Which of the following statements is most likely to be true?
A) To run a contractionary monetary policy, the RBA will buy government securities to decrease the cash rate.
B) To run a contractionary monetary policy, the RBA will sell government securities to increase the cash rate.
C) To run an expansionary monetary policy, the RBA will buy securities to increase the cash rate.
D) To run an expansionary policy, the RBA will sell government securities to decrease the cash rate.

Question

Quizplus · Accepted Answer

Selling government securities reduces the amount of money in circulation, which increases the cash rate and tightens monetary policy, leading to a contractionary policy. Buying securities would increase the money supply and lead to an expansionary policy. Therefore, option B is the most likely to be true.

Which of the Following Statements Is Most Likely to Be