Russian economy minister says country heading for recession The Russian economy may slide into recession in the second quarter as fear of sanctions harms investment activity. Russia’s economy contracted 0.5% in the first quarter from the fourth quarter. The central bank’s policy also harmed economic growth by increasing interest rates twice since early March, citing rising inflationary risks.

Source: The Wall Street Journal, 13 May 2014 Think about the Russian economy:

Describe the Russian macroeconomic equilibrium prior to the actions of the central bank.

What is the effect on Russia’s aggregate supply, potential GDP and aggregate demand of a rise in interest rates and a decrease in investment activity?

What policies can the government take to increase economic growth?