How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?
How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model
Section: Chapter Questions
Problem 3CQ
Related questions
Question
How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?
![In 2022, "Inflation has hit its highest level in decades in many countries, with Russia's invasion of Ukraine pushing up energy and food prices alongside squeezing households' real incomes.
Central banks have reacted by raising interest rates, even though higher borrowing costs could exacerbate the squeeze on real incomes that has resulted from higher prices." Higher interest rates
therefore raise "the chances of a recession in some countries, with economists fearing a return to the stagflation of the 1970s a situation characterised by persistent price pressures and weak
growth." (Financial Times, 20 July 2022)
===](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1d7ed576-a2cc-44ad-acb2-11de1fd37365%2F99f222d1-9219-48be-84c0-52af9cc7e16e%2Fttnwoxd_processed.png&w=3840&q=75)
Transcribed Image Text:In 2022, "Inflation has hit its highest level in decades in many countries, with Russia's invasion of Ukraine pushing up energy and food prices alongside squeezing households' real incomes.
Central banks have reacted by raising interest rates, even though higher borrowing costs could exacerbate the squeeze on real incomes that has resulted from higher prices." Higher interest rates
therefore raise "the chances of a recession in some countries, with economists fearing a return to the stagflation of the 1970s a situation characterised by persistent price pressures and weak
growth." (Financial Times, 20 July 2022)
===
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
![Exploring Economics](https://www.bartleby.com/isbn_cover_images/9781544336329/9781544336329_smallCoverImage.jpg)
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
![Macroeconomics](https://www.bartleby.com/isbn_cover_images/9781337617390/9781337617390_smallCoverImage.gif)
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax