Answer to Question #89412 in Macroeconomics for anderson houla

Question

Explain how the change you advocate would affect the cost and availability of credit

Answer 1

Consider a lower refinancing rate.

As for the effect on the economy, following the refinancing rate, the rates on loans and deposits may decrease and, accordingly, credit growth may be observed. Lowering the refinancing rate leads to an improvement in the liquidity (profitability) of banks, and they can afford to issue more affordable loans to the public and business. The more affordable the money, the more they are going to invest in the economy. As a result, the economy is growing.

Lending is one of the main drivers of economic growth.

Thus, lowering the refinancing rate will lead to greater availability of loans and lower cost of credit.