1. full employment and inflation on the cards. Inflation is too much money chasing too few goods the solution is to reduce the money supply
2. the RBA restricts the supply of money It does this by selling bonds That leads to cash being taken out of the economy.
3. Interest is the cost of money the supply of money goes down and demand is maintained leads to the price of money going up. Interest rates rise.
4. Higher interest rates attracts foriegn investment. Foreign companies need A$ to buy them. The demand for A$ rises and the A$ rises against the US$ 5. Higher interest rates push bond prices up eg Original bond 1.10 x $100 = $110 1.15 x $95.65 = $110
