Other things constant, a reduction in the real interest rate will
A) cause consumers to cut back on their purchases of durable items like automobiles.
B) induce businesses to increase their level of investment.
C) increase the natural rate of unemployment.
D) increase the actual rate of unemployment.

Question

Quizplus · Accepted Answer

A reduction in the real interest rate decreases the cost of borrowing funds for businesses, making investment more attractive. This can lead to an increase in investment, which can drive economic growth and create jobs. It is unlikely to impact consumer purchases of durable goods, and is not directly related to changes in the natural or actual unemployment rates.

Other Things Constant, a Reduction in the Real Interest Rate