After experiencing a significant economic downturn, Australia implements policies to stimulate growth. As a result, firms begin to anticipate higher future prices and increase their production. How is this likely to affect real interest rates in the short term?

When Australia implements policies to stimulate economic growth, it encourages firms to produce more goods and services. As these firms expect higher future prices, they may invest in new equipment or hire more workers, which increases overall production. This increase in production can lead to higher demand for money because businesses need funds to finance their activities. In the short term, this higher demand for money can push real interest rates up, as lenders may charge more for loans when they see businesses are eager to invest. For example, if a factory expects to sell more products in the future, it might take out a loan to expand, causing interest rates to rise temporarily as the demand for loans increases.