Which set of changes is definitely predicted to lower Real GDP in the short run?
A) Interest rates rise and wage rates fall.
B) Interest rates rise and there is a beneficial supply shock.
C) Interest rates rise and labor productivity increases.
D) Interest rates rise and individuals expect lower (future)incomes.
E) c and d

Question

Quizplus · Accepted Answer

When interest rates rise and individuals expect lower (future) incomes, this leads to a decrease in consumption and investment spending, leading to lower aggregate demand and ultimately lower Real GDP in the short run. The other choices may have mixed effects on Real GDP or may only affect it in the long run.

Which Set of Changes Is Definitely Predicted to Lower Real