http://www.economist.com/displaystory.cfm?story_id=13248177
Summary:
Many banks such as the Bank of England are trying to lower interest rates to help with the current recession. In fact, the Bank of England has dropped its interest rate from 5% to 0.5% since October of 2008. As we all know, two percent inflation is supposed to be considered healthy. However, it is expected to decline to 0.7% by the end of 2009. Moreover, unemployment rate is also expected to drop even further than it is currently at. With this being said, GDP would also drop. As a matter of fact, banks anticipate that the GDP will drop another three percent when this year comes to an end. Although banks around the world are trying to come up with solutions to this recession, the GDP is not looking too good all over the world.
Connections:
This chapter is all about the Gross Domestic Product (GDP), which refers to the value of goods and services produced in a country in a given year. Since we are in a recession, the GDP is dropping which results in unhealthy inflation (above or under 2%) and unemployment rate rising. Banks are currently using the Monetary Policy to lower interest rates to help with the recession. This policy is trying to get households to save less and spend more in their country so the economy and GDP can become healthy again. People may think that a country spending a bit more won’t do anything, but I have heard that the money spent in a country can be invested about four times the original amount.
Reflection:
I think that this interest rate cut back isn’t going to be enough to get us out of the recession. However, if new ideas keep building up to get us out of this problem, the insignificant things might add up and make a significant one. Like one of the economists says, “Even if the central bank’s bold new strategy is not a sure remedy, it is still worth trying.” I totally agree with him because things are only going to get worse if no action is taken. However, the bank’s action at least gives us a chance to get out of the recession and/or prevent things from getting worse.
2 comments:
I agree with you that although this idea will give people an opportunity to keep their jobs and spend more, it is not the only solution. Because this interest rate is basically at 0, there will be definite increases in loaning and spending among the consumers of Canada. The big thing here is the circular flow of money in Canada. The more money spent, the more cash flows will get to businesses; thus, allowing companies to make more and keep their employees; however, our cash flow has gone the complete opposite direction, due to the panic and personal preparation for the future economic occurrences.
Raymond Chen
Block E
Econ 12
I agree with your idea. With the global economy dwelling in the stae of a major slowdown, everyone is trying in everyway to make things better. Though some are not as involved in one way or another, where consumers are spending less, and considerably affecting the growth and maintenance of a country's national GDP.
Same goes with what you said about how a dollar spentin a country could be invested 4 times the original amount in a given market. This fact shows the significance of the mutiplier effect and how extensively it affects a country's economy, which in turn, influence the global economy in a big or small scale.
Christy Leung
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