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

Related Economics A Level answers

All answers ▸

What is cost push inflation?


How can I evaluate the extent to which increased competition leads to higher levels of economic efficiency?


Using a demand and supply diagram, explain how an increase in taxes on domestic fuel will affect the domestic fuel market


Discuss the likely effects of expansionary monetary policy.