Interest rates

Date: 2015-10-07; view: 459.

Consumer confidence

Government trade policy

The two poles of government policy are liberalization and protectionism. 'Liberalization' is associated with free markets, open borders, deregulation and the free movement of capital around the world.

' Protectionism' is associated with government intervention, subsidies, quotas and tariffs, and restrictions on the movement of capital.

National governments do have some genuine choices here, even if they are constrained by the policy of their regional trading bloc (eg the EU, NAFTA, ASEAN). In the end most countries have a mixed economy which is somewhere

between the two extremes.

Generally speaking, free markets promote growth in the world economy, and protected markets slow down the process (although they may have a beneficial effect on particular industries inside a country) .

If consumers are confident about tomorrow, they will spend more. The main factors affecting consumer confidence are the level of unemployment: if people's jobs are at risk, or they don't have a job, they will spend less - and house prices

-if people's houses are worth more than they paid for them, they feel rich and will spend more freely.

Interest rates are set by Central Banks. When interest rates are low consumers and businesses can borrow money cheaply and there is a stimulus to the economy. But the cheap credit also causes inflation and too much liquidity in the system. This liquidity leads to bubbles in stock markets, housing markets, etc. When the Central Bank sees the need to control inflation and cool growth a little, it raises interest rates.