Review the media release by Phillip Lowe the Governor of the

Review the media release by Phillip Lowe, the Governor of the RBA and answer the questions below http:/www.rba.gov.au/media-releases/2017hmr-17-09.html 14. According to the media release by Phillip Lowe, the FR is expected to implement contractionary monetary policy by ralsing interest rates. Contractionary monetary policy reduces aggregate income because it 0 O O A. Decreases interest rates and hence aggregate demand B. Decreases the exchange rate and hence decreases net exports C. Decreases planned investment by firms D. Decreases planned saving by households

Solution

Ans:

Option C

Decreases planned investment by firms

If contractionary monetary policy is implemented by raising interest rates, it reduces the economic activity. The higher interest rates will slow the rate of borrowing causing a decrease in investment and aggregate income.