An increase in the interest rate directly affects planned consumption and investments, but also has an indirect effect on net exports because of its effect on exchange rates.
In relation to the amount lent, deposited, or borrowed, the amount of interest due each period is expressed as an interest rate. The amount lent or borrowed, as well as the interest rate, frequency of compounding, and the period of time during which it is lent, deposited, or borrowed, all affect how much interest will be charged overall. The rate calculated over a year is the annual interest rate. Other interest rates, such as monthly or daily rates, also apply but are typically annualised. When addressing elements like investment, inflation, and unemployment, interest rate targets—a crucial tool of monetary policy—are taken into consideration.
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