Money has very importance in carrying all day to day transactions. The quantity of money demanded is determined by the price level. Less money households can purchase all goods and services they want when there is a fall in the price level. Households lend their money when the price level falls and it icreases the supply of real money balances. In an economy, decrease in the price level causes to decrease in interest rate or increase in the price level causes to increase in interest rate.

The downward slope of the aggregate demand curve shows that a fall in the price level increases the overall quantity of goods and services demanded. In this way, Interest rate is related to the slope of aggregate demand curve.

5: Aggregate demand curve slopes downwards for three factors.

• The wealth effect: Fall in price level raises the real value of households' money holdings and higher real wealth causes to increase consumer spending.
• The interest rate effect: Fall in price level lowers the interest rate. Then people lend their excess money and they invest it.
• The exchange rate effect: Fall in price level lowers the interest rate. Investors invest their money in overseas and it depreciate domestic currency.  So it stimulates spending on net export. The wealth effect and exchange rate effect are less important factors. Because, money holdings are a small part of household wealth. Therefore, wealth effect has least importance among them. The importance of exchange rate effect depends according to the degree of economy's openess. Therefore, exchange rate effect's importance is secondary to the interest rate effect. Because interest rate effect impact upon the whole economy.