In AS/AD model monetary polices is seen to working primly through its effect on interest rate.
There are some example to understand to interest policy impact on exchange rate and net export such as
- Interest rates less the cost of finance capital project is less. Therefore all besides being equivalent lower interest rates leading to higher rates investment
- Lower interest rates show the way to higher stage of funds investment
- The lower interest rates make domestic bonds less attractive so the demand for domestic bonds falls and the demand for foreign bonds rises.
If government decreases the interest rates then the disposable income will have impact as well they will be able to spend more money in the economy. Thus household disposable income would raise leading to an increase in consumption expenditure.
According to these cases the economy will grow multiplier effect hold for all various of budgets transaction either in the form of tax cuts, direct payment or actual purchase .consequently federal pump priming increase national income by much more than the nominal or face amount of the expend. Although which will lead to a reduction in unemployment.