Aggregate Demand

• If the demand for money goes down, aggregate demand goes up. In this case, "aggregate" demand refers to demand for objects in general, and not restricted to a specific area or purpose. The market always moves toward equilibrium. A reduction in money demand means that very soon, excess money printed by the Fed will pile up, making this commodity cheap. As interest rates fall, using your credit card and other modes of the short-term loan will become easier, and hence, consumption will increase in general.
  
  

Interest Rates

• When the demand for money goes down, the price of money becomes cheaper. This is another way of saying that the interest rate goes down and short term loans are easier to get. Speaking generally, the demand for money goes down after an inflationary spurt. In turn, an inflationary spurt is most often based on a period of sustained growth. The decrease in the demand for money reflects the market seeking to "right" itself once the basic opportunities for growth in the short term have been exhausted. Investment no longer gives its earlier profit, so demand for loans decreases. The market seeks to spur consumption and demand to "right" the decrease in the demand for money in hopes of creating a new cycle of growth as lower rates bring more people into productive investment once again.
  
  

Stocks And Bonds

• Bonds are loans, and become more popular as interest rates rise. As the demand for money falls, interest rates go down. The bond market reflects the demand for money. When the interest rate goes down, making money cheaper, the bond market also suffers. Money is removed from bonds and placed in investment, or the stock market. When demand for cash is high, interests rates rise to reflect that demand, and money then goes back into bonds.
  
  

Consumption And Exports

• The demand for money makes money cheaper. If the diminution of demand is not met by a general restraint on the supply of money, inflation will result. Market economies however, have built in constraints for the money supply, and the signal for this constraint is the attitude of banks toward productive investment, and is reflected in the market driven rate of interest. As demand for dollars goes down, the dollar becomes cheaper, boosting exports since products priced in dollars are now worth less. This will eventually spur production and soon, will increase the demand for dollars for further investment.