4. An upward shift in the Reserve Bank of Australia\'s policy reaction function

Question

4. An upward shift in the Reserve Bank of Australia's policy reaction function at a time when the United States Federal Reserve did not shift its policy reaction function is likely to have which of the following effects? a. Increase the demand for Australian financial assets and so cause the Australiarn dollar to depreciate. b. Decrease the demand for Australian financial assets and so cause the Australian dollar to appreciate. c. Decrease the demand for Australian financial assets and so cause the Australian dollar to depreciate d. Increase the demand for Australian financial assets and so cause the Australiarn dollar to appreciate.

Explanation / Answer

An upward shift in the reaction function will increase the interest rate of Australian financial assets because the rate of return from these assets will rise.This will result in capital inflows.This will increase the demand of Australian currency and thus, Australian currency would appreciate.

Answer-d

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.