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How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?

How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?

Macroeconomics: Private and Public Choice (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model
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How does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?

In 2022, "Inflation has hit its highest level in decades in many countries, with Russia's invasion of Ukraine pushing up energy and food prices alongside squeezing households' real incomes. Central banks have reacted by raising interest rates, even though higher borrowing costs could exacerbate the squeeze on real incomes that has resulted from higher prices." Higher interest rates therefore raise "the chances of a recession in some countries, with economists fearing a return to the stagflation of the 1970s a situation characterised by persistent price pressures and weak growth." (Financial Times, 20 July 2022) ===
Transcribed Image Text:In 2022, "Inflation has hit its highest level in decades in many countries, with Russia's invasion of Ukraine pushing up energy and food prices alongside squeezing households' real incomes. Central banks have reacted by raising interest rates, even though higher borrowing costs could exacerbate the squeeze on real incomes that has resulted from higher prices." Higher interest rates therefore raise "the chances of a recession in some countries, with economists fearing a return to the stagflation of the 1970s a situation characterised by persistent price pressures and weak growth." (Financial Times, 20 July 2022) ===
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