If the Reserve Bank of Australia buys financial securities,this
A) increases reserves and encourages banks to make more loans.
B) decreases reserves and causes banks to reduce their loans.
C) decreases reserves, causes banks to reduce their loans, and increases interest rates.
D) increases reserves, causes banks to reduce their loans, and decreases interest rates.

Question

Quizplus · Accepted Answer

When the Reserve Bank of Australia buys financial securities, it injects money into the banking system, increasing the reserves of banks. As a result, banks are encouraged to make more loans, which stimulates economic activity. This expansionary monetary policy may also lead to a decrease in interest rates, making it cheaper for businesses and consumers to borrow money.

If the Reserve Bank of Australia Buys Financial Securities,this