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

NM
Answered by Nirav M. Economics tutor

1691 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

If the Marginal Social Cost of Producing a good is higher than the marginal private cost -what has happened?


Discuss whether than price discrimination is always beneficial


What is the difference between perfect competition and imperfect competition?


What would be the impact of an outbreak of bird flu on the price of eggs in the UK?


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:

© 2026 by IXL Learning