This reduces the cost of borrowing for households and

in the economy and cause a fall in real interest rates. This reduces the cost of borrowing for
households and firms, thus their consumption and investment expenditure would rise. Overall,
this causes a rise in aggregate demand and real GDP would rise, therefore the economy
stimulated.
However, there are limitations to this policy too. There is a considerable amount of time lag
before investment and consumer spending would rise because firms and households would have

planned their long term spending already. Also, business and consumer confidence may still
remain low despite cutting interest rates, which makes them more reluctant to spend and invest.
Banks also may have insufficient funds to lend to the Bank of Greece even though interest rates
are low.
High Unemployment:
Greece’s unemployment rate has fallen particularly over the recent years. As of December 2018,
the unemployment rate was 18%. The main reason for unemployment is due to the debt Greece
owed to the European Union. In order to reduce the unemployment rate, the government can
provide Supply-side policies as it can help increase competitiveness and reduce unemployment
(Pettinger.T, 2017)
Examples of Supply-side policies to reduce unemployment
● Better education and training - this will provide long-term unemployed individuals with
new skills which aid in finding jobs. For example, retraining unemployed steelworkers to
have basic I.T. skills in order to search for jobs in the service sector. However, even with
providing them with knowledge and training, the unemployed may not be willing to learn
new skills. It might take a few years to reduce unemployment rate. (Pettinger.T, 2017)
● Increase labour market flexibility - it will make it easier for firms to establish themselves
hire and fire employees. However, increasing labour market flexibility would build fear
in employees about being laid off. This may result in decreasing wage growth and higher
inequality (Pettinger.T, 2017).