Which policy is not managed by the government and is instead managed by the Reserve Bank of Australia to influence aggregate demand?

• A. Fiscal policy
• B. Productivity policy
• C. Monetary policy
• D. Expansionary monetary policy

Answer: (C)

Monetary policy is controlled by the central bank, not the government. In Australia, the Reserve Bank of Australia uses tools like the cash rate and market operations to influence borrowing costs, spending, and investment. When the central bank lowers rates, borrowing becomes cheaper, encouraging households to spend and firms to invest, which raises aggregate demand. Conversely, higher rates dampen demand. This is a key way the economy is steered toward stable prices and growth, separate from government decisions on spending and taxes.

Fiscal policy, by contrast, involves government budgets—spending and taxation decisions—and productivity policy relates to long-run supply factors. Expansionary monetary policy is simply a way of implementing monetary policy (lower rates or more money supply) and is still managed by the Reserve Bank. So the policy managed by the Reserve Bank to influence aggregate demand is monetary policy.