low interest rates bringing about a recovery from recession in an economy such as the UK
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- Created on: 06-03-14 15:58
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the importance of low interest rates in bringing
about a recovery from recession
- Intro
- Definitions
- Recession and recovery in terms of economic cycle
- monetary policy and the use of interest rates
- monetary policy transmission mechanism
- AD
- Exchange Rate
- Asset Prices
- Consumer/Business Confidence
- monetary policy transmission mechanism
- Definitions
- Paragraph 3
- Exchange rates
- low interest rate
- Hot money out-flows
- people sell pounds
- demand for pounds decrases
- Depreciation of sterling exchange rate
- demand for pounds decrases
- people sell pounds
- Hot money out-flows
- low interest rate
- Effect on trade
- Exports more price competitive
- (X-M) increases
- AD increases
- Stimulates economy out of recession
- AD increases
- (X-M) increases
- Imports less price competitive
- (X-M) increases
- AD increases
- Stimulates economy out of recession
- AD increases
- (X-M) increases
- Exports more price competitive
- Evaluation
- Most effective when exports have an absolute trade advantage
- Hot money affects stability may impede recovery
- Exchange rates
- Paragraph2
- Asset Prices
- low bank rate
- Value of assets increase
- low bank rate
- Cheaper cost of borrowing
- cost of buying assets is cheaper
- Demand for assets increases
- Price of assets and therefore value increases
- Demand for assets increases
- cost of buying assets is cheaper
- positive wealth effect
- Boost in AD
- Stimulates economy out of recession
- GRAPH
- Boost in AD
- Evaluation
- Impact depends on the extent to which bank rate is lowered
- Time lags
- Asset Prices
- Paragraph 4
- Alternatives
- Quantitive Easing
- Explain Process
- Supply side
- short term demand side monetary leads to inflation
- needed in order for long term recovery
- education and training/ national minimum wage
- GRAPH
- Quantitive Easing
- Alternatives
- Evaluation and conclusion
- Limitations of consumer and business confidence
- extent to which interest rates are allowed to fall
- Time lags
- Low interest rates may cause inflation and impede recovery
- Monetary policy to be used in conduction with supplyside policy to bring about a stable sustainable recovery and growth
- Intro
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