Thursday, December 17, 2009

Unit 2: How interest rates effect economic growth

A nice analogy from marketplace; its a little simple, but it will get you thinking

a) Apart from less saving, why else does the consumption expand as interest rates fall?
b) Use the AD formula to explain why this will lead to the economy expanding
c) Show the effect of this increase in AD on an AD/AS diagram and comment on the beneficial and detrimental effects this may have on the governments macroeconomic objectives

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