Question

In 1990’s in Turkey, economy entered into depression. As a result unemployment rate throughout the country has risen. Most people have lost all their savings, and their income was so low, that they were only barely able to survive. How would you expect these developments to affect the interest rate (or discount rate) in general in Turkey?

Answer 1

If most people have lost all their savings, and their income was so low, that they were only barely able to survive, then the aggregate demand and the price level decreased, and the interest rate decreased.