Commentary - Central Bank of Britain Lowers Rates

                                                              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).  

                                                   Fig. 2: figure showing an                              

                                                                                                                   increase in                                                                                      

                                                                                                                   aggregate demand

        Another factor which the government is using to increasing the general demand, is by controlling fiscal policy. In the article it says in fact that spending will be increased and taxes will be cut. If we closely analyse the government’s decision we can arrive to the conclusion that this act will also increase the English aggregate demand (fig.2). 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