top of page

Investment and Interest Rate Relationship


Discuss whether or not a cut in the rate of interest will increase investment. In assessing each answer, use the table opposite. Why it might:


Macroeconomic Factors and Policies

Frequently asked question

Preview Answer

I. 🍃Introduction
- Explanation of the impact of interest rate cuts on the economy

II. Positive effects of interest rate cuts
- Increase in consumer spending
- Reduction in cost of borrowing for capital goods
- Encouragement for firms to invest
- Attraction of MNCs into the country

III. Negative effects of interest rate cuts
- High or expected rise in interest rates
- Pessimism among firms about the future
- Spare capacity in firms
- Rise in cost of capital equipment
- Reduction in funds available for investment
- Reluctance of banks to lend

IV. Example of a Level ➡️2 answer
- Explanation of how interest rate cuts can lead to increased investment and consumer spending

V. 👉Conclusion
- Summary of the positive and negative effects of interest rate cuts on the economy

Ops... End of preview!

Already purchased Economics Study Pack subscription? Amazing! Click below

What's included 
✔️Full essay
✔️Marking Schemes
✔️Examiner's report

Economics Study Help
bottom of page