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

Related Economics A Level answers

All answers ▸

Explain what is meant by a semi-fixed exchange rate? With reference to the BBC news story in the link below, explain why the Nigerian central bank increased interest rates and devalued their currency (the naira)?


Why is the long-run Phillips Curve vertical?


What factors can shift the supply curve and explain the impact of a change in one of these factors on the supply curve.


Calculate the coupon rate for a 5 year £500 bond that has a coupon value of £10


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
Cookie Preferences