Monetary policy can be a useful tool for macroeconomic management. Using relevant diagram(s), show and discuss the possible impact of recent interest rate cuts on output, inflation and unemployment

A cut in interest rates will cause the following effects:

Output: output will increase because an interest rate cut makes credit cheaper. Firms will now borrow more money at cheaper interest, and will invest those funds in producing more.Inflation: an interest cut is produced by an increase in the money supply. When the money supply increases, inflation goes up as well.Unemployment: unemployment will go down. Because there is more money in the economy, there is also cheaper credit, and as explained above, firms will make use of these cheap credits to invest more and produce more. To do so, they will need to hire more workers.

The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.

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