The Reserve Bank of Australia (RBA) has released its latest public survey to gauge how well Australians understand key economic concepts, including how its interest rate decisions affect inflation, employment and growth.
The central bank's surveys show that those with a better grasp of economic concepts are more likely to understand why the RBA makes its decisions around interest rates and to trust that it is doing the right thing.
Quiz results show knowledge gaps
The RBA's nationally representative survey found that people get half of the questions correct on average. Only one in four respondents correctly identified that an increase in interest rates would lead to lower inflation. Most Australians believe higher rates will lead to higher inflation.
Peter Rickards, manager of the RBA's public education team, said Australians have a strong understanding of economic issues related to their lived experience, such as knowing they are worse off when prices rise faster than wages. However, he noted that the impact of higher interest rates on inflation is "quite complex".
Misunderstanding could cause frustration
Many people focus on the cost side: higher interest rates mean higher business costs, so firms raise prices. Economists understand that higher rates slow the economy, making it harder for firms to pass on higher costs as fewer consumers spend.
As the RBA's report notes, this misunderstanding could lead to some "frustration". Rickards said, "It's important for us to explain these concepts to the public."
