What monetary policy stance was characteristic of the late 1980s in Australia?

Prepare for the HSC Economics Exam with comprehensive study materials, including flashcards and multiple choice questions. Each question offers hints and detailed explanations to boost your confidence and help you ace your exam!

In the late 1980s, Australia experienced a contractionary monetary policy stance primarily due to rising inflation rates and a need to stabilize the economy. The Reserve Bank of Australia (RBA) was focused on controlling inflation, which had surged during that period. To combat this, the RBA raised interest rates significantly, making borrowing more expensive and encouraging saving rather than spending.

This was aimed at reducing demand in the economy, thus helping to lower inflation. Contractionary monetary policy is characterized by higher interest rates and a reduction in the money supply, which aligns with the monetary actions taken by the RBA at that time. The intention was to create a more stable economic environment by curtailing excessive inflation, reflecting the significant action taken by monetary authorities during that period.

Other possible options like neutral or expansionary policies would not have addressed the inflationary pressures effectively, making them unsuitable for the economic context of Australia in the late 1980s.

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