Monetary policy affects the aggregate demand via the Reserve Bank changing its inflation target.

Question

Quizplus · Accepted Answer

When the Reserve Bank changes its inflation target, it can affect the interest rates, which in turn affects aggregate demand. For example, if the Reserve Bank raises its inflation target, it may need to increase interest rates to control inflation, which can decrease aggregate demand as borrowing becomes more expensive. On the other hand, if the Reserve Bank lowers its inflation target, it may decrease interest rates to stimulate the economy, which can increase aggregate demand.

Monetary Policy Affects the Aggregate Demand Via the Reserve Bank