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

1848 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Define market failure and give two examples in which this may occur.


How can you tell the difference between a positive and a normative statement?


What are the likely impacts of a sustained budget deficit for an economy?


How can the government use Demand side policies to boost economic growth


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