A rise in the real interest rate will cause which of the components of aggregate demand to decline?
A)Only C
B)Only C and I
C)Only C, I, and NX
D)C, I, G, and NX

Question

Quizplus · Accepted Answer

A rise in the real interest rate typically leads to a decrease in consumption (C) and investment (I) as borrowing costs increase, and it can also lead to a decrease in net exports (NX) as the domestic currency appreciates, making exports more expensive. Government spending (G) is generally not directly affected by interest rates.

A Rise in the Real Interest Rate Will Cause Which