Interest rates are the percentage charged for borrowing money. The Bank of England decides interest rates in the UK through monetary policy. Monetary policy tightening refers to raising interest rates, which lowers aggregate demand by making borrowing more expensive, while lowering interest rates boosts aggregate demand by encouraging borrowing and investment. Changes in interest rates can impact policy objectives like inflation and economic growth.

1. Interest Rates
Answer all the questions below
1. Define the term interest rates
2. Who decides interest rates in the UK
3. Describe what is meant by Monetary Policy Tightening
4. Analyse the effect High Interest Rates would have on AD
5. Analyse the effect Low Interest Rates would have on AD
6. Consider the effect of changes in interest rates on the major policy
objectives