Changes in Interest Rates
Economics: Edexcel A A Level, topic 9.1.3
Changes in Interest Rates and Money Supply
Some governments manipulate interest rates or the money supply to stimulate economic growth.
Venezuela 2018
- In 2018, it is estimated that Venezuela suffered from 1 million % inflation.
- Oil prices have fallen, but the government refused to reduce government spending.
- The government printed money, increasing the money supply and this created hyperinflation.
- Large increases in the money supply can lead to hyperinflation and the failure of an economy and its currency.
- This also happened in Germany in the 1920s.
UK 2007-08
- When the global financial crisis hit in 2007 and 2008, UK interest rates were 5%.
- By March 2009, interest rates had fallen to 0.5%.
- By reducing interest rates, the Bank of England hoped to increase consumer spending and corporate investment via the monetary transmission mechanism.
Test yourself on Changes in Interest Rates
When did Germany suffer from hyperinflation?
What was the UK interest rate when the global financial crisis hit in 2007-2008?