The effect of a change in the base interest rate on income distribution can be explained through several channels:

1. Savings and Investment: Lower interest rates make borrowing cheaper, which can stimulate investment in businesses. This can lead to increased profits and potentially higher wages, benefiting those who are employed or own businesses. On the other hand, lower interest rates mean lower returns on savings, which could negatively impact those who rely on interest income.

2. Asset Prices: Lower interest rates can also lead to an increase in asset prices, as they make borrowing to invest in assets like property or stocks more attractive. This can benefit those who already own such assets, as the value of their assets increases. However, it could also widen the wealth gap, as those who do not own such assets may find it even harder to afford them.

3. Inflation: Lower interest rates can lead to higher inflation, as increased borrowing and spending can push up prices. This can erode the real income of those on fixed incomes or with cash savings, while benefiting those with assets that rise in value with inflation.

4. Exchange Rates: Lower interest rates can lead to a depreciation of the currency, as they make foreign investors less likely to invest in the country. This can increase the cost of imports, which can lead to higher inflation and erode real incomes. However, it can also make exports more competitive, which can benefit those working in export industries.

In summary, the effect of lower interest rates on income distribution in the Russian Federation is likely to be complex and depend on a variety of factors. It could potentially benefit those who are able to borrow to invest or who already own assets, but could also negatively impact savers, those on fixed incomes, and those who do not own assets.

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The effect of a change in the base interest rate on income distribution can be explained through several channels:

1. Savings and Investment: Lower interest rates make borrowing cheaper, which can stimulate investment in businesses. This can lead to increased profits and potentially higher wages, benefiting those who are employed or own businesses. On the other hand, lower interest rates mean lower returns on savings, which could negatively impact those who rely on interest income.

2. Asset Prices: Lower interest rates can also lead to an increase in asset prices, as they make borrowing to invest in assets like property or stocks more attractive. This can benefit those who already own such assets, as the value of their assets increases. However, it could also widen the wealth gap, as those who do not own such assets may find it even harder to afford them.

3. Inflation: Lower interest rates can lead to higher inflation, as increased borrowing and spending can push up prices. This can erode the real income of those on fixed incomes or with cash savings, while benefiting those with assets that rise in value with inflation.

4. Exchange Rates: Lower interest rates can lead to a depreciation of the currency, as they make foreign investors less likely to invest in the country. This can increase the cost of imports, which can lead to higher inflation and erode real incomes. However, it can also make exports more competitive, which can benefit those working in export industries.

In summary, the effect of lower interest rates on income distribution in the Russian Federation is likely to be complex and depend on a variety of factors. It could potentially benefit those who are able to borrow to invest or who already own assets, but could also negatively impact savers, those on fixed incomes, and those who do not own assets.

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The effect of a change in the base interest rate on income distribution can be explained through several channels:

1. Savings and Investment: Lower interest rates make borrowing cheaper, which can stimulate investment in businesses. This can lead to increased profits and potentially higher wages, benefiting those who are employed or own businesses. On the other hand, lower interest rates mean lower returns on savings, which could negatively impact those who rely on interest income.

2. Asset Prices: Lower interest rates can also lead to an increase in asset prices, as they make borrowing to invest in assets like property or stocks more attractive. This can benefit those who already own such assets, as the value of their assets increases. However, it could also widen the wealth gap, as those who do not own such assets may find it even harder to afford them.

3. Inflation: Lower interest rates can lead to higher inflation, as increased borrowing and spending can push up prices. This can erode the real income of those on fixed incomes or with cash savings, while benefiting those with assets that rise in value with inflation.

4. Exchange Rates: Lower interest rates can lead to a depreciation of the currency, as they make foreign investors less likely to invest in the country. This can increase the cost of imports, which can lead to higher inflation and erode real incomes. However, it can also make exports more competitive, which can benefit those working in export industries.

In summary, the effect of lower interest rates on income distribution in the Russian Federation is likely to be complex and depend on a variety of factors. It could potentially benefit those who are able to borrow to invest or who already own assets, but could also negatively impact savers, those on fixed incomes, and those who do not own assets.

From March 2017 to February 2018, the Central Bank of the Russian Federation (CBR) lowered its (base) interest rate from 9.75% to 7.5%.(a)Explain the likely effect of this change on the income distribution in the Russian Federation.

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