What is the likely effect of a decrease in the cash rate?

A decrease in the cash rate typically leads to lower interest rates throughout the economy. This reduction in borrowing costs encourages consumers and businesses to take out loans for spending and investment. When borrowing becomes cheaper, consumers are more likely to finance major purchases, such as homes and cars, while businesses might invest in new projects or expand operations. This heightened spending can stimulate demand for goods and services, often resulting in increased economic activity.

As a consequence of this increased demand, businesses may raise prices to keep up with the higher consumption levels, which can create upward pressure on inflation. Thus, a decrease in the cash rate is likely to increase inflationary pressures due to the resultant boost in economic activity and consumer spending.

The other options highlight potential negative outcomes that may not arise directly from a decrease in the cash rate. For instance, while lower interest rates can stimulate economic growth, they do not directly lead to increased unemployment; instead, they often support job creation through enhanced business activity. In the same vein, a decrease in the cash rate typically encourages, rather than discourages, economic growth, challenging the assertion in the second option. Consumer confidence usually improves when interest rates are lower, making financing more accessible, which further bolsters spending. Therefore, the increase in inflationary