The effect of an increase in interest rates by the RBA is likely to be:
A) the AD curve will shift left.
B) the AD curve will shift right.
C) the AS curve will shift right.
D) the AS curve will shift left.

Question

Quizplus · Accepted Answer

An increase in interest rates by the RBA will lead to higher borrowing costs for individuals and businesses, which will reduce consumption and investment spending. This will lead to a decrease in aggregate demand (AD), shifting the AD curve to the left.

The Effect of an Increase in Interest Rates by the RBA