Article published: Feb 17, 2020
IB Economics syllabus: Macroeconomics (expansionary monetary policy)
Due to the negative effects of the coronavirus on the Chinese economy, the Central Bank of China has decided to cut its interest rates. More specifically, they have cut the interest rates to “commercial lenders” that is to say, banks in the form of “medium-term funding. Therefore, commercial banks of China can have access to an additional $29 billion which they can lend (inject investments into the circular flow of income). This is a clear expansionary monetary policy that shouls shidt the AD (aggregate demand) curve to the right. Make sure not to forget to explain the pros and cons of such policy decitions.
Source of image: Giulia Marchi/Bloomberg
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