If the Reserve Bank of Australia raises the interest rate,this will ________ inflation and ________ the rate of growth of real GDP in the short run.

Question

Quizplus · Accepted Answer

When the Reserve Bank of Australia raises the interest rate, it makes borrowing more expensive and saving more attractive. This reduces aggregate demand, which leads to a decrease in inflation in the short run. Additionally, higher interest rates reduce consumer and business spending, which slows down economic growth and reduces the rate of real GDP expansion in the short run. Therefore, the correct answer is D.

If the Reserve Bank of Australia Raises the Interest Rate,this