Inflation in the Philippines this year has surged to 4.9% in 2022, exceeding the inflation target band set by the Bangko Sentral ng Pilipinas. In response, the BSP might raise their key real interest rate soon, which will in turn affect loaning and lending rates in the country. In response to these conditions, firms and investors are growing anxious and as such, are planning on pulling back on their investments. Given all the information above, illustrate and explain the effects of the decrease in investment on the economy.
Inflation in the Philippines this year has surged to 4.9% in 2022, exceeding the inflation
target band set by the Bangko Sentral ng Pilipinas. In response, the BSP might raise their
key real interest rate soon, which will in turn affect loaning and lending rates in the
country. In response to these conditions, firms and investors are growing anxious and as
such, are planning on pulling back on their investments.
Given all the information above, illustrate and explain the effects of the decrease in
investment on the economy. Make sure to cover the following: shifts (if any) in the
aggregate expenditure curve, the change in equilibrium output (i.e. identify and compare
the old and new level of equilibrium output in the graph, and the multiplier effect.
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