Discuss the Extent to Which a Reduction in the Rate of Interest Can Be Effective in Increasing Consumer Expenditure and Investment

The main benefit of low interest rates is its stimulating effect on economy. The BoE can help start businesses spending on goods which helps the economy in the long run and can help consumers to spend more on durable goods. Also the consumers’ demand for products will increase. This will force the firms to try to meet the demands by hiring additional workers which in turn will reduce the unemployment rate.

These cuts will result in a decrease of government expenditure and an increase in household tax. Firms will suffer, with little support from the government sector, reducing the circular flow of income. Household savings will increase, as they will be paying more in tax. Firms will then be impacted because consumers will be spending

12. Describe an alternative investment that you might invest in someday, and explain why this investment is appealing to you. (2-4 sentences. 2.0 points) Peer-to-peer lending. It's a high return investment but also high risk. There are ways to invest in Peer-to-peer to minimize risk. It's a great alternative investment option.

Low interest rates are important because it makes things cheaper to borrow and motivates people to spend and invest in different things. Some of the methods they used were slicing up ownership to thirty

a. What would shoppers see when they shopped in Wal-Mart and the other “big box” stores that sell so many imported items?

In order to discuss the statement in the title, I will first talk about J. M. Keynes and give some general information regarding his life and career. Following I will discuss about Keynes criticism of Say’s Law starting with Aggregate Demand and how consumption together with investment are in relation to income. Afterwards I will highlight the role of investment and what the policy implications are. For the final part of this essay I will conclude with some evidence to support the claims made.

A decrease in tax rates might be enacted to stimulate consumer spending. If households receive the tax cut but expect it to be reversed in the near future, they may hesitate to increase their spending. Believing that tax rates will rise again (and possibly concerned that they will rise to rates higher than before the tax cut), households may instead save their additional after-tax income in anticipation of needing to pay taxes in the future.

Obviously all of these factors can have some kind of effect on the economy. With cut backs comes a slowdown in output and production from businesses and can cause inflation to occur where people make the same or less amount of money but the price of goods goes up. Essentially, interest rates control the whole economy: if interest rates go up then the economy slows down and vice versa. However if interest rates go too low or stay low for a long period of time it can lead to inflation which also hurts the economy. In essence, higher interest rates are not necessarily a bad thing. Higher interest rates can curb inflation, meaning your pay will go further. A good example of this is the price of gasoline. When the price of gas goes up people drive less and spend less because more and more of their income goes toward fuel. When the price of gas goes down people have more money to spend. The increase in spending will be seen somewhere in the economy whether it is at the grocery store or online internet sales.

Simply put, the level of interest rates affect economic decisions at every level, whether by the individual consumer, or a major corporation, or entire countries. First, we must look at the residential and commercial real estate market. Homeowners had a golden opportunity to purchase or refinance their homes between 2008 and 2015, when 30-year rates were at unusual lows. (CITE) This was of particular help when many homeowners suffered through “underwater mortgages” on homes worth less than the mortgages owed. Refinancing at a lower interest rate ensured millions of afflicted homeowners would be able to reduce their interest payments during such a troubling economic period. (CITE) But given the Federal Reserve’s likely decision to raise rates, homeowners will be at a disadvantage. The most recent (as of 12/9/2016) average 30-year fixed

If Janet Yellen, the Federal Reserve President is planning on raising the interest rates the US Federal Reserve will have to deal with the negative effects on economic growth, unemployment, wages, the prices of goods and services, and government spending. The effect on economical growth will be how much individuals would borrow to increase their spending. Over time the money individuals took and have to payback would increase. Thus, leading to debt by how much money they owe back. By increasing the amount individuals have to borrow it will lead to more unemployment. The need of consumption will decrease and that put more and more people out of jobs. Scarcity is always going to exist but a low demand will cause supply to be low and price be

The conclusion of this appearance is aggregate demand for GDP. The Fed talks about consumption, investments, and government spending. The interest rates lowered will increase borrowing, spending and growth. The growth then turns into new jobs to lower the unemployment rate. The government spending cuts impede growth by loss of revenue for publicly provided goods or services. These publicly provided goods or services will also diminish with the loss of revenue. This could mean unemployment or drastic reduction in service, which will ultimately reduce consumption. Mr Bernanke’s comments seemed to assure investors as Stocks rose as he spoke and The Standard & Poor 500 index rose

The aim rationale behind reduced interest rate was to provoke recovery from the crisis. This targeted increase in consumers as well as firms and government spending since incentive to save had been eroded. This measure not only increased aggregate demand, it also aid commitment to new investments. Additionally, monthly cost of mortgage repayment was witnessed which in turn, provided more disposable income and make investment in property market more lucrative.

However cutting befits might have a negative impact on those least well off in society and could lead to rising unemployment if those on benefits cut back their spending even more meaning a fall in AD across the economy. This could generate a negative multiplier effect a lead to further rises in unemployment.

Low interest rates will also alter the behaviour of consumers, businesses and banks. One of which is excessive risk taking as credit is more accessible. Especially after the financial crisis when the economy is in recovery mode, individuals and institutions might take unnecessary gambles in order to recoup what they have lost. This will lead to a high credit bubble where people are unable to repay their loans. However, people might react differently. They might be more prudent with their money thus reducing the demand, which will lead to an economic decline. As human behaviour is not possible to quantify and predict accurately, this presents the government with a dilemma,

Lowering interest rates is an effective way to stimulate and improve the economy. When rates are lower, it is easier and more affordable to borrow money. This encourages spending and investment, both which help propel the economy forward.