If the RBA wants to reduce inflation in the economy, it is likely to:
A) buy government securities to put banks' ESAs into surplus, thereby decreasing interest rates.
B) buy government securities to put banks' ESAs into deficit, thereby decreasing interest rates.
C) sell government securities to put banks' ESAs into surplus, thereby increasing interest rates.
D) sell government securities to put banks' ESAs into deficit, thereby increasing interest rates.

Question

Quizplus · Accepted Answer

To reduce inflation, the Reserve Bank of Australia (RBA) would likely sell government securities. This action takes money out of the banking system, putting banks' Exchange Settlement Accounts (ESAs) into deficit, which tends to increase interest rates. Higher interest rates can help cool down an overheating economy by reducing spending and borrowing.

If the RBA Wants to Reduce Inflation in the Economy