A reduction in the interest rate has _____ impact on aggregate demand with _____ exchange rates than with _____ exchange rates.

Question

Quizplus · Accepted Answer

A reduction in interest rates typically leads to a depreciation of the currency in a floating exchange rate system, which can boost exports and reduce imports, thereby increasing aggregate demand more than in a fixed exchange rate system where the currency value does not change in response to interest rate changes.

A Reduction in the Interest Rate Has _____ Impact on Aggregate