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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 learnnew 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 themselveshire 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).