Macroeconomics annotation Essay Example | Topics and Well Written Essays - 500 words

Macroeconomics annotation - Essay Example he lost in the China’s stock market by about three-fifths of its value, the decision-making body believes that the loosening monetary policy is appropriate. The China’s central bank, People’s Bank of China reflects the decision-making body’s concern and aim for the change in policy. The article’s primary economic element is the lowering of the interest rate in the economy. This lowering of the benchmark interest rate has an effect on the country’s monetary policy and money supply. According to Bradsher in the article, â€Å"effective Tuesday, the People’s Bank of China lowered by 0.27 percent, to 7.2 percent, the regulated benchmark rate that commercial banks may charge for one-year loans to business borrowers with strong credit histories. Rates for shorter-term loans will be generally cut even more while rates for longer-term loans will be subject to smaller adjustments, the central bank said, without providing details (September 2008).† By lowering the interest rate, the central bank aims to signal to commercial banks to lower the lending rate. By lowering the lending rate, the country aims to make funds more accessible to business borrowers. In figure 1.1, China’s benchmark rate is lowered. The interest rate aims to lower the money supply in the country. By lowering the money supply coupled with less stringent limits on lending, China’s Politburo aims to â€Å"protect the country from the global economic downturn.† By lowering the interest rate, China aims to signal commercial banks to lower down their lending rate which makes the cost of accessing financing lower. As is shown in figure 1.2 and 1.3, lowering the interest rates lower the costs to financing, which increases the investments in an economy. This increase in investments due to lower costs of financing that is brought by this change in monetary policy does not increase proportionately in the economy. Figure 1.4 shows the effect of the increase in investment in the economy. Because