What is the impact of a fall in the central bank interest rate on the macroeconomic performance of the UK economy?

Firstly, it expands the aggregate demand since invesment rises. Hence GDP rises. However, this depends on whether the fall is anticipated by markets already.

Secondly, it devalues the UK's exchange rates against other currencies, boosting exports. This depends on other countries' interest rate policies and import policies.

Thirdly, consumer spending rise, leading to rising AD. Hence, GDP rises. However, this depends on whether the economy is already at its full productive capacity.

GM
Answered by Guangyao M. Economics tutor

2937 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is expansionary fiscal policy and what effect does it have?


Between 2010 and 2015 the average price of tea in the UK increased from £7.20 per kilo to £8.48 per kilo. Over the same period the quantity of tea purchased fell from 97 million kilos to 76 million kilos. Find the price elasticity of demand


Explain the difference between the Monetarist and Keynesian views of unemployment


What are business cycles?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning