Explain how a fall in interest rates can affect total spending in the economy.

The manipulation of the level of interest rates is controlled by the government's monetary policy to influence the aggregate demand. A fall in interest rate would reduce the cost of borrowing, thus encourage consumers to obtain more loans; lower opportunity cost. To reinforce this idea, consumers would be discouraged from saving due to lower return. Consequently, aggregate demand would be increased, with the AD curve shifting to the right, as consumers would have more disposable income. In addition, prices would increase due to the shift; leading to higher inflation rates.
Lower interest rates would also lead to higher demand for the currency, resulting in depreciation of the exchange rate; the currency would decrease in value against other currency values. Foreigners would be discouraged from saving in domestic banks and therefore reducing the value of exchange rate. This would discourage and limit imports and increase exports; foreign goods would become relatively more expensive.
Overall, AD (C + I + G + X – M) would increase, due to the increase of C, I, and NX.