The effect of an increase in interest rates by the RBA is likely to be:
A) the AD curve shifting left.
B) the AD curve shifting right.
C) the AS curve shifting right.
D) the AS curve shifting left.

Question

Quizplus · Accepted Answer

An increase in interest rates by the Reserve Bank of Australia (RBA) will lead to higher borrowing costs for individuals and businesses, reducing their disposable income and purchasing power. This leads to a decrease in consumption and investment expenditure, causing the aggregate demand (AD) curve to shift leftward, resulting in lower output and prices, and higher unemployment.

The Effect of an Increase in Interest Rates by the RBA