Explain the 2 ways in which a reduction in interest rates can change consumption in the aggregate demand model of the economy.

Consumption - a reduction in interest rates means that the cost of borrowing money for consumers is lower. This means that consumers demand more money in order to consume. Large purchases become relatively cheaper to fund meaning that consumers bring forward planned purchases, boosting consumption in the current time period. A boost in consumption leads to a boost in aggregate demand, as consumption is a positive component of the AD formula (AD = C + I + G + (X-M)).
Savings - a reduction in interest rates means that consumers have a lower incentive to save money, as the financial reward for doing so is lower. This decreases the marginal propensity to save. As a result, the marginal propensity to consume will increase, as consumers have the decision only to consume or save. This means that a higher proportion of household income is spent on consumption, which boosts consumption and therefore AD.