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.
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