Which economic principle involves the adjustment of the cash rate by the RBA to manage inflation?

The principle that involves the adjustment of the cash rate by the Reserve Bank of Australia (RBA) to manage inflation is monetary policy. This approach is aimed at influencing the economy’s level of spending and inflation through the manipulation of interest rates. When the RBA sets a lower cash rate, it typically encourages borrowing and spending, which can spur economic growth. Conversely, raising the cash rate makes borrowing more expensive, which can help to cool off an overheated economy and keep inflation in check.

Monetary policy encompasses a range of strategies including managing interest rates and controlling the money supply, directly impacting inflation rates and overall economic stability. The effectiveness of these adjustments is crucial for maintaining a balanced economy and achieving set inflation targets.

The other principles listed relate to different aspects of economic management. Financial regulation focuses on the rules that govern financial institutions, supply chain management deals with the logistics of production and distribution, and fiscal responsibility pertains to government budgeting and spending practices, none of which directly entail the adjustment of cash rates to manage inflation.