Consider an exogenous increase in the real interest rate in the simple macro model.This will tend to cause ________ in desired consumption and ________ in desired investment.
A)an increase; an increase
B)an increase; a decrease
C)a decrease; a decrease
D)a decrease; no change
E)a decrease; an increase

Question

Quizplus · Accepted Answer

An increase in the real interest rate makes saving more attractive relative to consumption, leading to a decrease in desired consumption. It also makes borrowing more expensive, which tends to decrease desired investment.

Consider an Exogenous Increase in the Real Interest Rate in the Simple