interest rate

Interese rate is determined by money supply (Ms) and money demand
Money demand(Md) include transaction demand for money (Mt)and speculative (asset) demand for money (Ma)
Mt is derived from money as a medium of exchange
The purpose of holding Mt is for the daily transaction
Mt is positively related to national income (Y)

As we assume that there are only 2 types of assets money and bonds with perpetual annuities
The reason for holding the Ma is that the people does not want to buy bonds (same as investment )，therefore they hold the money
Ma is negatively related to interest rate

Then，we have a downward sloping money demand curve by integrate the Mt and Ma

Also，the supply of money we assume the government control the supply and it does not depend on interest ，it is a vertical straight line

And，equilibrium money market is determined by the intersection of Md and Ms curve

A monetary policy is the control of interest rate and money supply by the monetary authority (or central bank ) to achieve certain goals in the economy ，such as a high employment and price stability

Use the changing in interest rate be， the monetary policy，America can be a typical exmple
The Federal Reserve System or Federal Reserve always announce that the interest rate will be decreased or increased
You can hear that at the news report

The effect on GDP is
When the interest rate(r)increase，investment and consumption will decresae ，it call contractionary monetary policy ，it can reduce the Y

When r decrease ，investment and consumption will increase ，it call expansionary monetary policy ，it can increase the Y