Multiple choice questions If the actions of the government bring the cash rate above the cash rate target Select one: O the RBA will sell securities from banks to make the cash rate decrease

Finance Oct 27, 2020

Multiple choice questions If the actions of the government bring the cash rate above the cash rate target Select one: O the RBA will sell securities from banks to make the cash rate decrease. O the RBA will sell securities to banks to make the cash rate target increase. the RBA will buy securities from banks to make the cash rate target increase. the RBA will buy securities from banks to make the cash rate decrease.

Expert Solution

RBA does not change the cash rate target. Instead it can shift the cash rate. If the actions of government bring cash rate above cash rate target then RBA can increase the supply of cash by buying securities from bank to decrease the cash rate and thus maintaining the cash rate target.
Hence, option (1), (2) and (3) are incorrect. Option (4) will be the correct answer.

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