A low interest rate environment results in the opposite effect, raising consumption and investment; therefore aggregate demand. 10. Now let me turn my attention to the role of fiscal policy on the effectiveness of monetary policy.
To a large extent, the achievement of a stable interest rate and credit environment depends on the size of Government borrowing (the Public Sector Borrowing Requirements or PSBR) and how it is financed. The sources for financing Government borrowing within the domestic economy are the public and the banking system (whether or not including the Central Bank).