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Why raising the bank rate may not reduce aggregate demand watch

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    Title^.
    i dont really understand how it would so i need help.
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    If you're asking why, in theory, does it reduce aggregate demand, there are a number of reasons.
    -Higher interest rates will increase flows of money into the country as large scale holders of financial capital will move it over here so as to maximise interest. This increase in the demand for the pound will increase its price, making imports cheaper and exports more expensive. (What effect will this have on X-M.
    -Higher interest rate makes taking out loans less attractive as it represents their cost, and makes saving more attractive as it represents it's benefit. What effect will this have on C through a reduction in disposable income?
    -Higher interest rates will likely lead to a reduction in investment as you can be sure you'll make money if you stash profits in the bank, whilst also reducing investment by making taking the loans needed more expensive.
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    (Original post by Liamnut)
    If you're asking why, in theory, does it reduce aggregate demand, there are a number of reasons.
    -Higher interest rates will increase flows of money into the country as large scale holders of financial capital will move it over here so as to maximise interest. This increase in the demand for the pound will increase its price, making imports cheaper and exports more expensive. (What effect will this have on X-M.
    -Higher interest rate makes taking out loans less attractive as it represents their cost, and makes saving more attractive as it represents it's benefit. What effect will this have on C through a reduction in disposable income?
    -Higher interest rates will likely lead to a reduction in investment as you can be sure you'll make money if you stash profits in the bank, whilst also reducing investment by making taking the loans needed more expensive.
    For some reason i didn't receive a notification about your post, only saw it just now. Thank you very very much!
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    (Original post by Nirm)
    For some reason i didn't receive a notification about your post, only saw it just now. Thank you very very much!
    You only recieve a notification if you are quoted.

    For future reference, you may want to put threads you make on your 'watched threads' list, as to recieve a reminder on the side.
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    (Original post by Abdul-Karim)
    You only recieve a notification if you are quoted.

    For future reference, you may want to put threads you make on your 'watched threads' list, as to recieve a reminder on the side.
    Ahh okay, thank you!
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    (Original post by Abdul-Karim)
    You only recieve a notification if you are quoted.

    For future reference, you may want to put threads you make on your 'watched threads' list, as to recieve a reminder on the side.
    To be honest I normally quote, but I hadn't been on TSR in a while. I only came on to post a question of my own then ended up answering a few.
 
 
 
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