Answer to Question #121374 in Macroeconomics for sara

Question

If the Central Bank is concerned about a decline in business investment,
a)What steps might it take to stimulate the economy?
b)What will be the impact on bank reserves?
c)What will be the impact on interest rates?

Answer 1

a )Central banks put in place monetary policy to keep inflation, unemployment, and economic growth stable and positive.To stimulate the economy, the central bank lowers rates and adds money and liquidity to the economy - stimulating investment and consumption, having a generally positive impact on asset.

b.) Lowering interest rates reduces the bank reserves because most people are talking loans.This happens because lower intrest rates make the money affordable to investors and therefore more people are willing to borrow.

c.Inoder to stimulate the economy,the central bank increases the money supply.An increase in money supply lowers the market intrest rates making it affordable for investors and consumers to borrow feom banks and other financial institutions.