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

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