Question

In March 2016 the European Central Bank made an important announcement related to the implementation of monetary policy. See the following link for details: https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310.en.html Please, examine and briefly discuss the rationale of the ECB announcements made on March 10, 2016:

- How are the proposed changes going to influence the macroeconomic situation?

Answer 1

The European Central bank has decreased the interest rates on most of the operations. The main rationale of decreasing the interest rate is to increase the level of investment in the economy. This will help in increasing overall level of aggregate demand in the economy. This will lead to increase in the level of national output in the economy and thus help in moving the economy closer to the potential level of output of the economy and thus reduce unemployment rate in the economy.