An increase in the real interest rate occurs when ________.
A)monetary policy responds automatically to an increase in inflation
B)expected inflation increases,relative to the nominal interest rate
C)an increase in autonomous spending causes an increase in equilibrium output
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

An increase in the real interest rate can occur when monetary policy automatically responds to an increase in inflation by tightening, which often involves raising nominal interest rates to maintain or restore price stability. This action can lead to an increase in the real interest rate, especially if the inflation expectations are well-anchored and do not rise proportionately with the nominal rate.

An Increase in the Real Interest Rate Occurs When ________