Russia’s 2022 Inflation Seen at 14.5%

EconEye Admin

4 years ago

Russia’s central bank will continue cutting rates this year as inflation will be lower than previously thought. The average forecast among 15 analysts polled in late June suggests the Russian economy is on track to shrink by 7.1% this year —reuters.com

Answer the following questions to check your understanding of the story.

1) Did Russia’s central bank cut the interest rate because it is more concerned about inflation of 14.5 percent per year or a 7.1 percent recession?

Russia’s central bank cut the interest rate because it is ______________.

a) more concerned about inflation than recession

b) equally concerned about inflation and recession

c) not concerned about either inflation or recession

d) more concerned about recession than inflation

Wrong! - What are the ripple effects of an interest rate cut? What effect do these ripple effects have on economic growth and inflation?

Correct! - When Russia’s central bank is concerned about recession, it lowers the interest rate. Ripple effect occur, which eventually increase economic growth at the expense of higher inflation.

2) Use the AS/AD model to explain the effect of Russia’s cut in interest rates on real GDP and the price level.

The cut in interest rates ______________.

a) increases aggregate demand, which increases real GDP and raises the price level

b) increases aggregate demand, which increases real GDP and lowers the price level

c) decreases aggregate demand, which decrease real GDP and lowers the price level

d) decreases aggregate demand, which decreases real GDP and raises the price level

Wrong! - Does the cut in interest rates decrease the components of aggregate demand? How does the cut in interest rates influence spending decisions? How does a shift of the AD curve change real GDP and the price level?

Good Job! - The cut in interest rates increases private investment, which increases aggregate demand. The AD curve shifts rightward. Real GDP increases and the price level rises.

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