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y of interest rate will cause the fluctuation of AD.
Also, we can notice from function ③ that currency demand and interest rate have an impact on each other, that is to say, when interest rate increases by a certain percentage, the currency demand will accordingly decrease some percentage. So when the interest rate rise or fall, investment will change correspondingly, thus lead to the fluctuation of currency demand, or say the problem of aggregate effective demand that the economy will decay or overheat, namely inflation.
(2)Marginal efficiency of capital（MEC）
According to the definition of John Maynard Keynes, capital marginal efficiency is a kind of the discount rate or the discount rate, which enables the current value of the expected benefits of a capital goods within its using time to equal to the cost of capital goods or supply price. MEC can be illustrated as follows:

Based on the graph above, interest rate or MEC is lowered, investment will be raised. Thus the rise of investment will raise the aggregate effective demand, correspondingly, the volatility of investment will cause th problem of AD that the economy will be on a recession or be too overheated, leading to the inflation.
Those problems, recession and inflation need government to act to stabilize the economy. As recession or inflation may be massive, nationally or globally, only with the institution with strong control or deep pocket can influence the existing situation, so only government can solve the problems. Fiscal policy or monetary policy is two kinds of policies usually utilized by government to raise the aggregate effective demand, in turn, to raise employment rate and GDP. When the economy is on the decline, expansive fiscal policy or expansive monetary policy should be carried out to increase the aggregate effective demand though their effect might differ to some extent, and tight fiscal policy or tight monetary policy should be implemented to stabilize economy when inflation exists.

Extra credit:
According to Keynes' theories, on the condition that the capital goes without control, the aggregate effective demand consisting of consumption demand and investment demand is not enough to ensure full employment or put another way, in the capitalism market, the effective demand is always lower than that of full employment equilibrium. The reason why the effective demand is insufficient, as mentioned above, is resulted in by the function of three psychological factors, namely law of diminishing marginal propensity to consume(MPC) (see chart 1 below), law of diminishing marginal efficiency of capital(MEC) (see chart 2 below) and liquidity preference trap. So the market mechanism cannot make aggregate demand and aggregate supply reach equilibrium on the basis of full employment, making depression and unemployment an inevitable result. Or when excess demand exists, inflation will arise. Therefore, government intervention is necessary to stabilize economy through adjust demand, namely using fiscal policy and monetary policy.

Chart 1 Marginal propensity to consume

According to the chart illustrating law of diminishing marginal propensity to consume, the distance between 45' line and both coordinate axis is the same, which means that the whole income is used for consumption. If we go along the function curve of consumption, the di