If we see the MPC decrease interest rates, what effects should we see in the economy

Decrease in IR --> decrease in savings by households due to high opportunity cost of saving --> increase in consumption (C)--> AD (right shift)--> economic growth & potentially inflation (depends on position relative to LRAS)Decrease in IR --> large outflow of foreign cash from domestic banks --> increase supply of pounds --> devaluation of sterling relative to other currenciesDecreased IR --> decreased cost of borrowing --> increased borrowing by both business & consumers --> increased investment (I) & C --> increase in AS & AD (right shift) as CoP decreases (increased efficiency) & increase in cash for consumers --> economic growth

Answered by Nirav M. Economics tutor

850 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What's the difference between PED, PES, YED, and XED?


Does economic growth lead to economic development?


How can taxes reduce the effect of negative externalities?


Please can you help me to understand the concept of price elasticity of demand (PED)?


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 2013–2024

Terms & Conditions|Privacy Policy