Question

If both the Reserve Bank of Australia and the Federal Government are attempting to increase economic growth, the proper policies would be for the RBA to: Select one: a. raise interest rates and the Federal Government to increase government expenditure. b. reduce interest rates and the Federal Government to raise taxes. c. raise interest rates and the Federal Government to reduce government expenditure. d. reduce interest rates and the Federal Government to reduce taxes

Answer 1

Option D.

• If the Reserve Bank of Australia and the Federal Government are attempting to increase economic growth, then RBA should reduce interest rates and the Federal Government should reduce taxes.
• When the RBA Increases the money supply within the economy, the interest rates fall.
• This will stimulate more demand within the economy and increase the employment rate as the productivity Increases with the fall in the interest rates within the nation.
• Similarly the Federal Government should use an expansionary fiscal policy to increase the economic growth.
• That is, it should increase the government expenditure and lower the taxes.
• Doing so will stimulate more consumer spending and investment expenditures within the economy thereby increasing the economic growth of a nation.