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In principle, there are only three main components of spending that much matter to monetary policy: consumer spending, business investment and exports and trade. ↗
Interest rate cuts have an effect in stimulating an economy by directly or indirectly making someone, somewhere, spend more than they otherwise would. That extra spending increases demand and ensures that we all carry on with work to do, without us having to slash our prices or our wrists. ↗
It is no wonder that bank capital is regulated. When borrowing and lending is profitable, it is tempting for banks to scale up their operations and to borrow and lend too much in relation to their capital, in effect reducing the effectiveness of the potential capital cushion. ↗
The Australian economy is resilient, but business and consumer confidence is fragile. ↗
#business #confidence #consumer #consumer confidence #economy