Question: If inflation is too high, the RBA will (increase / decrease) its cash rate target. If the actual cash rate remains below the target, the

  1. If inflation is too high, the RBA will (increase / decrease) its cash rate target. If the actual cash rate remains below the target, the RBA can intervene via open market (purchases / sales] of bonds. The yield curve is likely to shift (up / down), especially at its (short / long) end. The impact on the long end of the yield curve can be strengthened by convincing market participants that the new cash rate target will be somewhat (temporary / permanent). The described change in nominal interest rates is also affecting the real interest rate if prices are (somewhat sticky / totally flexible). The change in real interest rates will cause businesses and households to (cut back / increase) their spendings and thus dampen inflation.

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