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  • Anforme How can changes in interest rates be used to achieve the government’s inflation target?

Anforme How can changes in interest rates be used to achieve the government’s inflation target?

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How can changes in interest rates be used to achieve the government’s inflation target?

Amy Chapman, Head of Economics and Business Studies at Cheltenham College and a Principal Examiner, discusses how monetary policy is seen as the crucial means of achieving price stability.

Summary of contents:

  • The causes of inflation: looking at cost-push and demand-pull inflation with AS/AD diagrams.
  • Consumption expenditure accounts for 70% of UK aggregate demand. Interest rates affect saving, the cost of borrowing, mortgages and will have a wealth effect through the change in house prices.
  • Interest rates affect investment expenditure directly through the cost of borrowing and also through their influence on consumption expenditure.
  • Interest rate effects on exports and imports and flows of hot money.
  • Interest rates work with time lags and some economic sectors are affected more than others.


This article is featured in ET volume 19 issue 2

How can changes in interest rates be used to achieve the government’s inflation target?

Amy Chapman, Head of Economics and Business Studies at Cheltenham College and a Principal Examiner, discusses how monetary policy is seen as the crucial means of achieving price stability.

Summary of contents:

  • The causes of inflation: looking at cost-push and demand-pull inflation with AS/AD diagrams.
  • Consumption expenditure accounts for 70% of UK aggregate demand. Interest rates affect saving, the cost of borrowing, mortgages and will have a wealth effect through the change in house prices.
  • Interest rates affect investment expenditure directly through the cost of borrowing and also through their influence on consumption expenditure.
  • Interest rate effects on exports and imports and flows of hot money.
  • Interest rates work with time lags and some economic sectors are affected more than others.


This article is featured in ET volume 19 issue 2

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