A look at the economic effects of a cut in interest rates. Summary Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment. This leads to higher aggregate demand (AD) and economic growth. This increase in AD may also cause inflationary pressures. In theory, lower interest rates will: Reduce the …
Free trade means that countries can import and export goods without any tariff barriers or other non-tariff barriers to trade. Essentially, free trade enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods. In more detail, the benefits of free trade include: 1. The theory of comparative …
Economic growth means an increase in real GDP – which means an increase in the value of national output/national expenditure. Economic growth is an important macro-economic objective because it enables increased living standards, improved tax revenues and helps to create new jobs. Aspects of economic growth Causes of economic growth Costs/benefits of economic growth Policies …
Definition of expansionary fiscal policy. This involves the government seeking to increase aggregate demand – through higher government spending and/or lower tax. Expansionary fiscal policy is usually financed by increased government borrowing – and selling bonds to the private sector. Keynes said expansionary fiscal policy should be used during a recession – when there is …
A look at the main macroeconomic objectives (economic growth, inflation and unemployment, government borrowing) and possible conflicts between these different macro-economic objectives. The main macro-economic objectives Economic growth – positive and sustainable growth (The UK, long-run trend rate is around 2.5%) Low inflation (UK target 2% +/-1) – Low unemployment / Full employment (e.g. around …
There are two main strategies for reducing unemployment – Demand side policies to reduce demand-deficient unemployment (unemployment caused by recession) Supply side policies to reduce structural unemployment / (the natural rate of unemployment) A quick list of policies to reduce unemployment Monetary policy – cutting interest rates to boost aggregate demand (AD) Fiscal policy – …
Readers Question. Can Labour be blamed for the economic crisis (i.e. did they really ‘overspend’)? My view is that the global economic crisis is to blame, and that Labour could have spent less but that this is easy to say with the benefit of hindsight. I don’t think there is any economist who would try …
The demand for money refers to how much assets individuals wish to hold in the form of money (as opposed to illiquid physical assets.) It is sometimes referred to as liquidity preference. The demand for money is related to income, interest rates and whether people prefer to hold cash(money) or illiquid assets like money. This …