In: Economics
Foreign Exchange rate: When France decreases its interest rate,
there is a fall in foreign exchange rate. A higher value currency
makes a country’s export cheaper and the export become expensive.
Lower value currency creates expensive import and cheap export over
the world. Due to low interest rate, there is low inflation and
lowering value of currency.
Real Interest rate: Real interest rate is nominal interest rate
minus inflation rate. When France reduces the nominal interest it
will reduce the real interest rate and inflation rate.
Money demand curve: Money demand curve show the relation between
quantity of money demanded and the interest rate. In precautionary
money demand, the lowering interest rate will induce investment.
When there is low interest rate, the money demand curve will shift
to left. Money demand curve is downward sloping because, low
interest rate create increasing demand for money.