Uruguay's inflation rate reached $$\(8.4 \%\)$$ in July 2018. The central bank considered increasing the interest rate to reduce the inflation rate. An increase in interest rates might influence total demand in an economy and lead to an appreciation of its currency. This might influence Uruguay's exports, especially soybean exports. The total revenue of Uruguay's soybean firms might change if there is an appreciation of the Uruguayan peso. Analyse how an increase in the interest rate could reduce total demand in an economy.

Coherent analysis which might include:
Increase in interest rate will lead to an increase in the cost of
borrowing (1) there will be less borrowing (1) less consumption /
spending (1) less investments (1)
An increase in interest rate will lead to an increase in the returns from
savings (1) there will be more savings (1) less consumption / less
spending (1)
An increase in interest rate may attract an inflow of money from other
countries into the country’s banks (1) leading to an appreciation of the
currency (1) leading to increase in price of exports / decrease in price
of imports (1) increase exports / decrease imports (1) decrease net
exports (1)