Fiscal policy in Great Britain has taken an unfavorable downturn, increasing both the price of houses and decreasing interest rates. By ignoring the problem of Britain’s loose fiscal policy, the government is looking at an unstable financial future and this problem will continue to grow and the economic out look for the country will become very weak; “ The economy is unbalanced and the housing market is threatening to reaccelerate. Whenever the MPC raises rates, sterling responds by rising and the economic outlook suddenly looks even weaker,” (Daneshkhu par. 7). The government should have tried to control the market by imposing a limit on how much one borrower would be able to borrow depending on the size of the house they intended to buy. Had the government placed some sort of limit or been more cautious about loaning large sums of money, econo

mic problems such as inflation and increased consumer debt may not have occurred. By reducing the interest rates, the MPC encouraged people to both buy and invest, which is necessary to keep the economy stable but this cheap borrowing led people to become out of control with the borrowing as well (Daneshkhu par 5).

In relation to aggregate supply and aggregate demand, the Inventory model can be directly related. The initial equilibrium is aggregate supply equaling aggregate demand and gradually demand will increase thus decreasing inventories, increasing production and employment, and increasing both income and consumption, though consumption at a slower rate. When income increases, as discussed before, investment will increase because our article states that interest rates will decrease and that inversely affects investment (Riddell et all 344).

The Classic Credit Market outlines exactly what the article is discussing. The Credit Market states that investment is inversely related to the rate of interest, which in our case would relate to the increase in the demand for housing supplied by the low interest rates (Riddell et al 329). The de

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