What impact will interest rates have on the level of Aggregate Demand in the economy?

Aggregate Demand includes consumption, government investment, net exports and investment. Lower interest rates will make it less attractive for consumers to save, as the returns they will receive on their savings will be reduced. Therefore, consumers are likely to spend more in the domestic economy, leading to a shift in Aggregate Demand. Also, investment is likely to increase if interest rates are reduced. Interest rates are directly related to the cost of borrowing, meaning that if investors can borrow more at a lower cost, then investment and hence Aggregate Demand is likely to increase. However, lower interest rates will reduce the level of foreign currency investment, reducing the demand and value of the domestic currency. Therefore, if the currency is weaker, exports will become cheaper, meaning that net exports are likely to rise, leading to a rise in AD.