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.

GM

Related Economics A Level answers

All answers ▸

Explain why the average and marginal revenue curves for a perfectly competitive firm are horizontal while those of a monopoly slope downwards.


How could I evaluate a government policy which uses subsidies for a certain industry?


Evaluate policies the government can use to increase the rate of economic growth.


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