lowering the cash rate.
B) encourage banks to provide loans by raising the cash rate.
C) restrict bank lending by lowering the cash rate.
D) restrict bank lending by raising the cash rate.

Question

Quizplus · Accepted Answer

If the economy is experiencing inflation, the RBA would want to reduce the amount of money circulating in the economy. This can be achieved by increasing the cash rate, which would encourage banks to raise their interest rates and reduce lending, thereby reducing spending and inflationary pressures. So, the RBA would most likely restrict bank lending by raising the cash rate.

If the Economy Is Inflationary, the RBA Would Most Likely