Editing Interest rate (section)

===Output, unemployment and inflation===
Interest rates affect economic activity broadly, which is the reason why they are normally the main instrument of the [[monetary policies]] conducted by [[central bank]]s.<ref name=Blanchard>{{cite book |last1=Blanchard |first1=Olivier |last2=Amighini |first2=Alessia |last3=Giavazzi |first3=Francesco |title=Macroeconomics: a European perspective | chapter=Monetary policy:a summing up | date=2017 |publisher=Pearson |location=Harlow London New York Boston San Francisco Toronto Sydney Dubai Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town São Paulo Mexico City Madrid Amsterdam Munich Paris Milan |isbn=978-1-292-08567-8 |edition=3rd}}</ref> Changes in interest rates will affect firms' [[investment]] behaviour, either raising or lowering the [[opportunity cost]] of investing. Interest rate changes also affect [[asset prices]] like [[stock price]]s and [[Real estate appraisal|house prices]], which again influence households' [[Consumption (economics)|consumption]] decisions through a [[wealth effect]]. Additionally, international interest rate differentials affect exchange rates and consequently [[exports]] and [[imports]]. These various channels are collectively known as the [[monetary transmission mechanism]]. Consumption, investment and net exports are all important components of [[aggregate demand]]. Consequently, by influencing the general interest rate level, monetary policy can affect overall demand for goods and services in the economy and hence [[Output (economics)|output]] and [[employment]].<ref>{{cite web |title=Federal Reserve Board - Monetary Policy: What Are Its Goals? How Does It Work? |url=https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm |website=Board of Governors of the Federal Reserve System |access-date=16 September 2023 |language=en |date=29 July 2021}}</ref> Changes in employment will over time affect [[wage]] setting, which again affects [[pricing]] and consequently ultimately inflation. The relation between employment (or unemployment) and inflation is known as the [[Phillips curve]].<ref name=Blanchard/>

For economies maintaining a [[fixed exchange rate system]], determining the interest rate is also an important instrument of monetary policy as international [[Financial capital|capital]] flows are in part determined by interest rate differentials between countries.<ref>{{cite web |title=Fixed exchange rate policy |url=https://www.nationalbanken.dk/en/frequently-asked-questions/fixed-exchange-rate-policy |website=Nationalbanken |access-date=16 September 2023 |language=en}}</ref>