At the end of June 2003, the Federal Reserve cut interest by a Essay

At the end of June 2003, the Federal Reserve cut stakes by a quarter-point to 1.0 per cent, their lowest level in 45 years. apologize the tether main channels by - Essay Examplef the meat get hold of in the economy, - consumption, investment and government spending, these appear to be the three main channels, through which touch on rate influences aggregate demand. The decrease of the interest rates accounting another(prenominal) factors being stable, leads to the increase of the new equipment among firms, which they plan to purchase, it as well as increases the number of new houses, and the goods of long-term use. Changes in the price levels through the impact on the amount of money in use also influence interest rates. Changes in the interest rates, caused by the changes in the price levels, changes the aggregate demand on goods and services however, in graphic form this does not make the aggregate demand curve shift it only reflects the movement along the already existing line. (Handa 2000)However, interest rates also create another impact. No question what may be the reason of the interest rates change, their level impacts aggregate demand as a whole. Separately from the price level change, the aggregate demand curve shifts with the changes in interest rates. For example, if the government comes down to the higher expenditures and loans to cover the deficit, with the other conditions stable it leads to the increase of interest rates and negatively influences the plans of expenditures for the firms and individuals. If the supply of the pecuniary resource for loans increases abroad, the interest rates stay stable, keeping aggregate demand from decrease. (Handa 2000)Consumption is the most considerable part of the aggregate demand, and it is wise to start the discussion of the interest rates decrease with the impact it creates on consumption. Individuals acquire their incomes in the form of salary, and the capital profits. A portion of the income is spent for paying taxes to governmental structures. On the other hand, government also provides individuals with subsidies (social insurance, unemployment payments, etc.). The decision about consumption lies in the