How much does the public know about interest rates?

Much election-year political point-scoring assumes that public knowledge of economics is minimal. In 2004, the Coalition encouraged us to believe that the double-digit interest rates experienced during the last Labor government might return with a new Labor government. This year, Labor is suggesting, with all the fine-print qualifications the Coalition attached to interest rates last time, that it might be able to do something about grocery and petrol prices.

How easily fooled is the public on these things? On interest rates, answers to questions in the 2005 Australian Survey of Social Attitudes suggested a public without the level of policy understanding needed to evaluate the government’s claims. Respondents were asked how much knowledge they had of the role of the Reserve Bank. 6.5% said they had ‘a lot’ of knowledge, and another 31% said that they had ‘some’ knowledge. The rest admitted little or no knowledge.

Yet even these numbers may be overstating the public’s formal understanding. Another question asked how much knowledge the respondent had of how monetary policy is determined. Given that the Reserve Bank determines monetary policy all 37.5% with some or a lot of knowledge of its role ought to have also been knowledgeable about monetary policy. But instead 5% claimed ‘a lot’ of knowledge of how monetary policy is determined and 25% ‘some’ knowledge’. Some of those who think they know about the RBA need to visit its website.
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