Monetary policy – getting less interest(ing)?
Governments around the world have been reacting to the global financial crisis by cutting interest rates in the hope that an expansionary monetary policy will help prevent recession or perhaps minimise the length, depth and severity of recession. In the articles below, we look at interest rate cuts in some countries, but there are many others. Why not use Google news or an equivalent site to try to find some more examples?
Europe
ECB rate cut sets tone for worldwide attempt to spark stalled economies Times Online (5/12/08)
Is the ECB dragging its heels? BBC News Online (4/12/08)
ECB cuts eurozone rates to 2.5% BBC News Online (4/12/08)
Sweden
Sweden, like us, seems to have things in hand Times Online (5/12/08)
Sweden cuts interest rates to 2% BBC News Online (4/12/08)
mesSweden cuts interest rates to 2% BBC News Online (4/12/08)
Australia
Australia cuts interest rates to seven year low Times Online (2/12/08)
Thailand
Large cut in Thai interest rates BBC News Online (3/12/08)
China
China’s central bank cuts rates BBC News Online (26/11/08)
Questions
- Explain the transmission mechanism whereby cuts in interest rates are transmitted to an increase in consumer expenditure.
- Using diagrams as appropriate, show how interest rates are determined in the money markets.
- Discuss the relative effectiveness of monetary policy and fiscal policy in boosting consumer expenditure.