IA (Eco) Is my evaluation correct? I never read about it anywhere else before.

[Amir Palermo]

So I'm doing a commentary on country X's decision to hike up interest rates.

One of my evaluation sounds like this:

high Interest rates => lower consumption by households => business revenues fall => businesses close => government revenue from corporate taxes fall => distribution of income and equality worsens.

I just thought about it today and I'm not sure if this is something sensible to write about in my commentary. Any thoughts?

[-._._.-]

what about:

high interest rates --> less attractive to foreign investors (who want to save in Country X's banks) --> demand for country x's currency decreases --> currency depreciates --> advantage/disadvantage (to country X) of lower exchange rates

advantages to country X for lower exchange rate (I mean like depreciate when compared to other countries): exports relatively cheaper to other countries --> favourable balance of payment, employment in export industries

disadvantages to country X: imports relatively more expensive --> if country x need raw materials, then it increases costs of production so possibly decrease in AS and thus output of country x

high interest rates --> less domestic spending --> reduces inflationary pressures

[YellowSpider]

So I'm doing a commentary on country X's decision to hike up interest rates.

One of my evaluation sounds like this:

high Interest rates => lower consumption by households => business revenues fall => businesses close => government revenue from corporate taxes fall => distribution of income and equality worsens.

I just thought about it today and I'm not sure if this is something sensible to write about in my commentary. Any thoughts?

i think talking about businesses closing right after revenues falling would be 'escalating things quickly'.. do something like: high interest rates-> lower borrowing of money->fewer investments and lower consumption->aggregate demand decreases->decrease in production and unemployment->economic growth decreases..

however, if you need this for your international section, go with the other guy's analysis..

what about:

high interest rates --> less attractive to foreign investors (who want to save in Country X's banks) --> demand for country x's currency decreases --> currency depreciates --> advantage/disadvantage (to country X) of lower exchange rates

advantages to country X for lower exchange rate (I mean like depreciate when compared to other countries): exports relatively cheaper to other countries --> favourable balance of payment, employment in export industries

disadvantages to country X: imports relatively more expensive --> if country x need raw materials, then it increases costs of production so possibly decrease in AS and thus output of country x

high interest rates --> less domestic spending --> reduces inflationary pressures

your analysis sounds good. but i personally feel that it is going to much into the international section.. i think amir wants this for his macro commentary..