Answer to Question #88087 in Macroeconomics for Yolanda

Question

Using the Keynesian transmission mechanism, illustrate and explain the effect of an decrease of repo rate in the economy

Answer 1

1. A decrease of repo rate rises money supply

2. The fall in the rate of interest leads to more investment and any other interest-sensitive expenditures

3. A rise in investment leads to a multiplied rise in national income from Y1 to Y2.