How does a cut in the interest rate affect PPC?
Interest Cut ( reflecting towards recent cut in repo rates ) can have adverse as well as positive impact considering the situation of economy.
Narrowing our scope and just focusing on Interest on loans cut, economy will move from withing the PPC towards the point on PPC.
This is because Loans on reduced interest rate will help people to get some sought of work and will reduce unemployement. For eg.- An unemployed person will take loan from banks and do some business,it will increase employment. Also firms or some sole proprietorship which usually are short of funds for increasing their efficiency and profits or recovering from losses, ,will get encourage to do so and they will become efficient.
Hence efficiency will increase and unemployment will reduced which ultimately will "MOVE the point of production towards PPC".
Though adverse affects will be there such as inflation, reduced investment , etc.
Narrowing our scope and just focusing on Interest on loans cut, economy will move from withing the PPC towards the point on PPC.
This is because Loans on reduced interest rate will help people to get some sought of work and will reduce unemployement. For eg.- An unemployed person will take loan from banks and do some business,it will increase employment. Also firms or some sole proprietorship which usually are short of funds for increasing their efficiency and profits or recovering from losses, ,will get encourage to do so and they will become efficient.
Hence efficiency will increase and unemployment will reduced which ultimately will "MOVE the point of production towards PPC".
Though adverse affects will be there such as inflation, reduced investment , etc.