The Effects Of Lowering And Raising Interest Rates

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introduction this report is going to discuss the money market and how interest rates are determined, it will then look at the effects of lowering and raising interest rates and the limitations of these effects. the money market is a section of the financial market where short term loans and financial instruments are traded, for example these could be short term loans between banks with the debt maturing in less than a year.
“This gives banks, lenders and other borrowers the ability to satisfy their short term financial needs.”
Finance & Development, June 2012, Vol. 49, No. 2, Randall Dodd

Explaining how interest rates are determined by the money market once the government has set targets and objectives, it is up to the policy makers to use the tools available in order to meet these objectives. these levers are made up using fiscal and monetary policy tools. The tools used in the fiscal policy is the use of taxation in order to control public spending, which can affect aggregate demand. When taxes are lower individuals and business will be able to keep more of what they earn, causing better cash flow in the economy and increasing consumer spending ans confidence. This will also be more of an incentive for individuals to seek work including workers from other countries in the EU, as they can keep more of what they earn as take-home pay, this will cause a rise in employment, improving the efficiency of the country. When taxes are high this will generally work in the opposite
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