Interest rate

Interest rate is decided by the bank of England .It is a very important rate in our Economic.It can affect many things.For instance it can determine people's choice which is save the money or not.And that can affect the consumption and then will affect the aggregate demand.--"A multiplier."So let's discuss more about interest rate.

In the monetary policy the main idea is decrease the interest rate to increase aggregate demand and to solve many problems.Let's see why interest can solve those problems.SO first let's think if we reduce the interest rate what will happen ? People will saving less because if the rate of interest is so low( for example if people save that money for a year then at the end of the year people like get nothing ,So why does people need to save their money? They will more likely to choose to spend them.That's why the consumption will goes up.And also if the inflation is high after one year the value of the money will be less so for these reasons people will spend more.So if the consumption goes up the aggregate will also goes up (because of AD=C+I+G+(X-M) ).So the real GDP will also goes up.And unemployment will be less. And Also if the rate of interest goes down it will be easier for people to borrow money so the investment will also increase... This is also a very good thing for our Economy.

On the other hand if we increase the interest rate people will save more so the bank will more money ... will be able to lent.But if people borrow money they also need pay the interest so people won't borrow much money anymore.

So now the interest rate is very low only a half percent.So obviously they want people to spend more and investment more but the problem is the bank do not have enough money to lent to people.So they had to print money,and then the value of money will lower.Is that a good way to solve the problems that now we have?... Maybe ...

OKAY ! That's all...