How_Money_Works_-_The_Facts_Visually_Explained

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Investment

increases due to

cheap loans and

high confidence

Export

prices fall

Exports

increase

Import

prices rise

Imports

decrease

Household

consumption

increases with

more spending

and less saving

EXCHANGE RATES

INTEREST RATES

CREDIT

Economy

expected to

contract

Unemployment

falls

Inflation

rises

Demand

rises overall

in the economy

GOVERNMENT FINANCE AND PUBLIC MONEY

Attempting control

40.5%

Argentina’s rate

of inflation in

April 2016, the

world’s highest

When interest rates

are lowered

Lower interest rates make it cheaper

to take out loans, and hence to spend

more money, while saving becomes

less attractive as interest rates are low.

With more money in circulation,

demand for products and services

rise, stimulating businesses and

increasing employment. Value^

of currency

decreases

HOW THIS EFFECTS THE ECONOMY

Companies may

become more

profitable as loans

and investors are

easier to secure

0 TIME (YEARS) 1 2

£££

£

The central bank

reduces the base

interest rate

NEGATIVE INTEREST RATE POLICY (NIRP)

In some countries, the central bank

has experimented with cutting base

interest rates to a negative figure, for

instance, − 0.01 per cent. If this rate

were passed on by commercial banks,

it would mean that depositors must

pay a percentage of their deposit to

the bank. But while a central bank

might impose a negative interest

rate to encourage spending and

investment, and discourage savers

from hoarding cash, commercial

banks usually tend to be reluctant

to pass negative interest charges

on to customers, and particularly

small businesses, as depositors may

be driven to withdraw their savings in

cash to avoid fees. Large depositors,

however, may pay negative rates for

security and a stable currency account.

Commercial banks

reduce interest rates;

loans are cheaper, but

saving becomes less

rewarding

%

%

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