Effects of interest rates on consumer borrowing

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1. The world major central banks, including the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan, conducted a joint policy action on 11/30/11 to inject liquidity into global financial markets. Though the action does not help Europe's debt issues, the liquidity swap arrangements between the central banks make it easier to loan U.S. dollars to their financial institutions.

Using an aggregate supply/demand framework to help your argument, please explain how the action will in theory impact business investment and economic growth in the involved economies?

2. What role should current low interest rates play in consumers' decisions of how much to borrow? Explain.

3.What fiscal policy measures could be enacted to help boost real GDP in 2011? Use a macroeconomic framework (i.e. Aggregate Demand/Aggregate Supply) to show the impact on output and price levels.

Reference no: EM1369067

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