MACROECONOMICS Essay Example | Topics and Well Written Essays - 1000 words

MACROECONOMICS - Essay Example has an affect upon the macro economics as it is the tool to attract more consumers towards the banking instruments, not only from the domestic investors but also from the foreign investors. At interest rates r0 and r1, investment levels in (a) will be i0 and i1. To produce equilibrium in the item for consumption market, level of income must be at y0 and y1 respectively. Therefore, interest rate income combines r0, y0 and r1, y1, which are the equilibrium points along the IS schedule, slopes downward towards right. With investment being responsive to alterations in the interest rates, the investment plan i (r) on (a) is moderately flat. A decrease in interest rate will raise investment by a huge amount. Therefore, a large increase in income, y0y2, is necessary to re-establish the product market equilibrium. Consequently, the IS schedule in part (d) will be flat. The level of investments by firms is highly affected through the monetary policy of the government. The raise in the interest rate will force the investment level to increase by firms. To increase the investment level by different firms the monetary policy was implemented by the UK government. When the consumer confidence index falls, there is an increase in the level of savings and many firms decide to reschedule or push back the capital investment spending projects because of uncertainties over a shortcoming of demand and there is a fall in the expected rate of profit on investment. This affect is upturned down through the monetary policy of the government by implementation of the interest rate policy. The increase in the interest rate will increase the confidence index of investment and the expectation level of investing firms will be higher as there is more return through the financial instruments. This rise in the confidence index and investment increases the investment in capital projects that helps the economy to grow. In application with the Fisher’s equation it is know that, as the income