China’s counter-cyclical policy is very cautious when it comes to the implementation. Despite continuous significant economic downturn and noticeably negative output gap，China maintains its prudent monetary policy. The implementation of monetary policy has many considerations，including further pressure on the renminbi (RMB) exchange rate and cross-border capital flows due to the Federal Reserve raising interest rates. However，more importantly are the scepticism towards the effects of accommodative monetary policy and the concerns over its side effects. Specifically，first is the doubt over the effects of accommodative monetary policy in the context of weakened expectations，the impact of the pandemic and supply shocks. Second is that although the monetary authority has slightly adjusted policy rates and reduced lending rates，the economy has failed to pick up substantially，leading to scepticism towards the efficiency of accommodative monetary policy. Third is that between monetary and fiscal policies，the latter produce instant results，which  should be given priority. Fourth is the possible side effects that come with accommodative monetary policy，such as inflated asset bubbles，widening gaps in income and wealth inequalities，the hampering of the market’s voluntary competitiveness-based elimination and the emergence of zombie companies.

The academia’s scepticism towards accommodative monetary policy is deep rooted. Classical economists and Real Business-Cycle theorists believe in the market’s ability to repair itself and find monetary policy useless. Monetarists and neoclassical economists，in contrast，oppose discretionary policy and stress the imposition of rules on monetary policy. Even Keynesian economists specify the limitations placed on monetary policy by liquidity traps. Despite the many doubts its face，high hopes were pinned on accommodative monetary policy to counter economic downturns. In modern monetary economics，monetary policy has various channels to interact with real sectors through the financial markets. Policy interest rate cut imposes a number of influences，including changing the intertemporal price of expenditure，the balance sheets of household sector，corporate sector，and government，and the exchange rate. As a result of those changes，total expenditure increases. Over the last three decades，whether it was the Great Moderation before the financial crisis in 2008 or afterwards，the operational frameworks and policy instruments of monetary policy have continued to innovate while the importance of monetary policy in countercyclical policy is further foregrounded.

In this paper，we estimate how will policy rate cut in China change the cash flow of household sector，corporate sector，and government，and therefore boost overall expenditure. The estimation is based on the following logic:

The parameters used in the calculations came from historical evidence and may not fully reflect the current situation. They do，however，serve as reference for the effects of policy rate cut. The effects that following changes – brought about by lowered rates – have on aggregate demand are not considered here: wealth and asset-valuation effects，intertemporal substitution in consumption and changes in the risk appetite of capital markets.