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Commentary - Central Bank of Britain Lowers Rates

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Commentary - Central Bank of Britain Lowers Rates Wednesday, April 12, 2001 Section Covered: 03 Word Count: 448 Suzanne Kapner, (04/06/01), Central Bank of Britain Lowers Rates, New York Times, http://www.nytimes.com ENGLISH INTEREST RATES DECREASING On April fifth the Bank of England lowered short term interest rates by 0.25 bringing it down to 5.50 percent. The main cause of this was to reduce the impact of the sharp declines in world stock markets on Britain's economy. Britain is better off than many of its neighbouring countries whose inflation and employment are on a rise. Though demand is decreasing abroad, the British one, remains strong. The unemployment rate is also at its lowest in 25 years. The government intends to further stimulate the economy by spending more and by taxing less. ...read more.


To further define it we can also say that Aggregate Demand = Consumer Spending + Investment Spending + Government Spending + Net Export Spending Each of these categories are made up of more specific ones, for example investment spending is made up of many other factors one of which is interest rates. Since it is needed to calculate it, we can assume that interest rate will affect aggregate demand. In fact if interest rates are increased consumers will be discouraged from borrowing money to spend, and therefore from purchasing goods or services. In this case the aggregate demand will decrease creating a leftward shift of its curve(Fig.1). Fig 1: Figure showing a decrease in aggregate demand While, as in the example of England, if the interest rates are lowered investment spending will increase and the aggregate demand will increase and its curve will shift to the right (Fig.2). ...read more.


In fact government spending will go towards public services which will need employees to be run. This will create new jobs positions and decrease the unemployment rate. It will also give more people the opportunity to purchase goods or services. At the same time with a tax reduction citizens would spend less money on taxes and more of them on goods or services. In conclusion the British government is encouraging consumer spending and increasing aggregate demand both by reducing interest rates, by increasing government spending and by cutting taxes. Even though the article, which was written by Suzanne Kapner seems to only have statements quoted by English economists, the author seems to support all of its thoughts with clear statistics and facts. The article, which is taken from a newspaper which is known to be an impartial source, is overall fair and objective ?? ?? ?? ?? ...read more.

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