How does a decrease in aggregate demand typically affect unemployment rates in an economy, and what role does monetary policy play in this relationship?

When aggregate demand decreases, it means that people and businesses are spending less money on goods and services. This drop in spending can lead to lower sales for companies, which may then need to cut back on their production. As a result, businesses might lay off workers or slow down hiring, causing unemployment rates to rise. Monetary policy, which is how a government controls the money supply and interest rates, can help in this situation. For example, if the central bank lowers interest rates, it makes borrowing cheaper, encouraging people and businesses to spend more, which can help boost aggregate demand and reduce unemployment.