Explain the impacts of a fall in interest rates on the rate of GDP growth of a country.

Changing interest rates are an example of a demand side policy change, specifically monetary policy, this means that the Aggregate Demand (AD) curve will shift (see diagram)
This can be demonstrated through the following chain of analysis: A fall in interest rates mean that there will be a smaller benefit of saving as there is a lower rate of return. Therefore, consumers and businesses are more likely to spend more. Consumer spending and Business Investment are both components of Aggregate Demand, therefore when they rise, AD will also increase, therefore the AD curve will shift rightwards, as shown in the diagram.
This will mean Real National Output (RNO) will increase (as shown in diagram) and therefore GDP growth rates will increase

Answered by Economics tutor

1592 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is the Aggregate Demand in an economy?


List and explain some ways in which a monopolistic firm can use it's lower costs as a barrier to entry.


Explain the possible causes of deflation in an economy. (15)


What is the profit maximising condition? (Hard A-Level question for full marks)


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences