Figure 16.5
-Refer to Figure 16.5.In this figure,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Reserve Bank of Australia would be to

Question

Figure 16.5 
-Refer to Figure 16.5.In this figure,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Reserve Bank of Australia would be to

Quizplus · Accepted Answer

If the economy is expected to move from point A to point B, it indicates that the economy is likely to experience an inflationary pressure. To control inflation, the Reserve Bank of Australia needs to implement contractionary monetary policy, which involves raising interest rates as it reduces consumer spending and investment. Therefore, the appropriate monetary policy action would be to raise interest rates (option B). Lowering income taxes (option C) or raising income taxes (option D) would affect fiscal policy and may not be the appropriate response to inflationary pressure.

Figure 16.5 -Refer to Figure 16.5.In This Figure,if the Economy in Year